PI Industries (NSE:PIIND) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that PI Industries Limited (NSE:PIIND) does use debt in its business. But the real question is whether this debt is making the company risky.

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for PI Industries

What Is PI Industries's Debt?

As you can see below, PI Industries had ₹1.07b of debt at September 2024, down from ₹1.26b a year prior. However, it does have ₹39.1b in cash offsetting this, leading to net cash of ₹38.0b.

How Strong Is PI Industries' Balance Sheet?

According to the last reported balance sheet, PI Industries had liabilities of ₹20.9b due within 12 months, and liabilities of ₹3.56b due beyond 12 months. Offsetting this, it had ₹39.1b in cash and ₹18.1b in receivables that were due within 12 months. So it actually has ₹32.7b more liquid assets than total liabilities.

This surplus suggests that PI Industries has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that PI Industries has more cash than debt is arguably a good indication that it can manage its debt safely.

Another good sign is that PI Industries has been able to increase its EBIT by 26% in twelve months, making it easier to pay down debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine PI Industries'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 company can only pay off debt with cold hard cash, not accounting profits. While PI Industries 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, PI Industries recorded free cash flow worth 69% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case PI Industries has ₹38.0b in net cash and a decent-looking balance sheet. And we liked the look of last year's 26% year-on-year EBIT growth. So we don't think PI Industries's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for PI Industries you should know about.

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.