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ZERO DEBT PROFITABLE COMPANIES
Rahul P Amit Mishra Hemand Vinu Pillai Karthik K Janardhanan 12053 12004 1200 120
As on March 31. Companies with high leverage a) Sterling Holiday Resorts (India) – Hospitality Industry Sterling Holiday Resorts (India) Ltd is a pioneer in vacation ownership and a leading leisure hospitality company. It was incorporated in 1986 with the vision of delivering great holiday experiences to Indian families. the company has a consolidated debt of around Rs 223 crore. mostly based on imported coal. 2012. Recently the company signed a fuel supply agreement with Coal India but the details are not yet available. Adani Power is one of the leading power generation companies in India with total generation capacity of 16.620 MW is currently operational capacity. Its interest payment rose by three times in FY12 due to which Adani Power posted loss in that year.385 rooms spread across a network of 18 resorts at 15 scenic holiday destinations in India. which is very high.500 MW of which 4. b) Adani Power – Power Industry An Adani Group company.39x. 2012 due to which its debt to equity ratio is as high as 6.000 crore as on March 31. the company has a total of 1.1) Are certain industries more likely to be highly leveraged than others? What could be the industry characteristics that have a bearing on leverage? Identify 3 highly leveraged and 3 minimal (even zero) leveraged industries to substantiate your answer.87 times. It has a total debt of over Rs 38. The company also has 13 additional sites where it plans to add new resorts in the coming years. . Its debt to equity ratio stands at 8. Currently.
Nebula. precision engineering components and other accessories including sunglasses. Steel. Why do you think they are zero debt even in the presence of huge interest tax shields? Substantiate your reasons with data analysis. zinc.39 Mar'10 12 Months 44. 2) Pick out 3 zero debt profitable companies.653 crore.19. which is very high. Sonata. Eye+ and Tanishq .c) Binani Industries Binani Industries is a flagship company of the Binani Group with a presence in various diversified businesses such as cement. etc. jewelry. fiber glass. Titan is the world's fifth largest wrist watch manufacturer and exports watches to nearly 40 countries around the world.78 Mar'11 12 Months 44. and the Tamil Nadu Industrial Development Corporation. bags and belts. Being in various businesses the consolidated debt level of the company has increased to Rs 3. The company’s primary revenue comes from the cement and zinc business. It is a joint venture between the Tata Group. Raga. Edge. Regalia. Xylys. wallets. metals.78 Mar'12 12 Months 88. Octane.39 . Fastrack. Financial data Particulars Liabilities Share Capital Mar'13 12 Months 88. minerals. Their brands include Titan. You should refer published material including annual reports. analyst reports? Zero Debt Companies a) TITAN INDUSTRIES LIMITED Titan Company Limited is an Indian designer and manufacturer of watches.39 Mar'09 12 Months 44. taking its debt to equity level at 9.
34 15.89 . this strategy ensures 90-95 per cent hedging and the company does not need to carry any naked inventory on its balance sheet.70 . charging anything between 16 per cent and 20 per cent of the gold price.indiatimes. higher gold prices had taken a toll on the jewellery business. Before 2008.79 .40 79. point analysts.54 Why Titan is a Zero debt company? The watch and jewellery leader in the organised segment. thus.99 724.09 1964. But.87 6. Before April 2008.08 679.00 797.cms) Financial Ratios Ratio Debt Equity Ratio (%) Profit Before Interest And Tax Margin (%) Net Profit Margin (%) Interest Cover 2013 00 2012 00 2011 00 2010 . exposing itself to margin volatility in an environment of rising gold prices.Reserves & Surplus Net Worth Secured Loan Unsecured Loan TOTAL LIABILITIES 1876. the company not only faced lower volumes due to high prices. Titan has linked making charges to gold prices.26 4.84 7. According to the management.87 . Titan Industries. but recovered in FY10.87 1361. say analysts at Prabhudas Lilladhar. preventing it from any mark-to-market losses or gains. Volumes in watches and jewellery grew 12 per cent and 50 per cent. volumes in the jewellery segment are expected to bounce back. since FY05.90 5.36 9. thereby ensuring stable margins. respectively.99 1025. revenues and earnings have managed to rise at a compounded annual growth rate of 33 per cent and 66 per cent.84 8. The company generally uses gold on lease facility and pays rent on the yellow metal till it is consumed. and not at the time of purchase. respectively.24 8.00 1455. as gold prices stabilise.76 58. thus.38 72. in FY08.02 7.04 6. . is likely to see robust sales growth on the back of rising income levels and stable gold prices.18 5.00 1964.85 551.00 1093. especially inventory gains and losses. It closes gold contracts at the time of product sale.17 506.24 116.381 9. Overall.79 980.12 1449.com/titan-industries-ltd/balancesheet/companyid12903.10 20.65 726.38 67.00 .00042 2009 .08 10.71 21. but also faced other risks. However. They later slipped to a negative five per cent for watches and 18 per cent for jewellery in FY09.65 (Source : http://economictimes. From April 2008. Titan used to apply fixed making charges on per gram basis.
