These 4 Measures Indicate That Tilaknagar Industries (NSE:TI) Is Using Debt Safely

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 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. As with many other companies Tilaknagar Industries Ltd. (NSE:TI) makes use of debt. But should shareholders be worried about its use of debt?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 Tilaknagar Industries's Net Debt?

As you can see below, Tilaknagar Industries had ₹424.3m of debt at March 2025, down from ₹1.19b a year prior. However, its balance sheet shows it holds ₹1.11b in cash, so it actually has ₹690.2m net cash.

How Healthy Is Tilaknagar Industries' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Tilaknagar Industries had liabilities of ₹2.65b due within 12 months and liabilities of ₹653.3m due beyond that. Offsetting this, it had ₹1.11b in cash and ₹4.11b in receivables that were due within 12 months. So it can boast ₹1.91b more liquid assets than total liabilities.

This surplus suggests that Tilaknagar Industries has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Tilaknagar Industries boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Tilaknagar Industries

On top of that, Tilaknagar Industries grew its EBIT by 47% over the last twelve months, and that growth will make it easier to handle its debt. 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 Tilaknagar Industries 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Tilaknagar Industries 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 most recent three years, Tilaknagar Industries recorded free cash flow worth 66% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Tilaknagar Industries has net cash of ₹690.2m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 47% over the last year. So is Tilaknagar Industries'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. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Tilaknagar Industries has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

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.