Is Castrol India (NSE:CASTROLIND) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Castrol India Limited (NSE:CASTROLIND) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Castrol India's Net Debt?

The chart below, which you can click on for greater detail, shows that Castrol India had ₹731.5m in debt in June 2025; about the same as the year before. But it also has ₹8.66b in cash to offset that, meaning it has ₹7.93b net cash.

How Healthy Is Castrol India's Balance Sheet?

We can see from the most recent balance sheet that Castrol India had liabilities of ₹13.8b falling due within a year, and liabilities of ₹782.6m due beyond that. On the other hand, it had cash of ₹8.66b and ₹5.63b worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Castrol India's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹187.5b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Castrol India boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Castrol India

And we also note warmly that Castrol India grew its EBIT by 11% last year, making its debt load easier to handle. 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 Castrol India'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. Castrol India 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. During the last three years, Castrol India produced sturdy free cash flow equating to 72% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

We could understand if investors are concerned about Castrol India's liabilities, but we can be reassured by the fact it has has net cash of ₹7.93b. And it impressed us with free cash flow of ₹8.5b, being 72% of its EBIT. So is Castrol India'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. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Castrol India that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.