21 9. as its returns-oncapital employed remains high at around 40 per cent.39 422.82 304.00 .indiatimes.87 349. The market leader in the branded space is expected to see steady realisations at Rs 950 to Rs 1. Kelvinator and TVS acquisitions were merged to create Indian home appliance leader of the future.45 490. Importantly.com/whirlpool-of-indialtd/balancesheet/companyid-13483.67 617.84 366. courtesy its brand presence. Whirlpool India. which contributes 22 per cent to its revenues and 46 per cent to earnings before interest and tax. WHIRLPOOL INDIA LTD Whirlpool acquired Kelvinator India Limited in 1995 and marked an entry into Indian refrigerator market as well.15 366. The same year also saw acquisition of major share in TVS joint venture and later in 1996. This premium is expected to persist.00 . Today. The company owns three state-of-the-art manufacturing facilities at Faridabad. microwave ovens and air conditioners.38 .21 72.54 .32 (Source: http://economictimes.87 490.24 414.00 110. Particulars Liabilities Share Capital Reserves & Surplus Net Worth Secured Loan Unsecured Loan TOTAL LIABILITIES Mar'13 12 Months 126.00 490.00 422.00 .000 and better margins as the premium segment expands.09 . has also been seeing better volumes.71 .54 Mar'12 12 Months 126.19 Mar'11 12 Months 180. Pondicherry and Pune. Whirlpool is the most recognized brand in home appliances in India and holds a market share of over 25%.86 Mar'09 12 Months 279. Each of these manufacturing set-ups features an infrastructure that is witness of Whirlpool's commitment to consumer interests and advanced technology. it has steadily generated enough cash from the business to become a zero-debt company. refrigerator. This expanded the company's portfolio in the Indian subcontinent to washing machines.The watch segment.00 617.00 .19 . Also. the company enjoys a 51 per cent premium over the Sensex.cms) .38 Mar'10 12 Months 279.72 227.
Goodyear India Ltd Goodyear's presence in India is over 90 years old.75 . In 2010/11.89 7.07 290.76 .34 8.53 .89 353. Goodyear India was awarded the Superbrand status.00 Dec'09 12 Months 23.00 Dec'11 12 Months 23.00 Dec'08 12 Months 23.07 188.24 160.76 2009 1.07 330.96 . Goodyear India supplies tyres to many of the leading Original Equipment Manufacturers.15 2010 0.15 0. with two plants.49 270.07 244.67 3. Particulars Liabilities Share Capital Reserves & Surplus Net Worth Secured Loan Dec'12 12 Months 23.44 214.Ratio Debt Equity Ratio (%) Long Term Debt Equity Ratio (%) Profit Before Interest And Tax Margin (%) Net Profit Margin (%) 2013 -- 2012 -- 2011 0.37 5.96 5. Goodyear tyres are supplied to all the major tractor companies.77 4.83 .05 5.40 4.38 316. Goodyear India has also been a pioneer in introducing tubeless radial tyres in this segment.07 134. The company have surplus amount of money which also contributed to zero debt. one each in Ballabgarh and Aurangabad.03 5. in India. In the farm segment. In the passenger car segment.76 1.00 Dec'10 12 Months 23.62 Why whirlpool is a zero debt company? Whirlpool is a zero debt company because whirlpool feels that zero debt can help in increasing its share value and also it has high income which makes the company debt free.92 -- -- 0.00 4.00 .
