Debt Free Companies in India 2019 - GETMONEYRICH PDF

2/5/2019 Debt Free Companies in India 2019 - GETMONEYRICH
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2019
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POSTED BY:
MANI
A
nalysts
and
investors
like debt
free companies. Why?
Because in the
process of intrinsic
value estimation of
stocks, debt plays a
decisive role.
In this blog post we

will try to see the
debt of companies
through the lenses of
intrinsic value.
Sounds interesting
right? But what does
it mean, and how
will I go about it?
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TOOL
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To understand this,
one must first know
about two things:
First, what type of

debt a company can
avail? Second, why
company avail these

debts?
There are two types

of debts visible in
companies balance
sheets:
Short term debt

(current liability).
Long term debt (non-
current liability).
Companies generally
resort to short term
debt to manage their
immediate cash flow

needs.
Short term debts give

liquidity to companies
working capital
(WC).
Which debts are of

short term in nature?
Those debts, which

the company will
settle within next 12
months from the date

of incurring.
HOW SHORT
TERM DEBT
EFFECTS
INTRINSIC
VALUE?
Short term debt does

not negatively effect
the intrinsic value a
lot. How?
To understand this,
lets know a bit of
maths about
intrinsic value.
Intrinsic value is
dependent on free
cash flow (FCFE).
Higher will be the

free cash flow
(FCFE), more will be
the intrinsic value.
What is free cash

flow?
FCFE = PAT –
[Capex – D&A] –
Increase in WC +
(Net LT Debt).
How short term debt

effects this FCFE
equation?
Short term debt will

have two effets:
It will not increase SOCIAL

working capital (WC). PRESENCE
But it will reduce PAT
by a very small
amount.
520+ Twitter
Followers
Why PAT will
2,265+
reduce? Due to Facebook
increased “interest” Followers
expense. 32,000+ Email

Subscribers
But as it is a short 340+ Youtube

term debt (period <12 Followers
months), interest
expense will be too
small to cause any
major harm to
FCFE.
Overall the FCFE will

reduce due to short
term debt, but the
change will be too
small.
Example:
PAT = Rs.4,108 Crore.

Short term debt =
Rs.669.88 Crore.
Interest expense @8%
= Rs.55.6 Crore.
Reduced PAT =
Rs.4,055 Crore (98.7%
of PAT).
The effect of short

term debt on FCFE
(hence intrinsic value)
is shown below:
[Note: New Debt –

Debt Repaid, talks
only about long term
debts]
Why there is no
increase in working
capital?
Because a new short

term debt (of say
$100) will add to
both current assets
and current liability.
Current Asset (CA)

Increase Cash
($100)
Current Liability
(CL)
Increase in
Borrowings
($100)
Increase in working
capital = Increase in
CA – Increase in CL
DEBT FREE
COMPANIES
AND SHORT
TERM DEBT.
How does the above

analysis on short
term debt
compliments our topic

of “debt free
companies”?
As free cash flow

(FCFE) is not effected
by short term debts,
its impact on intrinsic
value is also small.
So does it mean that

a company can take
as much short term
debt as it wants? No.
If the level of short

term debt crosses a
limit, it might lead to
problems in
repayment.
How to define this

limit?
Short term
debt / Cash
and Cash
Equivalent <
1
Formula_1
So if a company
satisfies the
Formula_1, it can be
treated as good as a
debt free company.
HOW LONG TERM

DEBT EFFECTS
COMPANIES
INTRINSIC
VALUE
The impact of long

term (LT) debt is
more visible on
intrinsic value of a
company. Why?
FCFE = PAT –
[Capex – D&A] –
Increase in WC +
(Net LT Debt).
There are two reasons

for it:
First, Compare to
PAT, LT debts are
bigger in size than
short term debt.
Hence the impact of

its “interest expense”
on PAT is more
significant.
Second, LT debt
directly increases the
FCFE (see the above
FCFE formula).
The net effect of LT

debt is, it always
increases the FCFE.
Example:
PAT = Rs.4,108 Crore.

