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ZERO DEBT PROFITABLE COMPANIES
Rahul P Amit Mishra Hemand Vinu Pillai Karthik K Janardhanan 12053 12004 1200 120
Its interest payment rose by three times in FY12 due to which Adani Power posted loss in that year. which is very high. Adani Power is one of the leading power generation companies in India with total generation capacity of 16.000 crore as on March 31.87 times.500 MW of which 4. 2012. It has a total debt of over Rs 38. Its debt to equity ratio stands at 8. b) Adani Power – Power Industry An Adani Group company. The company also has 13 additional sites where it plans to add new resorts in the coming years. Recently the company signed a fuel supply agreement with Coal India but the details are not yet available.385 rooms spread across a network of 18 resorts at 15 scenic holiday destinations in India. mostly based on imported coal. . Currently.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. It was incorporated in 1986 with the vision of delivering great holiday experiences to Indian families. As on March 31. the company has a consolidated debt of around Rs 223 crore.620 MW is currently operational capacity. the company has a total of 1.39x. 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. 2012 due to which its debt to equity ratio is as high as 6.
653 crore. Raga. Regalia.39 . Titan is the world's fifth largest wrist watch manufacturer and exports watches to nearly 40 countries around the world.39 Mar'09 12 Months 44. fiber glass. Being in various businesses the consolidated debt level of the company has increased to Rs 3. taking its debt to equity level at 9. The company’s primary revenue comes from the cement and zinc business. and the Tamil Nadu Industrial Development Corporation. wallets.19. Their brands include Titan. Sonata. Financial data Particulars Liabilities Share Capital Mar'13 12 Months 88. Nebula. You should refer published material including annual reports. Xylys.c) Binani Industries Binani Industries is a flagship company of the Binani Group with a presence in various diversified businesses such as cement. bags and belts.39 Mar'10 12 Months 44. analyst reports? Zero Debt Companies a) TITAN INDUSTRIES LIMITED Titan Company Limited is an Indian designer and manufacturer of watches. Fastrack. Steel. which is very high. Why do you think they are zero debt even in the presence of huge interest tax shields? Substantiate your reasons with data analysis. minerals.78 Mar'12 12 Months 88. Edge. zinc. 2) Pick out 3 zero debt profitable companies. Octane. etc.78 Mar'11 12 Months 44. jewelry. metals. It is a joint venture between the Tata Group. precision engineering components and other accessories including sunglasses. Eye+ and Tanishq .
indiatimes. thereby ensuring stable margins. especially inventory gains and losses.38 72. According to the management.34 15. thus.87 . as gold prices stabilise.00 1964. Before April 2008.85 551. From April 2008.00 1093.00 1455.24 8.84 8.99 1025.71 21. higher gold prices had taken a toll on the jewellery business.04 6. point analysts.65 (Source : http://economictimes. Titan has linked making charges to gold prices. since FY05. respectively.40 79.24 116. It closes gold contracts at the time of product sale.26 4. However. They later slipped to a negative five per cent for watches and 18 per cent for jewellery in FY09.89 . but recovered in FY10. say analysts at Prabhudas Lilladhar.18 5. this strategy ensures 90-95 per cent hedging and the company does not need to carry any naked inventory on its balance sheet.38 67.99 724. Overall. Before 2008. .08 679.84 7.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 . the company not only faced lower volumes due to high prices. charging anything between 16 per cent and 20 per cent of the gold price. The company generally uses gold on lease facility and pays rent on the yellow metal till it is consumed. Titan used to apply fixed making charges on per gram basis. in FY08.70 .87 6.79 . exposing itself to margin volatility in an environment of rising gold prices.87 1361. But.08 10.36 9. preventing it from any mark-to-market losses or gains. thus.90 5.12 1449. and not at the time of purchase. revenues and earnings have managed to rise at a compounded annual growth rate of 33 per cent and 66 per cent.02 7.17 506.381 9.com/titan-industries-ltd/balancesheet/companyid12903. but also faced other risks.54 Why Titan is a Zero debt company? The watch and jewellery leader in the organised segment.10 20.79 980.Reserves & Surplus Net Worth Secured Loan Unsecured Loan TOTAL LIABILITIES 1876.00 797. is likely to see robust sales growth on the back of rising income levels and stable gold prices. respectively.76 58.00 .65 726.09 1964. volumes in the jewellery segment are expected to bounce back.00042 2009 . Volumes in watches and jewellery grew 12 per cent and 50 per cent. Titan Industries.
54 . Each of these manufacturing set-ups features an infrastructure that is witness of Whirlpool's commitment to consumer interests and advanced technology.82 304.com/whirlpool-of-indialtd/balancesheet/companyid-13483. Importantly.39 422.38 Mar'10 12 Months 279.21 9. Today.00 . Particulars Liabilities Share Capital Reserves & Surplus Net Worth Secured Loan Unsecured Loan TOTAL LIABILITIES Mar'13 12 Months 126. Pondicherry and Pune. Whirlpool is the most recognized brand in home appliances in India and holds a market share of over 25%.72 227.19 Mar'11 12 Months 180.24 414. refrigerator. as its returns-oncapital employed remains high at around 40 per cent.86 Mar'09 12 Months 279. it has steadily generated enough cash from the business to become a zero-debt company. The market leader in the branded space is expected to see steady realisations at Rs 950 to Rs 1.87 490.00 422. Kelvinator and TVS acquisitions were merged to create Indian home appliance leader of the future.45 490.32 (Source: http://economictimes.000 and better margins as the premium segment expands. which contributes 22 per cent to its revenues and 46 per cent to earnings before interest and tax. microwave ovens and air conditioners.67 617. The same year also saw acquisition of major share in TVS joint venture and later in 1996.21 72.87 349.00 . This premium is expected to persist. The company owns three state-of-the-art manufacturing facilities at Faridabad.00 110. has also been seeing better volumes.19 .15 366.00 .54 Mar'12 12 Months 126.71 .09 .84 366.00 617.The watch segment. courtesy its brand presence.38 .cms) . WHIRLPOOL INDIA LTD Whirlpool acquired Kelvinator India Limited in 1995 and marked an entry into Indian refrigerator market as well.00 490.indiatimes. Also. This expanded the company's portfolio in the Indian subcontinent to washing machines. the company enjoys a 51 per cent premium over the Sensex.00 . Whirlpool India.
