Is Polycab India (NSE:POLYCAB) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 note that Polycab India Limited (NSE:POLYCAB) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Polycab India's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2025 Polycab India had debt of ₹1.27b, up from ₹1.10b in one year. However, its balance sheet shows it holds ₹28.0b in cash, so it actually has ₹26.7b net cash.

How Strong Is Polycab India's Balance Sheet?

According to the last reported balance sheet, Polycab India had liabilities of ₹60.8b due within 12 months, and liabilities of ₹4.01b due beyond 12 months. Offsetting this, it had ₹28.0b in cash and ₹28.3b in receivables that were due within 12 months. So it has liabilities totalling ₹8.58b more than its cash and near-term receivables, combined.

Having regard to Polycab India's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₹1.15t company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Polycab India boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Polycab India

On top of that, Polycab India grew its EBIT by 44% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Polycab India can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Polycab India has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, Polycab India's free cash flow amounted to 33% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Polycab India has ₹26.7b in net cash. And we liked the look of last year's 44% year-on-year EBIT growth. So is Polycab India's debt a risk? It doesn't seem so to us. We'd be motivated to research the stock further if we found out that Polycab India insiders have bought shares recently. If you would too, then you're in luck, since today we're sharing our list of reported insider transactions for free.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.