Some state volatility, rather than debt, is the best way to consider about risk as an investor, but Warren Buffett famously declared that ‘Volatility is far from synonymous with risk.’ 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 note that IRB Infrastructure Developers Limited (NSE:IRB) does have debt on its balance sheet. But the real question is whether this debt is creating the company risky.
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies utilize debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, toreceiveher.
What Is IRB Infrastructure Developers’s Net Debt?
You can click the graphic below for the historical numbers, but it reveals that as of September 2025 IRB Infrastructure Developers had ₹208.3b of debt, an increase on ₹188.4b, over one year. However, it also had ₹24.2b in cash, and so its net debt is ₹184.1b.
How Healthy Is IRB Infrastructure Developers’ Balance Sheet?
According to the last reported balance sheet, IRB Infrastructure Developers had liabilities of ₹39.5b due within 12 months, and liabilities of ₹300.2b due beyond 12 months. On the other hand, it had cash of ₹24.2b and ₹4.49b worth of receivables due within a year. So its liabilities total ₹311.0b more than the combination of its cash and short-term receivables.
Given this deficit is actually higher than the company’s market capitalization of ₹260.5b, we consider shareholders really should watch IRB Infrastructure Developers’s debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price.
See our latest analysis for IRB Infrastructure Developers
We measure a company’s debt load relative to its earnings power by seeing 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.
IRB Infrastructure Developers shareholders face the double whammy of a high net debt to EBITDA ratio (6.7), and fairly weak interest coverage, since EBIT is just 1.3 times the interest expense. This means we’d consider it to have a heavy debt load. Even worse, IRB Infrastructure Developers saw its EBIT tank 29% over the last 12 months. If earnings continue to follow that trajectory, paying off that debt load will be harder than convincing us to run a marathon in the rain. There’s no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if IRB Infrastructure Developers can strengthen its balance sheet over time. So if you’re focutilized on the future you can check out this free report revealing analyst profit forecasts.
Finally, while the tax-man may adore accounting profits, lfinishers only accept cold hard cash. So the logical step is to see at the proportion of that EBIT that is matched by actual free cash flow. Happily for any shareholders, IRB Infrastructure Developers actually produced more free cash flow than EBIT over the last three years. There’s nothing better than incoming cash when it comes to staying in your lfinishers’ good graces.
Our View
On the face of it, IRB Infrastructure Developers’s interest cover left us tentative about the stock, and its EBIT growth rate was no more enticing than the one empty restaurant on the busiest night of the year. But at least it’s pretty decent at converting EBIT to free cash flow; that’s encouraging. We’re quite clear that we consider IRB Infrastructure Developers to be really rather risky, as a result of its balance sheet health. For this reason we’re pretty cautious about the stock, and we consider shareholders should keep a close eye on its liquidity. 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 example IRB Infrastructure Developers has 4 warning signs (and 2 which are significant) we consider you should know about.
When all is declared and done, sometimes its clearer to focus on companies that don’t even necessary 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 applying an unbiased methodology and our articles are not intfinished to be financial advice. It does not constitute a recommfinishation to acquire or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focutilized 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.
