Stock Analysis

Lasa Supergenerics (NSE:LASA) Is Carrying A Fair Bit Of Debt

NSEI:LASA
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Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 Lasa Supergenerics Limited (NSE:LASA) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Lasa Supergenerics

What Is Lasa Supergenerics's Net Debt?

As you can see below, at the end of September 2022, Lasa Supergenerics had ₹215.9m of debt, up from ₹196.9m a year ago. Click the image for more detail. On the flip side, it has ₹32.4m in cash leading to net debt of about ₹183.5m.

debt-equity-history-analysis
NSEI:LASA Debt to Equity History March 28th 2023

A Look At Lasa Supergenerics' Liabilities

Zooming in on the latest balance sheet data, we can see that Lasa Supergenerics had liabilities of ₹430.3m due within 12 months and liabilities of ₹76.9m due beyond that. Offsetting these obligations, it had cash of ₹32.4m as well as receivables valued at ₹31.0m due within 12 months. So its liabilities total ₹443.7m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Lasa Supergenerics has a market capitalization of ₹919.4m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But it is Lasa Supergenerics's earnings that will influence how the balance sheet holds up in the future. 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.

Over 12 months, Lasa Supergenerics reported revenue of ₹1.5b, which is a gain of 16%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Lasa Supergenerics had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₹119m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of ₹113m into a profit. In the meantime, we consider the stock very risky. 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. We've identified 5 warning signs with Lasa Supergenerics (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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

Find out whether Lasa Supergenerics 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.

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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.