We Think Cipla (NSE:CIPLA) Can Stay On Top Of Its Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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, Cipla Limited (NSE:CIPLA) does carry debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Cipla's Debt?

You can click the graphic below for the historical numbers, but it shows that Cipla had ₹942.6m of debt in September 2025, down from ₹1.62b, one year before. But it also has ₹106.0b in cash to offset that, meaning it has ₹105.1b net cash.

How Strong Is Cipla's Balance Sheet?

According to the last reported balance sheet, Cipla had liabilities of ₹63.0b due within 12 months, and liabilities of ₹8.42b due beyond 12 months. On the other hand, it had cash of ₹106.0b and ₹69.2b worth of receivables due within a year. So it can boast ₹103.8b more liquid assets than total liabilities.

This surplus suggests that Cipla has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Cipla boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Cipla

Fortunately, Cipla grew its EBIT by 7.6% in the last year, making that debt load look even more manageable. 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 Cipla'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Cipla 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. Looking at the most recent three years, Cipla recorded free cash flow of 50% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Cipla has net cash of ₹105.1b, as well as more liquid assets than liabilities. On top of that, it increased its EBIT by 7.6% in the last twelve months. So we don't think Cipla's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Cipla, you may well want to click here to check an interactive graph of its earnings per share history.

When all is said and done, sometimes its easier to focus on companies that don't even need 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 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.