LT debt = Rs.24,568
Crore.
Interest expense @8%
= Rs.1,965 Crore.
Reduced PAT =
Rs.2,142 Crore.
FCFE = Reduced PAT

– (Net Capex) –
Increase in EC +
New LT Debt.
FCFE before LT
debt (LT debt = 0)
FCFE = 4108 – (Net

Capex) – Increase in
EC + 0 = Rs. (4,108
– K) Crores.
FCFE after LT
debt.
FCFE = 2,142 – (Net

Capex) – Increase in
EC + 24,568 = Rs.
(26,710 – K) Crores.
What we can
understand from this
example?
LT debt can
significantly increase
the free cash flow

(FCFE), irrespective of
its negative effect on
PAT (reduced PAT).
DEBT FREE
COMPANIES
AND SHORT
TERM DEBT.
How does the above

analysis on long term
debt compliments our
topic of “debt free
companies”?
The above FCFE

calculation shows that,
the bigger is the LT
debt, higher will be
the FCFE.
But does it means

that a company can
take as much LT
debt as it likes?
No, too much LT

debt will make the
firm too susceptible

to bankruptcy.
LT debt must not

cross a safe limit.
What is that limit?
To identify debt free

companies, I use the
below three (3)
screeners:
Total Debt
minus Cash
< 0
(negative).
Formula_2.1
Use of this formula

will supersede the
formula_1.
Total Debt /
Equity ratio
< 0.25
Formula_2.2
Total Debt /
Total Asset <
0.20
Formula_2.3
What we can
conclude from this
analysis?
A company which
satisfies the above 3
formulas are as good
as debt free
companies.
They may not be a

zero debt company,
but their debt level is
so low that they can
still earn the tag of a
“debt free company”.
DEBT FREE
COMPANIES
& DEBT
MINUS
CASH…
Let me introduce a
concept of
“Enterprise Value”.
To understand this
lets take a small
hypothetical example.
Suppose there are

two companies ABC
& XYZ.
ABC has a debt of

Rs.80 Crore and B
has a debt of Rs.120
Crore.
Which company looks

better here?
If we have to look
only at debt levels,
Company ABC looks

less risky.
Now suppose,
Networth of ABC is
Rs.80 Crore and Net
worth of XYZ is
Rs.120 Crore.
Means, the debt

equity ratio (D/E) of
ABC is 1 (80/80)
and that of XYZ is
also 1 (120/120).
So which company is
better?
Debt/Equity ratio
being a very reliable
debt burden indicator
is not able to
differentiate between
ABC & XYZ.
What to do?
THERE IS A WAY
OUT.
Suppose Company
ABC and XYZ has a
cash/cash equivalent
reserves of Rs.75
Crore and Rs.132
Crore respectively.
Debt -(minus) Cash

for Company ABC is
= Rs.5 Crore (80-75).
Debt –(minus) Cash

for Company XYZ is
= Rs.-12 Crore (120-

132).
A negative value for

Company XYZ
indicates that
company is
having enough cash
to pay-off all its
debt.
Hence, even if
companies like XYZ is
carrying high debt
(Rs.120 Crore), they

are still as good as
zero debt companies.
Why?
This is because XYZ

also has enough cash
reserves (Rs.132
Crore) to negate its
debt burden.
Such companies (like

XYZ), whose Debt
minus Cash value is
negative, can be
included in our list
of debt free
companies.
In stock metric terms,

we will use the
Enterprise Value
and Market Cap to
understand how big
is the cash reserves
of a company
compared to its debt.
Enterprise
Value minus
Market
Capitalisation =
Debt – Cash
Example: In the
below list of
companies, you will
note that companies
like Interglobe
Aviation, ICICI
Securities, has a
debt/equity ratio of
0.35 & 0.81
respectively. They
have still been
included in the list.
This is because of
negative “Debt minus
Cash” component.
[Note: If you want to

know more
about Enterprise
value, check this
link….]
LIST OF TOP
DEBT FREE
COMPANIES
IN INDIA –
2019
(Updated for:
February’2019)
(Debt
–
SL Company Cash)
/
Asset
Max Financial
1 -2.37
Services Ltd.
2 Rites Ltd. -1.57
3 Coal India Ltd. -1.41
GE Power India
4 -1.27
Ltd.
5 NBCC India Ltd. -1.26
Interglobe
6 -1.10
Aviation Ltd.
Engineers India
7 -1.09
Ltd.
Indian Energy
8 -1.08
Exchange Ltd.
Glaxosmithkline
9 Consumer -1.03
Healthcare Ltd.
Cochin Shipyard
10 -1.00
Ltd.
India Tourism
11 Devp. Corpn. -0.99
Ltd.
Hindustan
12 -0.87
Unilever Ltd.
13 KIOCL Ltd -0.87
14 BSE Ltd. -0.80
15 Moil Ltd. -0.77
Castrol India
16 -0.77
Ltd.
Zydus Wellness
17 -0.75
Ltd.
18 Pfizer Ltd. -0.66
Honeywell
19 Automation -0.65
India Ltd.
Sonata Software
20 -0.65
Ltd.
Info Edge
21 -0.64
(India) Ltd.
Glaxosmithkline
22 Pharmaceuticals -0.63
Ltd.
23 Hindustan Zinc -0.62