It is a zero-debt company and has a cash balance of Rs 250 crore.3 respectively. Despite high rubber prices in 2011.75 .00 160.83 .82 3.24 5.30 00 4.47 Goodyear India has maintained a return-on-capital of over 30% since the past five years. The company is currently trading a P/E 11. while its peers like Apollo Tyres and MRF are trading at a P/E of 9.00 353. the company was able to post a profit of Rs 64 crore compared with Rs 74 crore in 2010.00 214. All these factors proves that goodyear does not need to depend on debt *(Article on companies with zero/low debt) Investments in debt-free companies like ITC.76 (Source:http://economictimes.53 . . higher operating margins and likely growth in earnings on the back of stable rubber prices. Goodyear India does not look expensive due to its superior balance sheet.16 3.00 316. asstock markets rewarded companies with little or no debt while punishing those who piled up large debt on their books.4 and 6. Hindustan Unilever and Voltas pay off for investors Investors holding shares of companies such asITC.cms) Ratio Debt Equity Ratio (%) Long Term Debt Equity Ratio (%) Profit Before Interest And Tax Margin (%) Net Profit Margin (%) 2013 00 2012 00 2011 00 2010 00 2009 00 00 4. which fell 20% and 42%. Adani Enterprises and Reliance Communications.43 00 6.81 00 11. Hindustan Unilever. Voltas and Bata India have become richer by 20-70% in the year through July compared with those owning scrips of Bharti Airtel.74 4. The average rubber prices in 2011 were 27% higher than in 2010.8. However.72 7.com/goodyear-india-ltd/balancesheet/companyid13718.indiatimes.00 270.16 00 7.Unsecured Loan TOTAL LIABILITIES .96 .
"In such a scenario companies with little debt and high cash flows can only grow and create wealth" For instance. and pizza maker Jubilant Foodworks. partly because they have reduced their debt in the last one year. "In a tumbling economy. Eicher and Jubilant respectively have given mammoth returns of 578% and 410% over the past three years. Wockhardt and Strides Arcolab. have managed to generate 365% and 105% year-to-July returns. The shift in strategy like focus on enhancing the premium portfolio. head of research at Kotak Securities. maker of Royal Enfield. Bata India. On the other side. excluding public sector and banking stocks. The best performers among the A group stocks. Eicher Motors. are classic examples of no or low debt companies generating stellar returns.300 stores is one of the best performers in the bourses among BSE 'A' group stocks with nearly 68% return so far this year. . companies with huge loans are facing problems in servicing debt as their profitability and cash flows are under pressure. have flexibility to fund growth-inducing expansion plans" said Dipen Shah. respectively. while 22 out of 30 stocks with over Rs 10. Destimoney Securities.000 crore debt have underperformed. Analysts said companies with low debt and strong balance sheets have more stable cash flows and yield better returns for investors. with no debt or liabilities below Rs 500 crore have outperformed the Sensex. "When interest costs range as high as 13-14%. aggressive store expansion and refurbishment plans with a low debt of Rs 19 crore and over Rs 508 crore reserves as of March 2012 has led to accelerated growth for Bata. given the difficult economic situation and uncertain policies" said Sudip Bandyopadhyay. an ETstudy has shown. Wockhadt also restructured its debt after defaulting on $110 million in overseas bonds in 2009. not many companies are keen on borrowing to finance expansion. Infosys stock was beaten down heavily over the past few months as the company has failed to meet even watered-down expectations. the largest footwear retailer in India with over 1.Thirty eight out of 54 BSE 'A' group companies. Eicher Motors has debt of a mere Rs 150 crore while Jubilant Foodworks is a debt-free company. India's second-largest IT exporter Infosys is the only exception in the debt-free universe of BSE 'A' group to have given a negative return this year. companies with comparatively high cash positions. MD and CEO. which rose 14% in the year through July.
Torrent Power and Reliance Communications have huge debt on their books.com/article/opinion/titan-industries-regaining-the-lustre110071300041_1.php http://indiaamazingstocks.capitaline.economictimes.goodyear.indiatimes.com/stocks/company_info/print_main.economictimes.com/2012-05-14/news/31701208_1_rubber-prices-majorrubber-goodyear-india http://www. Adani Power.The study also reveals that the worst performers of the BSE 'A' Group stocks such as Adani Enterprises.com http://articles.co.business-standard.in .moneycontrol.blogspot. Bharti Airtel.in http://www. References www.html www.html www.titan.com/2012-08-23/news/33342237_1_low-debt-crore-debtbata-india http://articles.in/p/zero-debt-companies.indiatimes.
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