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These 4 Measures Indicate That Bajaj Auto (NSE:BAJAJ-AUTO) Is Using Debt Reasonably Well

Simply Wall St · 4d ago

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Bajaj Auto Limited (NSE:BAJAJ-AUTO) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Bajaj Auto's Debt?

As you can see below, at the end of September 2025, Bajaj Auto had ₹195.6b of debt, up from ₹51.2b a year ago. Click the image for more detail. However, because it has a cash reserve of ₹64.7b, its net debt is less, at about ₹130.9b.

debt-equity-history-analysis
NSEI:BAJAJ-AUTO Debt to Equity History January 8th 2026

A Look At Bajaj Auto's Liabilities

Zooming in on the latest balance sheet data, we can see that Bajaj Auto had liabilities of ₹225.2b due within 12 months and liabilities of ₹87.7b due beyond that. Offsetting this, it had ₹64.7b in cash and ₹84.8b in receivables that were due within 12 months. So it has liabilities totalling ₹163.4b more than its cash and near-term receivables, combined.

Of course, Bajaj Auto has a titanic market capitalization of ₹2.74t, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward.

View our latest analysis for Bajaj Auto

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Bajaj Auto has a low net debt to EBITDA ratio of only 0.97. And its EBIT easily covers its interest expense, being 16.8 times the size. So you could argue it is no more threatened by its debt than an elephant is by a mouse. Another good sign is that Bajaj Auto has been able to increase its EBIT by 21% in twelve months, making it easier to pay down debt. 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 Bajaj Auto'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, a company can only pay off debt with cold hard cash, not accounting profits. So we always check how much of that EBIT is translated into free cash flow. In the last three years, Bajaj Auto created free cash flow amounting to 16% of its EBIT, an uninspiring performance. That limp level of cash conversion undermines its ability to manage and pay down debt.

Our View

Bajaj Auto's interest cover suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. But, on a more sombre note, we are a little concerned by its conversion of EBIT to free cash flow. When we consider the range of factors above, it looks like Bajaj Auto is pretty sensible with its use of debt. That means they are taking on a bit more risk, in the hope of boosting shareholder returns. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Bajaj Auto (1 doesn't sit too well with us) you should be aware of.

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.