Health Check: How Prudently Does Techindia Nirman (NSE:TECHIN) Use Debt?

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. We can see that Techindia Nirman Limited (NSE:TECHIN) does use debt in its business. 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Techindia Nirman

How Much Debt Does Techindia Nirman Carry?

As you can see below, at the end of September 2024, Techindia Nirman had ₹936.8m of debt, up from ₹763.0m a year ago. Click the image for more detail. Net debt is about the same, since the it doesn't have much cash.

How Strong Is Techindia Nirman's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Techindia Nirman had liabilities of ₹937.6m due within 12 months and liabilities of ₹207.0k due beyond that. On the other hand, it had cash of ₹1.86m and ₹2.42m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹933.6m.

This deficit casts a shadow over the ₹544.4m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Techindia Nirman would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is Techindia Nirman'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.

Given it has no significant operating revenue at the moment, shareholders will be hoping Techindia Nirman can make progress and gain better traction for the business, before it runs low on cash.

Caveat Emptor

Importantly, Techindia Nirman had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₹6.4m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of ₹214m over the last twelve months. So suffice it to say we consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for Techindia Nirman that you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.