Here's Why Solar Industries India (NSE:SOLARINDS) Can Manage Its Debt Responsibly

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 Solar Industries India Limited (NSE:SOLARINDS) makes use of debt. But is this debt a concern to shareholders?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. 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 step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Solar Industries India Carry?

As you can see below, Solar Industries India had ₹8.34b of debt at September 2025, down from ₹11.6b a year prior. On the flip side, it has ₹4.24b in cash leading to net debt of about ₹4.10b.

How Strong Is Solar Industries India's Balance Sheet?

According to the last reported balance sheet, Solar Industries India had liabilities of ₹22.1b due within 12 months, and liabilities of ₹14.8b due beyond 12 months. On the other hand, it had cash of ₹4.24b and ₹14.0b worth of receivables due within a year. So its liabilities total ₹18.6b more than the combination of its cash and short-term receivables.

Having regard to Solar Industries India's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₹1.17t company is struggling for cash, we still think it's worth monitoring its balance sheet. But either way, Solar Industries India has virtually no net debt, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Solar Industries India

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Solar Industries India's net debt is only 0.19 times its EBITDA. And its EBIT easily covers its interest expense, being 20.9 times the size. So we're pretty relaxed about its super-conservative use of debt. And we also note warmly that Solar Industries India grew its EBIT by 17% last year, making its debt load easier to handle. 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 Solar Industries India'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. In the last three years, Solar Industries India's free cash flow amounted to 39% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Our View

Solar Industries India's interest cover suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. And the good news does not stop there, as its net debt to EBITDA also supports that impression! Zooming out, Solar Industries India seems to use debt quite reasonably; and that gets the nod from us. While debt does bring risk, when used wisely it can also bring a higher return on equity. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Solar Industries India's earnings per share history for free.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.