Pil Italica Lifestyle Limited (NSE:PILITA) has been in the spotlight recently due to its level of debt and the potential risks it poses to shareholders. The company has a total debt of ₹160.9m as of September 2024, with net debt after considering cash reserves at about ₹140.0m. While the company has enough liquidity to pay off its debt, its earnings trend and ability to generate free cash flow are areas of concern.
Analysts point out that debt only becomes a problem when a company struggles to repay it, leading to shareholder losses or dilution through issuing additional shares at low prices. For Pil Italica Lifestyle, the key ratios to watch are net debt divided by EBITDA, which stands at 1.6 times, and the interest cover ratio, which is at 6.0 times. These figures indicate that while the debt load is manageable, interest payments are somewhat of a burden.
Despite these concerns, Pil Italica Lifestyle’s total liabilities are offset by liquid assets, showing a healthy balance sheet. However, the company’s negative free cash flow position over the past three years raises red flags. Analysts suggest that shareholders should closely monitor the company’s debt levels to avoid any potential risks in the future.
Overall, while debt can enhance returns on equity, caution is advised when assessing companies with high debt levels like Pil Italica Lifestyle. Investors are encouraged to consider all factors, including earnings trends and free cash flow, to make informed decisions about their investments.
Source
Photo credit simplywall.st