Here's Why Varun Beverages (NSE:VBL) Can Manage Its Debt Responsibly
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 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 Varun Beverages Limited (NSE:VBL) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is Varun Beverages's Net Debt?
You can click the graphic below for the historical numbers, but it shows that Varun Beverages had ₹21.4b of debt in June 2025, down from ₹67.6b, one year before. But on the other hand it also has ₹21.5b in cash, leading to a ₹107.2m net cash position.
How Strong Is Varun Beverages' Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Varun Beverages had liabilities of ₹44.6b due within 12 months and liabilities of ₹17.5b due beyond that. Offsetting these obligations, it had cash of ₹21.5b as well as receivables valued at ₹12.0b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹28.6b.
This state of affairs indicates that Varun Beverages' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹1.55t company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Varun Beverages boasts net cash, so it's fair to say it does not have a heavy debt load!
See our latest analysis for Varun Beverages
The good news is that Varun Beverages has increased its EBIT by 8.9% over twelve months, which should ease any concerns about debt repayment. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Varun Beverages'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.
Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Varun Beverages 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. Considering the last three years, Varun Beverages actually recorded a cash outflow, overall. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expenditure will produce free cash flow in the future.
Summing Up
We could understand if investors are concerned about Varun Beverages's liabilities, but we can be reassured by the fact it has has net cash of ₹107.2m. And it also grew its EBIT by 8.9% over the last year. So we don't have any problem with Varun Beverages's use of debt. Over time, share prices tend to follow earnings per share, so if you're interested in Varun Beverages, you may well want to click here to check an interactive graph of its earnings per share history.
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.