Is Balaxi Pharmaceuticals (NSE:BALAXI) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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, Balaxi Pharmaceuticals Limited (NSE:BALAXI) does carry debt. But the real question is whether this debt is making the company risky.

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Balaxi Pharmaceuticals's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2025 Balaxi Pharmaceuticals had ₹546.9m of debt, an increase on ₹303.3m, over one year. However, it does have ₹388.5m in cash offsetting this, leading to net debt of about ₹158.4m.

How Healthy Is Balaxi Pharmaceuticals' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Balaxi Pharmaceuticals had liabilities of ₹602.4m due within 12 months and liabilities of ₹241.9m due beyond that. Offsetting these obligations, it had cash of ₹388.5m as well as receivables valued at ₹1.10b due within 12 months. So it can boast ₹645.4m more liquid assets than total liabilities.

This surplus liquidity suggests that Balaxi Pharmaceuticals' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox.

Check out our latest analysis for Balaxi Pharmaceuticals

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Looking at its net debt to EBITDA of 0.73 and interest cover of 5.0 times, it seems to us that Balaxi Pharmaceuticals is probably using debt in a pretty reasonable way. So we'd recommend keeping a close eye on the impact financing costs are having on the business. Importantly, Balaxi Pharmaceuticals's EBIT fell a jaw-dropping 56% in the last twelve months. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Balaxi Pharmaceuticals's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. Over the last three years, Balaxi Pharmaceuticals saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Our View

Balaxi Pharmaceuticals's EBIT growth rate was a real negative on this analysis, as was its conversion of EBIT to free cash flow. But its level of total liabilities was significantly redeeming. It's also worth noting that Balaxi Pharmaceuticals is in the Healthcare industry, which is often considered to be quite defensive. Looking at all this data makes us feel a little cautious about Balaxi Pharmaceuticals's debt levels. While debt does have its upside in higher potential returns, we think shareholders should definitely consider how debt levels might make the stock more risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 4 warning signs we've spotted with Balaxi Pharmaceuticals (including 2 which shouldn't be ignored) .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.