Ltd.
Bajaj Consumer
24 -0.61
Care Ltd.
Lakshmi
25 Machine Works -0.59
Ltd.
Dr. Lal Pathlabs

26 -0.58
Ltd.
Kaveri Seed
27 -0.58
Company Ltd.
Sun Pharma
Advanced
28 -0.57
Research
Company Ltd.
29 Vakrangee Ltd. -0.57
Oracle Financial
30 Services -0.56
Software Ltd.
Tata Sponge
31 -0.56
Iron Ltd.
32 ICICI Securities -0.55

Ltd.
Whirlpool Of
33 -0.55
India Ltd.
Bandhan Bank
34 -0.54
Ltd.
Avanti Feeds
35 -0.54
Ltd.
36 Tata Elxsi Ltd. -0.53
Wabco India
37 -0.53
Ltd.
Monsanto India
38 -0.51
Ltd.
39 3M India Ltd. -0.50
Unichem
40 Laboratories -0.50
Ltd.
41 TCS -0.50
42 P&G -0.50
43 eClerx Services -0.49

Ltd
Schaeffler India
44 -0.49
Ltd.
CARE Ratings
45 -0.49
Ltd.
46 Merck Ltd. -0.47
Hero Motocorp
47 -0.46
Ltd.
Akzo Nobel
48 -0.45
India Ltd.
49 Siemens Ltd. -0.44
Hindustan
50 -0.44
Aeronautics Ltd.
51 Thermax Ltd. -0.43
NIIT
52 Technologies -0.42
Ltd.
53 SKF India Ltd. -0.42
54 Larsen & -0.42
Toubro Infotech
Ltd.
Jubilant
55 -0.41
FoodWorks Ltd.
56 Infosys Ltd. -0.40
Sun TV Network
57 -0.40
Ltd.
58 Bata India Ltd. -0.40
Indraprastha
59 -0.40
Gas Ltd.
AIA
60 Engineering -0.39
Ltd.
Persistent
61 -0.39
Systems Ltd.
62 Symphony Ltd. -0.39
Bharti Infratel
63 -0.39
Ltd.
64 Havells India -0.38

Ltd.
TeamLease
65 -0.37
Services Ltd.
Mahanagar Gas
66 -0.37
Ltd.
Praj Industries
67 -0.36
Ltd.
Rajesh Exports
68 -0.36
Ltd.
Sanofi India
69 -0.36
Ltd.
Bharat Heavy
70 -0.34
Electricals Ltd.
Suven Life
71 -0.34
Sciences Ltd.
Gillette India
72 -0.34
Ltd.
73 Escorts Ltd. -0.34
GE T&D India
74 -0.34
Ltd.
75 Central -0.33
Depository
Services (India)
Ltd.
Balmer Lawrie
76 -0.33
& Co. Ltd.
77 FDC Ltd. -0.33
Finolex Cables
78 -0.33
Ltd.
Divi’s
79 Laboratories -0.32
Ltd.
80 Delta Corp Ltd. -0.32
National
81 Aluminium Co. -0.31
Ltd.
82 Bajaj Auto Ltd -0.31
Pidilite
83 -0.31
Industries Ltd.
84 Mphasis Ltd. -0.30
85 Reliance -0.30
Nippon Life
Asset
Management
Limited.
86 Cyient Limited -0.30
TV Today
87 -0.30
Network Ltd.
Bharat
88 -0.30
Dynamics Ltd.
Ambuja
89 -0.30
Cements Ltd.
Colgate-
90 Palmolive -0.30
(India) Ltd.
Petronet LNG
91 -0.30
Ltd.
92 ACC Ltd. -0.29
93 Bosch Ltd. -0.28
94 Grindwell -0.27
Norton Ltd.
95 ABB Ltd. -0.27
Hexaware
Ltd.
Graphite India
97 -0.27
Ltd.
Kansai Nerolac
98 -0.27
Paints Ltd.
Sheela Foam
99 -0.26
Ltd.
JB Chemicals &
100 Pharmaceuticals -0.26
Ltd.
101 Crisil Ltd. -0.26
Greaves Cotton
102 -0.26
Ltd.
TI Financial
103 -0.26
Holdings Ltd.
104 ITC Ltd. -0.26
105 Wipro Ltd. -0.25
106 MindTree Ltd. -0.25
Page Industries
107 -0.24
Ltd.
Eicher Motors
108 -0.24
Ltd.
Britannia
109 -0.23
Industries Ltd.
Navin Fluorine
110 International -0.23
Ltd.
Caplin Point
111 -0.23
Lab
Thyrocare
Ltd.
IFB Industries
113 -0.22
Ltd.
Karur Vysya
114 -0.22
Bank Ltd.
115 Exide Industries -0.22

