Stock Analysis

Does UPL Limited's (NSE:UPL) Debt Level Pose A Problem?

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NSEI:UPL
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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as UPL Limited (NSEI:UPL) with a market-capitalization of ₹392.45B, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. UPL’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Don’t forget that this is a general and concentrated examination of Amazon’s financial health, so you should conduct further analysis into UPL here. See our latest analysis for UPL

Does UPL generate an acceptable amount of cash through operations?

UPL has built up its total debt levels in the last twelve months, from ₹52,580.0M to ₹63,610.0M , which comprises of short- and long-term debt. With this growth in debt, UPL's cash and short-term investments stands at ₹29,160.0M , ready to deploy into the business. On top of this, UPL has generated cash from operations of ₹26,690.0M over the same time period, resulting in an operating cash to total debt ratio of 41.96%, indicating that UPL’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In UPL’s case, it is able to generate 0.42x cash from its debt capital.

Can UPL meet its short-term obligations with the cash in hand?

With current liabilities at ₹70,280.0M, it appears that the company has been able to meet these commitments with a current assets level of ₹136,980.0M, leading to a 1.95x current account ratio. For Chemicals companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

NSEI:UPL Historical Debt Jan 16th 18
NSEI:UPL Historical Debt Jan 16th 18

Does UPL face the risk of succumbing to its debt-load?

With debt reaching 78.00% of equity, UPL may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In UPL's case, the ratio of 8.49x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving UPL ample headroom to grow its debt facilities.

Next Steps:

Although UPL’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around UPL's liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I'm sure UPL has company-specific issues impacting its capital structure decisions. I recommend you continue to research UPL to get a more holistic view of the mid-cap by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for UPL’s future growth? Take a look at our free research report of analyst consensus for UPL’s outlook.

2. Valuation: What is UPL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether UPL is currently mispriced by the market.

3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

Valuation is complex, but we're helping make it simple.

Find out whether UPL is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.

About NSEI:UPL

UPL

UPL Limited engages in the provision of sustainable agriculture products and solutions in India and internationally.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation6
Future Growth1
Past Performance5
Financial Health3
Dividends5

Read more about these checks in the individual report sections or in our analysis model.

Very undervalued with solid track record and pays a dividend.