5 Fundamentally Strong Companies with Zero Debt Worth Adding to Your Watchlist

Investing becomes quite challenging at times, especially for beginners. With thousands of companies to choose from, finding the right stock is like finding a needle in the haystack.

As interest rates are still high and recession fears are back, an avid investor would do well and invest only in fundamentally strong debt free companies.

Fundamentally strong stocks are those that have solid financials, such as a low debt-to-equity ratio, high earnings growth, and consistent cash flow. These are the stocks that are more likely to weather market downturns and come out strong on the other side.

In today's article, we'll take a look at five fundamentally strong stocks with zero debt on their books.

#1 Siemens

First on this list is Siemens.

Siemens is the flagship listed company of Siemens AG in India. Siemens AG is a German multinational conglomerate corporation and the largest industrial manufacturing company in Europe.

Siemens has been present in India since 1867, when Werner von Siemens, the founder of the company personally supervised the setting up of the first telegraph line between Kolkata and London.

Today, Siemens has a significant manufacturing presence across the nation, numerous centres of competence and R&D facilities, a national sales and support network, and more.

All businesses of the company have performed exceedingly well over the last few years, with the order backlog at record levels.

No wonder the company's stock price is trading close to its 52-week high.

At present, Siemens is a debt free company with no long term debt obligations. It has remained debt free for the past fifteen years.

The company's dominant market position and diversified business profile has resulted in strong revenue and profit growth in the past five years.

Siemens Financial Snapshot (2018-2022)

Rs m, consolidated	FY18	FY19	FY20	FY21	FY22
Revenue	127,953.0	137,672.0	99,465.0	131,985.0	161,378.0
Growth (%)	15.6%	7.6%	-27.8%	32.7%	22.3%
Operating Profit	16,348.0	19,168.0	13,490.0	17,427.0	20,963.0
OPM (%)	12.8%	13.9%	13.6%	13.2%	13.0%
Net Profit	9,012.0	10,994.0	7,686.0	10,888.0	15,430.0
NPM (%)	7.0%	8.0%	7.7%	8.2%	9.6%
Debt to Equity (x)	0.0	0.0	0.0	0.0	0.0
ROE (%)	11.3	12.7	8.3	10.4	11.5
ROCE (%)	18.0	19.6	11.8	14.6	16.2

Data Source: Ace Equity

In January 2023, the company won the biggest-ever railway order. It won an order of around Rs 260 billion (bn) which includes an order of 1,200 locomotives to be delivered over the period of 11 years followed by a maintenance period of 35 years.

The railways sector is witnessing big changes as the government has been more transparent in recent times for electrification of railways. The management of Siemens intends to be a part of this process of developing an efficient railway sector and in return gain big orders.

Going forward, Siemens is all set to benefit from the upcoming railway capex theme.

For more details, check out Siemens' factsheet and its quarterly results.

#2 Hindustan Aeronautics

Next on this list is the defence company Hindustan Aeronautics (HAL).

The company is a dominant supplier of aircrafts, helicopters, engines, avionics, and accessories as well as the main provider of maintenance, repair, and overhaul services to the Indian defence forces.

Over the years, the company has invested heavily in research & development (R&D) to trigger growth.

HAL faces limited competition from the private sector due to the high capital intensity and long gestation period for developing manufacturing capabilities in the sector.

HAL was one of the best performing stocks of 2022 as it delivered multibagger gains on the back of a strong order book and timely execution. The company is looking to repeat the same feat in 2023, on the back of significant additions to its order book in the past couple of months.

Although HAL has maintained its debt to equity ratio below 0.5x in the past, it was only in 2021 when the company reduced all its debt.

In the past five years, the company's revenue has grown at a CAGR of 6% while profit has delivered a CAGR of 21% for the same period.

Financial Snapshot of HAL (2018-2022)

Rs m, consolidated	FY18	FY19	FY20	FY21	FY22
Revenue	1,85,197.4	2,00,082.3	2,14,451.6	2,28,823.2	2,46,200.2
Growth (%)	3.0%	8.0%	7.0%	7.0%	8.0%
Operating Profit	42,105.2	49,267.7	52,108.1	57,014.3	64,005.3
OPM (%)	23.0%	25.0%	24.0%	25.0%	26.0%
Net Profit	19,904.8	23,286.3	28,828.2	32,459.5	50,800.4
NPM (%)	11.0%	12.0%	13.0%	14.0%	21.0%
Debt to Equity (x)	0.1	0.3	0.5	-	-
Dividend per share (Rs)	32.2	19.8	33.0	30.0	50.0
ROE (%)	17.9	21.6	22.7	22.6	29.3
ROCE (%)	27.2	29.3	24.5	26.2	30.4

Data Source: Ace Equity

We've been writing to you about HAL since early days, when the defence production megatrend was just taking shape and the government's policies for indigenous defence procurement were being finalised.

