Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as NMDC Limited (NSE:NMDC), with a market capitalization of ₹341.54b, rarely draw their attention from the investing community. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Let’s take a look at NMDC’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into NMDC here. See our latest analysis for NMDC
Does NMDC produce enough cash relative to debt?
Over the past year, NMDC has borrowed debt capital of around ₹5.00b . With this ramp up in debt, NMDC’s cash and short-term investments stands at ₹59.04b for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of NMDC’s operating efficiency ratios such as ROA here.
Can NMDC pay its short-term liabilities?
Looking at NMDC’s most recent ₹35.45b liabilities, the company has been able to meet these obligations given the level of current assets of ₹88.64b, with a current ratio of 2.5x. Usually, for Metals and Mining companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is NMDC’s debt level acceptable?
With debt at 2.05% of equity, NMDC may be thought of as having low leverage. NMDC is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether NMDC is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In NMDC’s, case, the ratio of 149x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving NMDC ample headroom to grow its debt facilities.
NMDC’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure NMDC has company-specific issues impacting its capital structure decisions. I recommend you continue to research NMDC to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NMDC’s future growth? Take a look at our free research report of analyst consensus for NMDC’s outlook.
- Valuation: What is NMDC 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 NMDC is currently mispriced by the market.
- 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.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.