Is Elgi Rubber (NSE:ELGIRUBCO) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Elgi Rubber Company Limited (NSE:ELGIRUBCO) does use debt in its business. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

What Is Elgi Rubber's Net Debt?

As you can see below, at the end of September 2025, Elgi Rubber had ₹3.05b of debt, up from ₹2.73b a year ago. Click the image for more detail. On the flip side, it has ₹359.9m in cash leading to net debt of about ₹2.69b.

A Look At Elgi Rubber's Liabilities

According to the last reported balance sheet, Elgi Rubber had liabilities of ₹2.81b due within 12 months, and liabilities of ₹950.1m due beyond 12 months. Offsetting this, it had ₹359.9m in cash and ₹770.5m in receivables that were due within 12 months. So it has liabilities totalling ₹2.63b more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of ₹2.72b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe 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 Elgi Rubber 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.

Check out our latest analysis for Elgi Rubber

In the last year Elgi Rubber had a loss before interest and tax, and actually shrunk its revenue by 4.2%, to ₹3.7b. That's not what we would hope to see.

Caveat Emptor

Importantly, Elgi Rubber had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₹248m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₹26m in negative free cash flow over the last twelve months. So to be blunt we think it is 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. For example Elgi Rubber has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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.

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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.