Stock Analysis

We Think Lasa Supergenerics (NSE:LASA) Has A Fair Chunk Of Debt

NSEI:LASA
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Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Lasa Supergenerics Limited (NSE:LASA) makes use of debt. But the more important question is: how much risk is that debt creating?

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 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 think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Lasa Supergenerics

What Is Lasa Supergenerics's Debt?

As you can see below, Lasa Supergenerics had ₹220.8m of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has ₹15.0m in cash leading to net debt of about ₹205.8m.

debt-equity-history-analysis
NSEI:LASA Debt to Equity History June 5th 2024

A Look At Lasa Supergenerics' Liabilities

Zooming in on the latest balance sheet data, we can see that Lasa Supergenerics had liabilities of ₹488.7m due within 12 months and liabilities of ₹53.2m due beyond that. Offsetting these obligations, it had cash of ₹15.0m as well as receivables valued at ₹36.4m due within 12 months. So its liabilities total ₹490.6m 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 ₹1.00b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Lasa Supergenerics's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Lasa Supergenerics made a loss at the EBIT level, and saw its revenue drop to ₹1.0b, which is a fall of 19%. That's not what we would hope to see.

Caveat Emptor

Not only did Lasa Supergenerics's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at ₹84m. 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. For example, we would not want to see a repeat of last year's loss of ₹217m. So we do think this stock is quite risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Lasa Supergenerics (of which 1 is a bit concerning!) you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.