Here's Why Semac Construction (NSE:SEMAC) Can Manage Its Debt Responsibly
David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies Semac Construction Limited (NSE:SEMAC) makes use of debt. 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. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is Semac Construction's Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2025 Semac Construction had ₹461.6m of debt, an increase on ₹377.1m, over one year. However, its balance sheet shows it holds ₹632.0m in cash, so it actually has ₹170.5m net cash.
How Strong Is Semac Construction's Balance Sheet?
We can see from the most recent balance sheet that Semac Construction had liabilities of ₹1.37b falling due within a year, and liabilities of ₹37.8m due beyond that. Offsetting these obligations, it had cash of ₹632.0m as well as receivables valued at ₹376.2m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹404.5m.
Semac Construction has a market capitalization of ₹921.2m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, Semac Construction also has more cash than debt, so we're pretty confident it can manage its debt safely.
View our latest analysis for Semac Construction
Notably, Semac Construction made a loss at the EBIT level, last year, but improved that to positive EBIT of ₹9.1m in the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Semac Construction'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. While Semac Construction has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last year, Semac Construction actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.
Summing Up
Although Semac Construction's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₹170.5m. And it impressed us with free cash flow of ₹144m, being 1,583% of its EBIT. So we don't have any problem with Semac Construction's use of debt. 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. To that end, you should learn about the 3 warning signs we've spotted with Semac Construction (including 1 which is potentially serious) .
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.
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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.