Ltd.
P.Note: The above

list of stocks has
been evaluated on the
parameter of the debt
burden they carries.
But the analysis is
based on only rough
estimates.
I prefer to do a
deeper analysis of my
shortlisted stocks
using my stocks
analysis
worksheet.
POWERFUL
STOCK
ANALYSIS
TOOL
MS Excel Based Tool for
novice investors to
estimate stock's intrinsic
value.
Know More
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8 COMMENTS
ON "DEBT FREE
COMPANIES IN INDIA
2019"
D c maniar |
08-01-2019 at
12:25 am | Reply
Good article
MAHESH | 16-
09-2018 at 1:53
pm | Reply
CAN YOU PLEASE

CLARIFY IN THE
FORMULAS,
WHAT ARE THE
LINE ITEMS
FROM THE
BALANCE SHEET
THAT HAVE
BEEN
CONSIDERED
FOR DEBT AND
CASH
CALCULATION
Ejaz Ahmed |
08-08-2018 at 5:15
am | Reply
Please add the

Current Market
Price (CMP) tab in
the below LINK
which will help us
to evaluate the
prices of stocks
and pick up a stock
as per our
Financial
condition……Or
else one has to
Google every-time
to know the prices
of individual stock
which is tiring.
https://www.getm
oneyrich.com/stoc
ks-study/debt-
free-companies-
list/
Ashutosh
Patwardhan |
29-07-2018 at
11:07 pm | Reply
So nice
information a
guide for the new
investor like
Abdul
wahab bilal |
25-06-2018 at 6:49
am | Reply
From where do we
get this data?
Kumar | 24-06-
2018 at 9:39 am |
Reply
Very very good

information and
explanation.
As a new investor,
i could understand
how to find a
quality stocks in a
lucid manner.
Adding more
parameter for
value investing is
welcomeworthy.
Mani | 24-
06-2018 at
1:05 pm |
Reply
Thanks for
taking time
to post your
valuable
comment.
SL KOTHARI
| 19-06-2018 at
5:04 am | Reply
Very much
informative
details. Thank you.
Please add details
of 5, 10 & 15 year
growth rate%. It
will more
informative.
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Mutual Behind should

Rs 5 not be
Fund
Lakh Tax treated
Returns as
Free
in India investm
Income
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advice.
Prasha Engineer
All
ntha on s India
types of
Ltd-
Tax on content
Stock
Mutual provide
Analysis
Fund d here
are for
Returns Navin
Fluorine casual
in India
– Stock referen
Analysis ce and
shubha
for
m sen informa
Cyient
on Ltd – tional
Whethe Stock purpos
r Analysis es only.
It
Investm
Economy should
ent in
and Long not be
Ola Term conside
Uber Debt red
Cab is Cycle financia
(Part-3) l
Profitab advice.
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2/5/2019 Debt Free Companies in India 2019 - GETMONEYRICH

START HERE HOME PRODUCT

READ TOP POSTS ABOUT

Debt Free SEARCH …

In this blog post we

First, what type of

company avail these

There are two types

Short term debt

immediate cash flow

Short term debts give

Which debts are of

Those debts, which

months from the date

Short term debt does

Higher will be the

What is free cash

How short term debt

Short term debt will

It will not increase SOCIAL

expense. 32,000+ Email

But as it is a short 340+ Youtube

Overall the FCFE will

PAT = Rs.4,108 Crore.

The effect of short

[Note: New Debt –

Because a new short

Current Asset (CA)

How does the above

compliments our topic

As free cash flow

So does it mean that

If the level of short

How to define this

HOW LONG TERM

The impact of long

There are two reasons

Hence the impact of

The net effect of LT

PAT = Rs.4,108 Crore.

FCFE = Reduced PAT

FCFE = 4108 – (Net

FCFE = 2,142 – (Net

the free cash flow

How does the above

The above FCFE

But does it means

No, too much LT

firm too susceptible

LT debt must not

What is that limit?

To identify debt free

Use of this formula

They may not be a

Suppose there are

ABC has a debt of

Which company looks

Company ABC looks

Means, the debt

Debt -(minus) Cash

Debt –(minus) Cash

= Rs.-12 Crore (120-

A negative value for