In today's market, many investors seek stability, especially in uncertain economic times.
When it comes to investing, financial strength is a key factor that can provide peace of mind in volatile markets. One indicator of a company's stability is its ability to operate without debt.
Debt-free companies are in a unique position to weather economic downturns, as they aren't burdened by interest payments or loan obligations. This freedom allows them to focus on growth, innovation, and building long-term value for shareholders.
In this article, we'll explore five companies that have achieved success while maintaining zero debt. Not only do these businesses stand out for their financial discipline, but they also have rock-solid fundamentals that underpin their growth.
From strong cash flows to smart management decisions, these companies show that it's possible to thrive without relying on borrowed money.
Whether you're a conservative investor seeking stability or someone interested in robust, financially secure companies, this list highlights firms that are well worth considering.
First on our list is LTIMindtree.
The company is a merger between Larsen & Toubro Infotech and Mindtree and is the sixth-largest IT company in India.
It is primarily engaged in offering IT services like application development, maintenance, outsourcing, enterprise solutions, infrastructure management, and digital solutions.
It has zero debt and pays high dividends to its shareholders. In the last five years, the dividend payout of the company and dividend yield has averaged at 35% and 1.3% respectively.
This has been on the back of strong sales growth.
In the last five years, the company's sales have grown by a compound annual growth rate (CAGR) 30% driven by healthy deal wins, improved crossing and up selling opportunities, and greater ability to bid for large clients.
The net profit has also grown by a CAGR of 25% on account of high employee utilisation and client additions.
The company also has strong return ratios with return on equity (RoE) and return on capital employed (RoCE) at 25% and 31% respectively.
Going forward, LTIMindtree plans to double its revenue from US$ 4.3 bn in FY24 to US$10 bn over the next six years.
The company has already seen a positive start in the June 2024 quarter with promising signs of recovery in demand and expects the momentum to continue in Q2, with a focus on cost takeout and high-priority transformations.
With a strong balance sheet, no debt, and continued demand for digital transformation services, LTIMindtree is well-positioned to benefit from the ongoing IT services boom.
For more details, checkout the LTIMINDTREE fact sheet and quarterly results.
Second, on our list is ABB India.
ABB India is an integrated power equipment manufacturer supplying the complete range of engineering, products, solutions and services in areas of Automation and Power technology.
The company is a subsidiary of ABB Ltd which is a leading electrification and automation company globally. It derives significant benefits from its parent in the form of access to centralised R&D facilities of ABB for which it pays royalty to ABB.
Despite being in a capex intensive business, the company has been debt free. It has also seen strong profit growth in the last five years (CAGR of 20%).
This has translated into healthy return ratios for the company. Its RoE and RoCE stand at 22.9% and 30.7% respectively.
The company's focus on sustainable automation solutions, such as energy-efficient motors and smart grids, aligns perfectly with India's growing demand for cleaner and more efficient technologies.
Starting with a 100-megawatt project about seven years ago, ABB has also expanded its footprint in the renewable energy industry, contributing to over 300 projects utilising its IoT-based Programmable Logic Controller (PLC) solution.
These automation solutions are crucial for optimizing the performance of renewable energy plants, including solar, wind, and BESS.
Going by its latest earnings call and management commentary, ABB India has highlighted data centre segment as a key growth area, and it has already secured some large contracts.
For more details, check out ABB INDIA fact sheet and quarterly results.
Third on our list is Pidilite.
Pidilite Industries is a leading manufacturer of adhesives and sealants, construction chemicals, craftsmen products, DIY products, and polymer emulsions in India.
Its brand name Fevicol has become synonymous with adhesives to millions in India and is ranked among the most trusted brands in the country.
Some of the company's other major brands are M-Seal, Fevikwik, Fevistik, Roff, Dr. Fixit, Fevicryl, Motomax, Hobby Ideas, Araldite.
Pidilite's revenues have grown at a CAGR of 12% in the last five years on account of steady demand while net profit has grown at 14%. Its RoE and RoCE stand strong at 22.8% and 29.7% respectively.
The Fevicol maker also has a history of paying regular dividends to its shareholders thanks to its debt free status.
The company has declared 24 dividends since July 2001.
Year | Dividend Per Share (in Rs) |
---|---|
2024 | 16 |
2023 | 11 |
2022 | 10 |
2021 | 8.5 |
2020 | 7 |
2019 | 6.5 |
2018 | 6 |
2017 | 4.8 |
2016 | 4.2 |
2015 | 2.9 |
2014 | 2.7 |
2013 | 2.6 |
2012 | 1.9 |
2011 | 1.8 |
2010 | 1.5 |
2009 | 1.8 |
2008 | 1.8 |
2007 | 1.5 |
2006 | 1.3 |
2005 | 10 |
2004 | 8 |
2003 | 7.5 |
Pidilite Industries has set clear objectives for its future growth strategy. The company aims to sustain double-digit underlying volume growth while maintaining a targeted margin range of 20-24%.
Its strengthening its sales network by penetrating deeper into rural areas, targeting small retail stores in villages with populations ranging from 5,000 to 10,000.
This initiative aims to broaden its market reach and enhance accessibility to its products across diverse consumer segments.
