The article discusses the importance of considering debt when assessing a company’s risk, as stated by Charlie Munger, a renowned investor. Li Lu, a fund manager backed by Berkshire Hathaway, emphasizes that the biggest investment risk is not price volatility, but the potential for permanent loss of capital, often caused by debt. The article then examines the debt levels of NATCO Pharma Limited, an Indian pharmaceutical company.
As of September 2025, NATCO Pharma had ₹2.53 billion in debt, up from ₹2.01 billion a year ago. However, the company also has ₹32.0 billion in cash, resulting in a net cash position of ₹29.5 billion. The company’s liabilities, including short-term and long-term debt, total ₹17.0 billion, which is offset by its cash and receivables valued at ₹17.3 billion.
The article concludes that NATCO Pharma’s debt levels are manageable, given its significant cash reserves and ability to generate free cash flow. The company’s free cash flow over the past three years has been around 63% of its earnings before interest and tax (EBIT), which is a normal level. This suggests that NATCO Pharma is in a good position to pay down debt when necessary.
While the company’s debt levels are not a major concern, the article notes that falling earnings could potentially make its debt more risky. The company’s EBIT declined by 32% over the last year, which could impact its ability to maintain a healthy balance sheet.
Overall, the article suggests that NATCO Pharma’s debt levels are not a significant concern, given its strong cash position and ability to generate free cash flow. However, investors should continue to monitor the company’s earnings and debt levels to ensure that they remain manageable. The article also notes that there are other risks associated with investing in NATCO Pharma, including two warning signs that investors should be aware of.
In conclusion, the article provides a detailed analysis of NATCO Pharma’s debt levels and financial position, highlighting the importance of considering debt when assessing a company’s risk. While the company’s debt levels are manageable, investors should remain vigilant and monitor the company’s earnings and debt levels to ensure that they remain healthy.