These 4 Measures Indicate That Bajaj Hindusthan Sugar (NSE:BAJAJHIND) Is Using Debt Extensively

Explore Bajaj Hindusthan Sugar's Fair Values from the Community and select yours

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Bajaj Hindusthan Sugar Limited (NSE:BAJAJHIND) makes use of debt. But the real question is whether this debt is making the company risky.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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 think about a company's use of debt, we first look at cash and debt together.

What Is Bajaj Hindusthan Sugar's Debt?

The image below, which you can click on for greater detail, shows that Bajaj Hindusthan Sugar had debt of ₹35.7b at the end of March 2025, a reduction from ₹38.4b over a year. However, it does have ₹735.6m in cash offsetting this, leading to net debt of about ₹35.0b.

How Healthy 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 ₹61.9b due within 12 months and liabilities of ₹48.6b due beyond that. Offsetting this, it had ₹735.6m in cash and ₹7.25b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹102.5b.

This deficit casts a shadow over the ₹26.7b company, like a colossus towering over mere mortals. 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.

Check out our latest analysis for Bajaj Hindusthan Sugar

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). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

Bajaj Hindusthan Sugar shareholders face the double whammy of a high net debt to EBITDA ratio (14.9), and fairly weak interest coverage, since EBIT is just 0.25 times the interest expense. The debt burden here is substantial. Worse, Bajaj Hindusthan Sugar's EBIT was down 43% over the last year. If earnings keep going like that over the long term, it has a snowball's chance in hell of paying off that debt. There's no doubt that we learn most about debt from the balance sheet. 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.

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. Happily for any shareholders, Bajaj Hindusthan Sugar actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Our View

To be frank both Bajaj Hindusthan Sugar's EBIT growth rate and its track record of staying on top of its total liabilities make us rather uncomfortable with its debt levels. But at least it's pretty decent at converting EBIT to free cash flow; that's encouraging. After considering the datapoints discussed, we think Bajaj Hindusthan Sugar has too much debt. While some investors love that sort of risky play, it's certainly not our cup of tea. Even though Bajaj Hindusthan Sugar lost money on the bottom line, its positive EBIT suggests the business itself has potential. So you might want to check out how earnings have been trending over the last few years.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.