We Think Texmaco Infrastructure & Holdings (NSE:TEXINFRA) Has A Fair Chunk Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Texmaco Infrastructure & Holdings Limited (NSE:TEXINFRA) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Texmaco Infrastructure & Holdings

How Much Debt Does Texmaco Infrastructure & Holdings Carry?

As you can see below, Texmaco Infrastructure & Holdings had ₹236.2m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has ₹21.4m in cash leading to net debt of about ₹214.9m.

How Strong Is Texmaco Infrastructure & Holdings' Balance Sheet?

We can see from the most recent balance sheet that Texmaco Infrastructure & Holdings had liabilities of ₹76.3m falling due within a year, and liabilities of ₹1.30b due beyond that. On the other hand, it had cash of ₹21.4m and ₹234.5m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹1.12b.

Given Texmaco Infrastructure & Holdings has a market capitalization of ₹17.9b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. But either way, Texmaco Infrastructure & Holdings has virtually no net debt, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Texmaco Infrastructure & Holdings'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 Texmaco Infrastructure & Holdings can make progress and gain better traction for the business, before it runs low on cash.

Caveat Emptor

Importantly, Texmaco Infrastructure & Holdings had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₹72m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. On the bright side, we note that trailing twelve month EBIT is worse than the free cash flow of ₹7.9m and the profit of ₹60m. So if we focus on those metrics there seems to be a chance the company will manage its debt without much trouble. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with Texmaco Infrastructure & Holdings .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.