07 290. Goodyear India has also been a pioneer in introducing tubeless radial tyres in this segment. In the passenger car segment. Goodyear tyres are supplied to all the major tractor companies.49 270.03 5. in India.24 160.89 7.05 5.77 4. Goodyear India Ltd Goodyear's presence in India is over 90 years old.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.00 .15 2010 0. Particulars Liabilities Share Capital Reserves & Surplus Net Worth Secured Loan Dec'12 12 Months 23.34 8.44 214.96 .00 4.37 5.83 . Goodyear India supplies tyres to many of the leading Original Equipment Manufacturers. The company have surplus amount of money which also contributed to zero debt.76 1.92 -- -- 0. In the farm segment.38 316. Goodyear India was awarded the Superbrand status.40 4. one each in Ballabgarh and Aurangabad. with two plants.76 2009 1. In 2010/11.00 Dec'08 12 Months 23.07 330.96 5.07 134.67 3.00 Dec'09 12 Months 23.53 .15 0.89 353.75 .00 Dec'11 12 Months 23.Ratio Debt Equity Ratio (%) Long Term Debt Equity Ratio (%) Profit Before Interest And Tax Margin (%) Net Profit Margin (%) 2013 -- 2012 -- 2011 0.07 188.76 .07 244.
75 . asstock markets rewarded companies with little or no debt while punishing those who piled up large debt on their books.00 160.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 4.00 353. Despite high rubber prices in 2011.8.81 00 11.00 270. 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.72 7. while its peers like Apollo Tyres and MRF are trading at a P/E of 9.74 4. However. higher operating margins and likely growth in earnings on the back of stable rubber prices. It is a zero-debt company and has a cash balance of Rs 250 crore. Goodyear India does not look expensive due to its superior balance sheet.4 and 6. .30 00 4.com/goodyear-india-ltd/balancesheet/companyid13718.3 respectively. the company was able to post a profit of Rs 64 crore compared with Rs 74 crore in 2010.53 .24 5. Voltas and Bata India have become richer by 20-70% in the year through July compared with those owning scrips of Bharti Airtel.00 316.indiatimes. Adani Enterprises and Reliance Communications. The company is currently trading a P/E 11. The average rubber prices in 2011 were 27% higher than in 2010. Hindustan Unilever and Voltas pay off for investors Investors holding shares of companies such asITC.16 3. which fell 20% and 42%.82 3.47 Goodyear India has maintained a return-on-capital of over 30% since the past five years.Unsecured Loan TOTAL LIABILITIES . Hindustan Unilever.83 .00 214.16 00 7.43 00 6.76 (Source:http://economictimes.96 .
while 22 out of 30 stocks with over Rs 10. Infosys stock was beaten down heavily over the past few months as the company has failed to meet even watered-down expectations. Eicher Motors.300 stores is one of the best performers in the bourses among BSE 'A' group stocks with nearly 68% return so far this year. . Bata India. excluding public sector and banking stocks. Wockhardt and Strides Arcolab. not many companies are keen on borrowing to finance expansion. "When interest costs range as high as 13-14%. have flexibility to fund growth-inducing expansion plans" said Dipen Shah. companies with comparatively high cash positions. with no debt or liabilities below Rs 500 crore have outperformed the Sensex. and pizza maker Jubilant Foodworks. Destimoney Securities.000 crore debt have underperformed. maker of Royal Enfield. MD and CEO. which rose 14% in the year through July. are classic examples of no or low debt companies generating stellar returns. partly because they have reduced their debt in the last one year. Eicher and Jubilant respectively have given mammoth returns of 578% and 410% over the past three years. head of research at Kotak Securities.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. "In a tumbling economy. "In such a scenario companies with little debt and high cash flows can only grow and create wealth" For instance. an ETstudy has shown. Wockhadt also restructured its debt after defaulting on $110 million in overseas bonds in 2009. On the other side. companies with huge loans are facing problems in servicing debt as their profitability and cash flows are under pressure. have managed to generate 365% and 105% year-to-July returns. 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. 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. the largest footwear retailer in India with over 1. The best performers among the A group stocks. respectively. The shift in strategy like focus on enhancing the premium portfolio. given the difficult economic situation and uncertain policies" said Sudip Bandyopadhyay. Analysts said companies with low debt and strong balance sheets have more stable cash flows and yield better returns for investors.
html www.business-standard.com/stocks/company_info/print_main.in http://www. Torrent Power and Reliance Communications have huge debt on their books. Bharti Airtel.com/article/opinion/titan-industries-regaining-the-lustre110071300041_1.The study also reveals that the worst performers of the BSE 'A' Group stocks such as Adani Enterprises.indiatimes.indiatimes.moneycontrol. Adani Power.co.economictimes.economictimes.php http://indiaamazingstocks.goodyear.html www.com/2012-05-14/news/31701208_1_rubber-prices-majorrubber-goodyear-india http://www.in . References www.in/p/zero-debt-companies.blogspot.titan.capitaline.com http://articles.com/2012-08-23/news/33342237_1_low-debt-crore-debtbata-india http://articles.
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