Health Check: How Prudently Does TVS Holdings (NSE:TVSHLTD) Use Debt?

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 TVS Holdings Limited (NSE:TVSHLTD) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is TVS Holdings's Debt?

As you can see below, at the end of March 2025, TVS Holdings had ₹335.2b of debt, up from ₹269.6b a year ago. Click the image for more detail. However, it also had ₹54.6b in cash, and so its net debt is ₹280.5b.

A Look At TVS Holdings' Liabilities

According to the last reported balance sheet, TVS Holdings had liabilities of ₹139.1b due within 12 months, and liabilities of ₹301.2b due beyond 12 months. Offsetting these obligations, it had cash of ₹54.6b as well as receivables valued at ₹23.4b due within 12 months. So its liabilities total ₹362.2b more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of ₹250.8b, we think shareholders really should watch TVS Holdings's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since TVS Holdings will need earnings to service that debt. 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.

See our latest analysis for TVS Holdings

In the last year TVS Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 14%, to ₹407b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months TVS Holdings produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₹3.9b at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. On the bright side, we note that trailing twelve month EBIT is worse than the free cash flow of ₹11b and the profit of ₹13b. So there is definitely a chance that it can improve things in the next few years. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for TVS Holdings (of which 1 is a bit concerning!) you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.