Does Dr. Reddy's Laboratories (NSE:DRREDDY) Have A Healthy Balance Sheet?

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.' 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. Importantly, Dr. Reddy's Laboratories Limited (NSE:DRREDDY) does carry debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Dr. Reddy's Laboratories's Debt?

The chart below, which you can click on for greater detail, shows that Dr. Reddy's Laboratories had ₹45.0b in debt in September 2025; about the same as the year before. However, its balance sheet shows it holds ₹69.8b in cash, so it actually has ₹24.9b net cash.

A Look At Dr. Reddy's Laboratories' Liabilities

We can see from the most recent balance sheet that Dr. Reddy's Laboratories had liabilities of ₹150.9b falling due within a year, and liabilities of ₹29.0b due beyond that. Offsetting this, it had ₹69.8b in cash and ₹100.6b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹9.55b.

Having regard to Dr. Reddy's Laboratories' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₹1.04t company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Dr. Reddy's Laboratories boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Dr. Reddy's Laboratories

The good news is that Dr. Reddy's Laboratories has increased its EBIT by 4.2% 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 ultimately the future profitability of the business will decide if Dr. Reddy's Laboratories can strengthen its balance sheet over time. 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. Dr. Reddy's Laboratories 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, Dr. Reddy's Laboratories recorded free cash flow of 38% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Dr. Reddy's Laboratories has ₹24.9b in net cash. On top of that, it increased its EBIT by 4.2% in the last twelve months. So we are not troubled with Dr. Reddy's Laboratories's debt use. 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 - Dr. Reddy's Laboratories has 1 warning sign we think you should be aware of.

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.