Here's Why Aditya Birla Real Estate (NSE:ABREL) Can Afford Some Debt

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Aditya Birla Real Estate Limited (NSE:ABREL) does carry debt. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Aditya Birla Real Estate Carry?

As you can see below, at the end of March 2025, Aditya Birla Real Estate had ₹50.0b of debt, up from ₹24.8b a year ago. Click the image for more detail. However, it does have ₹14.1b in cash offsetting this, leading to net debt of about ₹35.8b.

A Look At Aditya Birla Real Estate's Liabilities

The latest balance sheet data shows that Aditya Birla Real Estate had liabilities of ₹84.2b due within a year, and liabilities of ₹42.3b falling due after that. On the other hand, it had cash of ₹14.1b and ₹1.05b worth of receivables due within a year. So it has liabilities totalling ₹111.3b more than its cash and near-term receivables, combined.

This deficit isn't so bad because Aditya Birla Real Estate is worth ₹268.1b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off 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 Aditya Birla Real Estate 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.

Check out our latest analysis for Aditya Birla Real Estate

In the last year Aditya Birla Real Estate had a loss before interest and tax, and actually shrunk its revenue by 73%, to ₹12b. That makes us nervous, to say the least.

Caveat Emptor

While Aditya Birla Real Estate's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost ₹342m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₹16b of cash over the last year. So suffice it to say we consider the stock very risky. 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. To that end, you should be aware of the 1 warning sign we've spotted with Aditya Birla Real Estate .

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.