A mid-sized manufacturer shows healthy EBITDA but heavy capex and a working capital build. Compute leverage, interest cover and free cash flow, and give a credit view.

Leverage is 4.0x, interest cover 3.0x and free cash flow minus Rs 20 crore. The first two are stretched but serviceable; the third says Brindavar funds its own spending with new borrowing. For a cyclical castings maker that reads as a weak credit. The rollover depends on how much of the capex is optional and why working capital grew, because those two lines decide whether debt falls or keeps rising.

A household earning well but spending every rupee on a house extension and a car loan still has nothing left for the next emergency. Credit analysis asks the same three questions: how big is the debt against earnings, can earnings pay the interest, and is there cash left after everything the business must spend. Leverage is 720 over 180, 4.0x; interest cover is 180 over 60, 3.0x; and free cash flow is minus Rs 20 crore. The first two use EBITDA and flatter the company; only the third counts the cash that actually leaves.

Rating agencies also look at funds from operationsEBITDA less cash interest and cash tax: the cash the business generates before it invests or changes its working capital. against debt. Brindavar's is Rs 100 crore over Rs 720 crore, 13.9%, meaning the business would take about seven years of operating cash to repay its debt with nothing spent on the plant. Each ratio alone is tolerable; together they describe a company that cannot reduce its debt from its own cash. Negative free cash flow means the Rs 20 crore gap is borrowed, so next year's debt is about Rs 740 crore before anything goes wrong.

Castings demand follows vehicle and machinery production, so test a 20% fall in EBITDA to Rs 144 crore. Assume tax halves to Rs 10 crore and, as a first cut, capex and working capital stay where they are. Leverage jumps to 5.0x, cover drops to 2.4x and free cash flow sinks to minus Rs 46 crore. In practice working capital often releases cash in a downturn as sales fall, which softens the hit; say that, but do not rely on it.

Ask for the split of capex between maintenance and growth. If Rs 40 crore of the Rs 80 crore is a new line that could be paused, free cash flow turns positive at about Rs 20 crore, and the credit changes from borrowing to stand still to slowly repaying. Then ask why working capital grew: bigger orders are one thing, receivables stretching at a weak customer is another. Finally, look at the maturity profile and covenant headroom, because a Rs 150 crore rollover in a year with negative cash flow is refinancing risk on top of credit risk. A balanced view: roll over on a shorter tenor, with a leverage covenant and a restriction on growth capex until free cash flow is positive.