Does Godrej Properties (NSE:GODREJPROP) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Godrej Properties Limited (NSE:GODREJPROP) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Godrej Properties

What Is Godrej Properties's Debt?

As you can see below, at the end of September 2024, Godrej Properties had ₹135.7b of debt, up from ₹102.5b a year ago. Click the image for more detail. However, it does have ₹59.5b in cash offsetting this, leading to net debt of about ₹76.2b.

How Strong Is Godrej Properties' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Godrej Properties had liabilities of ₹274.4b due within 12 months and liabilities of ₹40.5b due beyond that. On the other hand, it had cash of ₹59.5b and ₹26.2b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹229.1b.

Godrej Properties has a market capitalization of ₹735.5b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Godrej Properties'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.

In the last year Godrej Properties wasn't profitable at an EBIT level, but managed to grow its revenue by 15%, to ₹36b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Godrej Properties produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₹459m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₹9.6b in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. 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. For instance, we've identified 2 warning signs for Godrej Properties (1 is a bit concerning) you should be aware of.

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.