Is Bharti Airtel Limited’s (NSE:BHARTIARTL) Balance Sheet A Threat To Its Future?
There are a number of reasons that attract investors towards large-cap companies such as Bharti Airtel Limited (NSEI:BHARTIARTL), with a market cap of ₹1.68T. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. But, the key to their continued success lies in its financial health. Today we will look at Bharti Airtel’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into BHARTIARTL here. Check out our latest analysis for Bharti Airtel
Does BHARTIARTL produce enough cash relative to debt?
BHARTIARTL has built up its total debt levels in the last twelve months, from ₹1.00T to ₹1.07T – this includes both the current and long-term debt. With this rise in debt, BHARTIARTL currently has ₹33.50B remaining in cash and short-term investments , ready to deploy into the business. On top of this, BHARTIARTL has generated cash from operations of ₹292.31B during the same period of time, leading to an operating cash to total debt ratio of 27.21%, indicating that BHARTIARTL’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In BHARTIARTL’s case, it is able to generate 0.27x cash from its debt capital.
Can BHARTIARTL meet its short-term obligations with the cash in hand?
Looking at BHARTIARTL’s most recent ₹629.45B liabilities, it seems that the business has not been able to meet these commitments with a current assets level of ₹203.15B, leading to a 0.32x current account ratio. which is under the appropriate industry ratio of 3x.
Does BHARTIARTL face the risk of succumbing to its debt-load?
With total debt exceeding equities, Bharti Airtel is considered a highly levered company. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. The sustainability of BHARTIARTL’s debt levels can be assessed by comparing the company’s interest payments to earnings. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. For BHARTIARTL, the ratio of 1.88x suggests that interest is not strongly covered. Although it is highly unlikely we’d see Bharti Airtel defaulting or announcing bankruptcy tomorrow, this situation may put the company in a tough position when borrowing more money in the future to fuel its growth.
Next Steps:
Although BHARTIARTL’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its lack of liquidity raises questions over current asset management practices for the large-cap. This is only a rough assessment of financial health, and I’m sure BHARTIARTL has company-specific issues impacting its capital structure decisions. I recommend you continue to research Bharti Airtel to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for BHARTIARTL’s future growth? Take a look at our free research report of analyst consensus for BHARTIARTL’s outlook.
Valuation: What is BHARTIARTL 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 BHARTIARTL 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.
