Does HBL Engineering (NSE:HBLENGINE) Have A Healthy Balance Sheet?

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. We can see that HBL Engineering Limited (NSE:HBLENGINE) does use debt in its business. But is this debt a concern to shareholders?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is HBL Engineering's Debt?

As you can see below, at the end of September 2025, HBL Engineering had ₹653.1m of debt, up from ₹559.3m a year ago. Click the image for more detail. However, it does have ₹3.05b in cash offsetting this, leading to net cash of ₹2.40b.

How Healthy Is HBL Engineering's Balance Sheet?

According to the last reported balance sheet, HBL Engineering had liabilities of ₹5.96b due within 12 months, and liabilities of ₹967.2m due beyond 12 months. Offsetting these obligations, it had cash of ₹3.05b as well as receivables valued at ₹8.43b due within 12 months. So it can boast ₹4.56b more liquid assets than total liabilities.

This state of affairs indicates that HBL Engineering's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹233.9b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that HBL Engineering has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for HBL Engineering

Even more impressive was the fact that HBL Engineering grew its EBIT by 106% over twelve months. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is HBL Engineering's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. HBL Engineering may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Looking at the most recent three years, HBL Engineering recorded free cash flow of 23% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case HBL Engineering has ₹2.40b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 106% over the last year. So is HBL Engineering's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. 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 HBL Engineering (of which 1 is a bit unpleasant!) 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.