Is APL Apollo Tubes (NSE:APLAPOLLO) Using Too Much Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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 APL Apollo Tubes Limited (NSE:APLAPOLLO) makes use of debt. But should shareholders be worried about its use of debt?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is APL Apollo Tubes's Net Debt?

You can click the graphic below for the historical numbers, but it shows that APL Apollo Tubes had ₹6.15b of debt in March 2025, down from ₹11.2b, one year before. However, it does have ₹9.47b in cash offsetting this, leading to net cash of ₹3.32b.

How Strong Is APL Apollo Tubes' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that APL Apollo Tubes had liabilities of ₹26.3b due within 12 months and liabilities of ₹7.57b due beyond that. Offsetting these obligations, it had cash of ₹9.47b as well as receivables valued at ₹2.72b due within 12 months. So its liabilities total ₹21.7b more than the combination of its cash and short-term receivables.

Since publicly traded APL Apollo Tubes shares are worth a total of ₹503.6b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, APL Apollo Tubes boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for APL Apollo Tubes

On the other hand, APL Apollo Tubes saw its EBIT drop by 2.4% in the last twelve months. 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 it is future earnings, more than anything, that will determine APL Apollo Tubes's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While APL Apollo Tubes has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Looking at the most recent three years, APL Apollo Tubes recorded free cash flow of 25% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

We could understand if investors are concerned about APL Apollo Tubes's liabilities, but we can be reassured by the fact it has has net cash of ₹3.32b. So we are not troubled with APL Apollo Tubes's debt use. 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. Be aware that APL Apollo Tubes is showing 1 warning sign in our investment analysis , you should know about...

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.