Is Ajanta Pharma (NSE:AJANTPHARM) Using Too Much Debt?
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Ajanta Pharma Limited (NSE:AJANTPHARM) does carry debt. But the more important question is: how much risk is that debt creating?
When Is Debt Dangerous?
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 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is Ajanta Pharma's Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2025 Ajanta Pharma had ₹2.02b of debt, an increase on ₹24.2m, over one year. However, its balance sheet shows it holds ₹9.40b in cash, so it actually has ₹7.38b net cash.
How Healthy Is Ajanta Pharma's Balance Sheet?
According to the last reported balance sheet, Ajanta Pharma had liabilities of ₹11.6b due within 12 months, and liabilities of ₹1.98b due beyond 12 months. Offsetting these obligations, it had cash of ₹9.40b as well as receivables valued at ₹14.5b due within 12 months. So it can boast ₹10.3b more liquid assets than total liabilities.
This surplus suggests that Ajanta Pharma has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Ajanta Pharma has more cash than debt is arguably a good indication that it can manage its debt safely.
See our latest analysis for Ajanta Pharma
The good news is that Ajanta Pharma has increased its EBIT by 6.1% over twelve months, which should ease any concerns about debt repayment. 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 Ajanta Pharma'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Ajanta Pharma may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, Ajanta Pharma recorded free cash flow worth 60% 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.
Summing Up
While we empathize with investors who find debt concerning, you should keep in mind that Ajanta Pharma has net cash of ₹7.38b, as well as more liquid assets than liabilities. So is Ajanta Pharma's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Ajanta Pharma has 1 warning sign we think you should be aware of.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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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.