Would Chemplast Sanmar (NSE:CHEMPLASTS) Be Better Off With Less Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Chemplast Sanmar Limited (NSE:CHEMPLASTS) does carry debt. But should shareholders be worried about its use of debt?

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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. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Chemplast Sanmar's Net Debt?

As you can see below, at the end of March 2025, Chemplast Sanmar had ₹18.4b of debt, up from ₹15.5b a year ago. Click the image for more detail. However, because it has a cash reserve of ₹5.87b, its net debt is less, at about ₹12.5b.

A Look At Chemplast Sanmar's Liabilities

Zooming in on the latest balance sheet data, we can see that Chemplast Sanmar had liabilities of ₹27.1b due within 12 months and liabilities of ₹17.2b due beyond that. On the other hand, it had cash of ₹5.87b and ₹1.76b worth of receivables due within a year. So it has liabilities totalling ₹36.7b more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of ₹61.0b, so it does suggest shareholders should keep an eye on Chemplast Sanmar's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. 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 Chemplast Sanmar'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.

View our latest analysis for Chemplast Sanmar

In the last year Chemplast Sanmar wasn't profitable at an EBIT level, but managed to grow its revenue by 5.6%, to ₹43b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Chemplast Sanmar had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₹606m 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 ₹2.1b of cash over the last year. So to be blunt we think it is 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. For example, we've discovered 1 warning sign for Chemplast Sanmar that you should be aware of before investing here.

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.