Is Kansai Nerolac Paints (NSE:KANSAINER) A Risky Investment?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Kansai Nerolac Paints Limited (NSE:KANSAINER) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Kansai Nerolac Paints's Debt?

You can click the graphic below for the historical numbers, but it shows that Kansai Nerolac Paints had ₹912.0m of debt in September 2025, down from ₹1.26b, one year before. However, it does have ₹19.9b in cash offsetting this, leading to net cash of ₹19.0b.

A Look At Kansai Nerolac Paints' Liabilities

According to the last reported balance sheet, Kansai Nerolac Paints had liabilities of ₹15.4b due within 12 months, and liabilities of ₹3.48b due beyond 12 months. On the other hand, it had cash of ₹19.9b and ₹17.1b worth of receivables due within a year. So it actually has ₹18.2b more liquid assets than total liabilities.

This short term liquidity is a sign that Kansai Nerolac Paints could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Kansai Nerolac Paints has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Kansai Nerolac Paints

But the other side of the story is that Kansai Nerolac Paints saw its EBIT decline by 8.4% 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 Kansai Nerolac Paints can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Kansai Nerolac Paints 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. Over the most recent three years, Kansai Nerolac Paints recorded free cash flow worth 62% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Kansai Nerolac Paints has ₹19.0b in net cash and a decent-looking balance sheet. So we don't have any problem with Kansai Nerolac Paints's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with Kansai Nerolac Paints (including 1 which can't be ignored) .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.