Is HT Media (NSE:HTMEDIA) Weighed On By Its Debt Load?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that HT Media Limited (NSE:HTMEDIA) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for HT Media

What Is HT Media's Net Debt?

The image below, which you can click on for greater detail, shows that HT Media had debt of ₹4.82b at the end of September 2020, a reduction from ₹12.1b over a year. However, it does have ₹5.54b in cash offsetting this, leading to net cash of ₹718.2m.

How Healthy Is HT Media's Balance Sheet?

The latest balance sheet data shows that HT Media had liabilities of ₹14.0b due within a year, and liabilities of ₹2.13b falling due after that. Offsetting this, it had ₹5.54b in cash and ₹2.86b in receivables that were due within 12 months. So it has liabilities totalling ₹7.70b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the ₹3.31b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, HT Media would likely require a major re-capitalisation if it had to pay its creditors today. Given that HT Media has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if HT Media can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, HT Media made a loss at the EBIT level, and saw its revenue drop to ₹15b, which is a fall of 32%. That makes us nervous, to say the least.

So How Risky Is HT Media?

While HT Media lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow ₹669m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. Given the lack of transparency around future revenue (and cashflow), we're nervous about this one, until it makes its first big sales. To us, it is a high risk play. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for HT Media (1 is concerning) you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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