Is Bajaj Hindusthan Sugar (NSE:BAJAJHIND) A Risky Investment?

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.' 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 Bajaj Hindusthan Sugar Limited (NSE:BAJAJHIND) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Bajaj Hindusthan Sugar's Debt?

You can click the graphic below for the historical numbers, but it shows that Bajaj Hindusthan Sugar had ₹35.7b of debt in September 2024, down from ₹41.0b, one year before. And it doesn't have much cash, so its net debt is about the same.

How Strong Is Bajaj Hindusthan Sugar's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Bajaj Hindusthan Sugar had liabilities of ₹42.7b due within 12 months and liabilities of ₹49.7b due beyond that. Offsetting these obligations, it had cash of ₹621.6m as well as receivables valued at ₹371.7m due within 12 months. So its liabilities total ₹91.5b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the ₹25.9b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Bajaj Hindusthan Sugar would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Bajaj Hindusthan Sugar 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.

See our latest analysis for Bajaj Hindusthan Sugar

Over 12 months, Bajaj Hindusthan Sugar made a loss at the EBIT level, and saw its revenue drop to ₹59b, which is a fall of 6.3%. We would much prefer see growth.

Caveat Emptor

Importantly, Bajaj Hindusthan Sugar had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₹409m at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely since it is low on liquid assets, and made a loss of ₹1.4b in the last year. So while it's not wise to assume the company will fail, we do think it's risky. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Bajaj Hindusthan Sugar's profit, revenue, and operating cashflow have changed over the last few years.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.