Stock Analysis

Nectar Lifesciences (NSE:NECLIFE) Has Debt But No Earnings; Should You Worry?

NSEI:NECLIFE
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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. As with many other companies Nectar Lifesciences Limited (NSE:NECLIFE) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Nectar Lifesciences

What Is Nectar Lifesciences's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Nectar Lifesciences had ₹7.54b of debt in March 2023, down from ₹8.60b, one year before. However, it does have ₹178.9m in cash offsetting this, leading to net debt of about ₹7.36b.

debt-equity-history-analysis
NSEI:NECLIFE Debt to Equity History June 16th 2023

How Strong Is Nectar Lifesciences' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Nectar Lifesciences had liabilities of ₹8.91b due within 12 months and liabilities of ₹2.34b due beyond that. Offsetting this, it had ₹178.9m in cash and ₹2.80b in receivables that were due within 12 months. So its liabilities total ₹8.27b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the ₹4.80b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Nectar Lifesciences would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But it is Nectar Lifesciences'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, Nectar Lifesciences made a loss at the EBIT level, and saw its revenue drop to ₹15b, which is a fall of 8.6%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Nectar Lifesciences produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₹52m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. For example, we would not want to see a repeat of last year's loss of ₹242m. In the meantime, we consider the stock to be risky. 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. Be aware that Nectar Lifesciences is showing 3 warning signs in our investment analysis , and 2 of those shouldn't be ignored...

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.

Valuation is complex, but we're here to simplify it.

Discover if Nectar Lifesciences might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.