Is MBL Infrastructures (NSE:MBLINFRA) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies MBL Infrastructures Limited (NSE:MBLINFRA) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out the opportunities and risks within the IN Construction industry.

What Is MBL Infrastructures's Debt?

As you can see below, MBL Infrastructures had ₹11.8b of debt at September 2022, down from ₹12.5b a year prior. However, it does have ₹424.9m in cash offsetting this, leading to net debt of about ₹11.3b.

How Healthy Is MBL Infrastructures' Balance Sheet?

We can see from the most recent balance sheet that MBL Infrastructures had liabilities of ₹8.27b falling due within a year, and liabilities of ₹13.6b due beyond that. Offsetting these obligations, it had cash of ₹424.9m as well as receivables valued at ₹1.35b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹20.1b.

This deficit casts a shadow over the ₹2.36b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, MBL Infrastructures would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since MBL Infrastructures will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year MBL Infrastructures had a loss before interest and tax, and actually shrunk its revenue by 28%, to ₹1.6b. That makes us nervous, to say the least.

Caveat Emptor

Not only did MBL Infrastructures's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping ₹521m. Reflecting on this and the significant total liabilities, it's hard to know what to say about the stock because of our intense dis-affinity for it. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But the reality is that it is low on liquid assets relative to liabilities, and it burned through ₹128m in the last year. So is this a high risk stock? We think so, and we'd avoid it. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for MBL Infrastructures you should be aware of, and 2 of them are a bit unpleasant.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.