Is Petronet LNG (NSE:PETRONET) Using Too Much Debt?

Warren Buffett famously said, '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 Petronet LNG Limited (NSE:PETRONET) does have debt on its balance sheet. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Petronet LNG's Net Debt?

The image below, which you can click on for greater detail, shows that Petronet LNG had debt of ₹26.6b at the end of March 2025, a reduction from ₹30.1b over a year. But it also has ₹101.5b in cash to offset that, meaning it has ₹74.9b net cash.

How Healthy Is Petronet LNG's Balance Sheet?

According to the last reported balance sheet, Petronet LNG had liabilities of ₹40.6b due within 12 months, and liabilities of ₹33.6b due beyond 12 months. On the other hand, it had cash of ₹101.5b and ₹32.7b worth of receivables due within a year. So it actually has ₹59.9b more liquid assets than total liabilities.

This short term liquidity is a sign that Petronet LNG could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Petronet LNG has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Petronet LNG

But the bad news is that Petronet LNG has seen its EBIT plunge 10% in the last twelve months. If that rate of decline in earnings continues, the company could find itself in a tight spot. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Petronet LNG's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Petronet LNG 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. During the last three years, Petronet LNG produced sturdy free cash flow equating to 68% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case Petronet LNG has ₹74.9b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₹29b, being 68% of its EBIT. So is Petronet LNG's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Petronet LNG , and understanding them should be part of your investment process.

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.