Is Tata Consumer Products (NSE:TATACONSUM) 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 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 Tata Consumer Products Limited (NSE:TATACONSUM) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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. 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, 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. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Tata Consumer Products Carry?

The image below, which you can click on for greater detail, shows that Tata Consumer Products had debt of ₹23.9b at the end of March 2025, a reduction from ₹34.8b over a year. However, its balance sheet shows it holds ₹31.1b in cash, so it actually has ₹7.16b net cash.

How Healthy Is Tata Consumer Products' Balance Sheet?

According to the last reported balance sheet, Tata Consumer Products had liabilities of ₹58.4b due within 12 months, and liabilities of ₹47.5b due beyond 12 months. Offsetting these obligations, it had cash of ₹31.1b as well as receivables valued at ₹19.9b due within 12 months. So its liabilities total ₹54.9b more than the combination of its cash and short-term receivables.

Of course, Tata Consumer Products has a titanic market capitalization of ₹1.04t, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Tata Consumer Products boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Tata Consumer Products

But the other side of the story is that Tata Consumer Products saw its EBIT decline by 7.8% over the last year. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Tata Consumer Products 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. Tata Consumer Products 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. Over the last three years, Tata Consumer Products recorded free cash flow worth a fulsome 80% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Tata Consumer Products has ₹7.16b in net cash. And it impressed us with free cash flow of ₹16b, being 80% of its EBIT. So we don't think Tata Consumer Products's use of debt is risky. Of course, we wouldn't say no to the extra confidence that we'd gain if we knew that Tata Consumer Products insiders have been buying shares: if you're on the same wavelength, you can find out if insiders are buying by clicking this link.

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.