Here's Why Aegis Vopak Terminals (NSE:AEGISVOPAK) Can Manage Its Debt Responsibly

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Aegis Vopak Terminals Limited (NSE:AEGISVOPAK) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Aegis Vopak Terminals's Debt?

The image below, which you can click on for greater detail, shows that Aegis Vopak Terminals had debt of ₹4.40b at the end of September 2025, a reduction from ₹24.9b over a year. However, it also had ₹562.9m in cash, and so its net debt is ₹3.83b.

How Strong Is Aegis Vopak Terminals' Balance Sheet?

We can see from the most recent balance sheet that Aegis Vopak Terminals had liabilities of ₹3.12b falling due within a year, and liabilities of ₹20.2b due beyond that. Offsetting this, it had ₹562.9m in cash and ₹1.32b in receivables that were due within 12 months. So it has liabilities totalling ₹21.4b more than its cash and near-term receivables, combined.

Since publicly traded Aegis Vopak Terminals shares are worth a total of ₹302.4b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Carrying virtually no net debt, Aegis Vopak Terminals has a very light debt load indeed.

See our latest analysis for Aegis Vopak Terminals

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Looking at its net debt to EBITDA of 0.86 and interest cover of 2.9 times, it seems to us that Aegis Vopak Terminals is probably using debt in a pretty reasonable way. So we'd recommend keeping a close eye on the impact financing costs are having on the business. Notably Aegis Vopak Terminals's EBIT was pretty flat over the last year. Ideally it can diminish its debt load by kick-starting earnings growth. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Aegis Vopak Terminals's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So we always check how much of that EBIT is translated into free cash flow. Over the most recent three years, Aegis Vopak Terminals recorded free cash flow worth 52% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Our View

Based on what we've seen Aegis Vopak Terminals is not finding it easy, given its interest cover, but the other factors we considered give us cause to be optimistic. In particular, we thought its net debt to EBITDA was a positive. When we consider all the elements mentioned above, it seems to us that Aegis Vopak Terminals is managing its debt quite well. But a word of caution: we think debt levels are high enough to justify ongoing monitoring. Over time, share prices tend to follow earnings per share, so if you're interested in Aegis Vopak Terminals, you may well want to click here to check an interactive graph of its earnings per share history.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.