Kiri Industries (NSE:KIRIINDUS) Is Carrying A Fair Bit Of Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, Kiri Industries Limited (NSE:KIRIINDUS) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Kiri Industries

What Is Kiri Industries's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Kiri Industries had debt of ₹11.8b, up from ₹1.17b in one year. However, it does have ₹10.4b in cash offsetting this, leading to net debt of about ₹1.37b.

How Strong Is Kiri Industries' Balance Sheet?

According to the last reported balance sheet, Kiri Industries had liabilities of ₹6.07b due within 12 months, and liabilities of ₹10.7b due beyond 12 months. Offsetting these obligations, it had cash of ₹10.4b as well as receivables valued at ₹3.55b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹2.81b.

Given Kiri Industries has a market capitalization of ₹37.1b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. When analysing debt levels, the balance sheet is the obvious place to start. But it is Kiri Industries's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Kiri Industries wasn't profitable at an EBIT level, but managed to grow its revenue by 16%, to ₹10b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Kiri Industries had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₹164m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Surprisingly, we note that it actually reported positive free cash flow of ₹35m and a profit of ₹2.8b. So one might argue that there's still a chance it can get things on the right track. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Kiri Industries (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.

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.