We Think Adani Ports and Special Economic Zone (NSE:ADANIPORTS) Can Stay On Top Of Its Debt
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Adani Ports and Special Economic Zone Limited (NSE:ADANIPORTS) does carry debt. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Adani Ports and Special Economic Zone's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2025 Adani Ports and Special Economic Zone had ₹510.8b of debt, an increase on ₹440.6b, over one year. However, because it has a cash reserve of ₹111.3b, its net debt is less, at about ₹399.5b.
How Strong Is Adani Ports and Special Economic Zone's Balance Sheet?
The latest balance sheet data shows that Adani Ports and Special Economic Zone had liabilities of ₹225.9b due within a year, and liabilities of ₹549.1b falling due after that. Offsetting this, it had ₹111.3b in cash and ₹57.6b in receivables that were due within 12 months. So its liabilities total ₹606.1b more than the combination of its cash and short-term receivables.
Of course, Adani Ports and Special Economic Zone has a titanic market capitalization of ₹3.29t, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse.
View our latest analysis for Adani Ports and Special Economic Zone
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). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).
With a debt to EBITDA ratio of 1.9, Adani Ports and Special Economic Zone uses debt artfully but responsibly. And the alluring interest cover (EBIT of 8.0 times interest expense) certainly does not do anything to dispel this impression. Also relevant is that Adani Ports and Special Economic Zone has grown its EBIT by a very respectable 25% in the last year, thus enhancing its ability to pay down debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Adani Ports and Special Economic Zone'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 business needs free cash flow to pay off debt; accounting profits just don't cut it. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. Over the most recent three years, Adani Ports and Special Economic Zone recorded free cash flow worth 52% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.
Our View
The good news is that Adani Ports and Special Economic Zone's demonstrated ability to grow its EBIT delights us like a fluffy puppy does a toddler. And its interest cover is good too. We would also note that Infrastructure industry companies like Adani Ports and Special Economic Zone commonly do use debt without problems. Taking all this data into account, it seems to us that Adani Ports and Special Economic Zone takes a pretty sensible approach to debt. That means they are taking on a bit more risk, in the hope of boosting shareholder returns. 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. For example, we've discovered 2 warning signs for Adani Ports and Special Economic Zone that you should be aware of before investing here.
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.