Here's Why Gravita India (NSE:GRAVITA) Can Manage Its Debt Responsibly

Simply Wall St · 07/02 00:06

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Gravita India Limited (NSE:GRAVITA) does use debt in its business. But the more important question is: how much risk is that debt creating?

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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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Gravita India's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Gravita India had ₹2.82b of debt in March 2025, down from ₹5.97b, one year before. However, it does have ₹8.98b in cash offsetting this, leading to net cash of ₹6.16b.

debt-equity-history-analysis
NSEI:GRAVITA Debt to Equity History July 2nd 2025

How Strong Is Gravita India's Balance Sheet?

We can see from the most recent balance sheet that Gravita India had liabilities of ₹2.32b falling due within a year, and liabilities of ₹2.05b due beyond that. Offsetting these obligations, it had cash of ₹8.98b as well as receivables valued at ₹2.81b due within 12 months. So it can boast ₹7.42b more liquid assets than total liabilities.

This surplus suggests that Gravita India has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Gravita India has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Gravita India

While Gravita India doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Gravita India's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Gravita India may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Gravita India's free cash flow amounted to 25% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Gravita India has net cash of ₹6.16b, as well as more liquid assets than liabilities. So we are not troubled with Gravita India's debt use. 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. We've identified 2 warning signs with Gravita India , and understanding them should be part of your investment process.

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.