Sun Pharmaceutical Industries (NSE:SUNPHARMA) Could Easily Take On More Debt

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 note that Sun Pharmaceutical Industries Limited (NSE:SUNPHARMA) does have debt on its balance sheet. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Sun Pharmaceutical Industries Carry?

The image below, which you can click on for greater detail, shows that at September 2025 Sun Pharmaceutical Industries had debt of ₹46.9b, up from ₹20.8b in one year. However, its balance sheet shows it holds ₹278.8b in cash, so it actually has ₹231.9b net cash.

A Look At Sun Pharmaceutical Industries' Liabilities

The latest balance sheet data shows that Sun Pharmaceutical Industries had liabilities of ₹234.2b due within a year, and liabilities of ₹21.6b falling due after that. On the other hand, it had cash of ₹278.8b and ₹154.5b worth of receivables due within a year. So it actually has ₹177.5b more liquid assets than total liabilities.

This short term liquidity is a sign that Sun Pharmaceutical Industries could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Sun Pharmaceutical Industries boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Sun Pharmaceutical Industries

And we also note warmly that Sun Pharmaceutical Industries grew its EBIT by 15% last year, making its debt load easier to handle. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Sun Pharmaceutical Industries 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Sun Pharmaceutical 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 last three years, Sun Pharmaceutical Industries recorded free cash flow worth a fulsome 85% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Sun Pharmaceutical Industries has net cash of ₹231.9b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of ₹87b, being 85% of its EBIT. So is Sun Pharmaceutical Industries's debt a risk? It doesn't seem so to us. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Sun Pharmaceutical Industries you should know about.

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.