Moreover, the company announced its intention to diversify into the lending business. On 8 November, the adhesive manufacturer disclosed its plan to acquire Pargro, a non-banking financial company (NBFC) owned by the promoter group.
This strategic move is geared towards providing small retail loans, thereby supporting the financial needs of its ecosystem and facilitating business growth within its domain.
Recognising the potential of rural and semi-urban markets, Pidilite is investing significantly in expanding its product offerings and distribution channels. This strategic focus aims to capitalise on the burgeoning consumer base in these regions.
Furthermore, the company remains committed to innovation through ongoing research and development efforts.
By introducing new and innovative products across its various segments, Pidilite aims to maintain its competitive edge and meet evolving consumer demands in domestic and international markets.
For more details, see the Pidilite Industries fact sheet and quarterly results.
Fourth on our list is Eicher Motors.
The company is a part of the Eicher group in India and a leading player in the Indian automobile industry and the global leader in middleweight motorcycles.
It is the owner of the iconic Royal Enfield brand which is focused on mid-sized motorcycles (250-750 cc). Classic, Bullet, Himalayan are some of the brands that come under its Royal Enfield brand.
It is sold in over 60 countries globally. It also provides protective riding apparel, urban casual wear, and motorcycle accessories and parts.
The company also has a joint venture with Sweden's AB Volvo to create Volvo Eicher Commercial Vehicles Limited (VECV). VECV is engaged in truck and bus operations, auto components business, and technical consulting services business.
Eicher Motors's revenue has grown at a CAGR of 11% despite increasing competition in the domestic 2W market while net profit has grown at a CAGR of 14%.
In FY24, the company achieved a revenue growth of 14.4% YoY. It also achieved its highest-ever revenue from non-motorcycle segments, underscoring its strategic emphasis on diversification beyond motorcycles.
The company also has high return ratios with RoE and RoCE stand at 24.2% and 31.1% respectively.
Besides this, it also has healthy cash accruals and has declared 24 dividends since June 2001.
Going forward, the management is optimistic about achieving double-digit growth in the medium term, especially with new product launches and marketing initiatives.
It is confident of the upcoming festive season demand, with expectations of improved consumer engagement through brand activation efforts.
It is witnessing positive trends in international markets, particularly in Latin America and Europe, with a focus on expanding market share. New product introductions in international markets are expected to enhance sales further.
For more details about the company, check out Eicher Motors fact sheet and quarterly results.
Last on our list is Cipla.
Founded in 1935, Cipla is known for its expertise in generic formulations and its strong presence in the API market. The company produces APIs for respiratory, cardiovascular, and anti-retroviral treatments.
Some of the most popular brands of the company are Nicotex, Cofsils, and ORS. It has 47 state-of-the-art manufacturing facilities where it manufactures generics and APIs.
Over the years, a growing share in high-value products and strong growth in API business in emerging markets such as India and South Africa have supported Cipla's growth.
The company's sales have grown at a CAGR of 10% in the last five years due to a slowdown in the pharma industry. However, net profit has grown at a CAGR of 25% due to high operating leverage.
Its RoE and RoCE also stand comfortable at 16.8% and 22.8% respectively.
This has supported its debt free status. As a result, the company has high cash balances and liquid investments and high cash flow from operations.
The company has incurred an annual capex of about Rs 10-12 bn every year and is planning to increase capex to Rs 15-18 bn in the coming year, with majority being growth capex.
The capex will mainly be in India, with a focus on respiratory segment to meet the growing demand for respiratory drugs and developing inhalation APIs for respiratory disease management.
and will be funded by internal accruals.
Cipla plans to further strengthen its business by a multi-pronged strategy. It is focusing on new product development.
Moreover, it entered into a strategic partnership with Sanofi India to distribute Sanofi India's Central Nervous System (CNS) product range.
Cipla is also looking at acquisitions, which has already proved successful for the company in the past.
For more details, check out Cipla fact sheet and quarterly results.
Here's a quick view at the above-mentioned companies based on some crucial financial parameters.
Please note that these parameters can be changed according to your selection criteria.
Investing in companies with zero debt and strong fundamentals offers a sense of security in an often-unpredictable market.
These five companies have demonstrated the ability to grow and thrive without the need for borrowed capital, showcasing strong financial management and business models that stand the test of time.
However, even debt-free companies aren't without risk. Market conditions, industry disruptions, and global economic factors can still impact their performance.
It's also important to remember that being debt-free doesn't guarantee future success. Businesses must continuously adapt to remain competitive, and poor management or unexpected shifts in demand can still challenge their long-term growth.
For investors seeking stability, these companies may serve as a strong foundation for a diversified portfolio. But as with any investment, thorough research and a cautious approach are key.
Keep an eye on these financial powerhouses, but always be mindful of the broader market forces that can affect even the strongest of companies.
3 High Conviction Stocks
Chosen by Rahul Shah, Tanushree Banerjee and Richa Agarwal
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Ayesha Shetty is a financial writer with the StockSelect team at What are the 3 main types of stock?. An engineer by qualification, she uses her analytical skills to decode the latest developments in financial markets. This reflects in her well-researched and insightful articles. When she is not busy separating financial fact from fiction, she can be found reading about new trends in technology and international politics.
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