As can be seen from the chart above, HAL share price is currently in the momentum phase and the company continued to receive more orders, which bodes well.

HAL is currently leading some of the most strategic projects in the aerospace and defence sector in India. With an order book of Rs 1 lakh crore and with several other projects on the anvil, the company is expected to perform well in the medium term.

To know more, check out HAL's financial factsheet and its latest quarterly results.

#3 Bajaj Auto

Third on this list is Bajaj Auto.

Bajaj Auto is one of the leading two and three-wheeler manufacturers in India and it's also world's fourth largest manufacturer.

It's a company that has represented the aspirations of the rising middle class of India for decades. The Bajaj brand is well known for its research and development (R&D) product development process engineering and low-cost manufacturing skills.

Bajaj Auto is among the top companies which are riding the EV revolution in India when it comes to scooters.

Shares of the company are currently trading near record high levels in anticipation of good quarterly numbers in the fourth quarter.

Bajaj Auto is currently a debt free company. It has stayed away from taking on debt since 2010 when its debt to equity ratio crossed 0.5x.

Coming to its recent performance, Bajaj Auto had the highest operating profit margins in the December 2022 quarter in the two-wheeler segment.

The company's operating margins grew 370 basis points YoY to 21.9% in the quarter under review. Tight check on costs helped the Pune-based company grow its standalone net profit 22.8% YoY to Rs 14.9 billion (bn) while revenue from operations grew just 3.3%.

Bajaj Auto recently said in a filing that its total sales declined 9% to 39,27,857 units in FY23, with exports declining by 27%.

The company estimates that it will take till May or June for normalcy to start returning in export markets. Until the sales momentum in overseas markets picks up, growth opportunities appear limited for Bajaj Auto in the near term.

To know more, check out Bajaj Auto's financial factsheet and its latest quarterly results.

#4 Supreme Industries

Fourth on this list is Supreme Industries.

Supreme Industries is one of the leading manufacturers of plastic products in India.

With a comprehensive product portfolio, it has a presence in several business segments. Some of its key business verticals are the plastic piping division, packaging products, and consumer and industrial products.

Supreme Industries has 25 manufacturing facilities across the country, handling over 350,000 tonnes of polymers annually.

On the back of good earnings for the quarter ended December 2022, shares of the company have defied the general market trend and moved upwards.

In the financial year 2021, the company announced a capex of Rs 8.5 bn. It plans to establish three greenfield plants in India and expand existing plants' capacities.

Supreme Industries is also widening its distribution reach in existing and new locations. Currently, it has a network of over 4,000 channel partners.

The company is also actively diversifying its product portfolio by focusing on technological innovation. It has added nearly 20 new products to its portfolio in the last three years.

All these encouraged the company to invest heavily in capex. Despite a heavy capex, Supreme Industries is a debt-free company with good financial performance.

In the last five years, the revenue grew at a compound annual growth rate of 10% driven by volume growth and higher price realisations. The net profit also grew at a CAGR of 11.3% during the same time.

Supreme Industries Financial Snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue (Rs m)	48,407.0	56,273.0	55,225.0	63,721.0	77,928.0
Growth (%)		16.2%	-1.9%	15.4%	22.3%
Operating Profit (Rs m)	7,871.0	8,518.0	8,346.0	12,842.0	12,421.0
Operating Profit Margin (%)	16.3%	15.2%	15.1%	20.2%	16.1%
Net Profit (Rs m)	6,028.0	6,500.0	6,101.0	10,662.0	10,274.0
Net Profit Margin (%)	8.2%	7.7%	7.9%	13.1%	9.8%
Long Term Debt (Rs m)	14.0	11.0	9.0	6.0	0
Debt-to-Equity Ratio (x)	0	0	0	0	0
Dividend Payout Ratio (%)	38.4%	38.0%	40.8%	33.6%	39.9%

Data Source: Ace Equity

To know more, check out Supreme Industries financial factsheet and its latest quarterly results.

#5 Railtel Corporation of India

Last on this list is Railtel Corporation of India.

Railtel is one of the largest telecom infrastructure providers in the country.

It is owned by the Government of India under the Ministry of Railways (MoR). This gives it the privilege of owning the exclusive right to lay optical fibre cables and provide telecom-related services along the 60,000-route km of the Indian Railways' network.

Through this setup, it offers a telecom infrastructure that can host other telecom players at railway stations.

Besides, it offers diversified services that include telecom networks, data centre, and hosting services, and project execution.

Railtel has been consistently profitable since 2007 and is financially self-sufficient. It enjoys the highest net profit margin among key telecom companies in India and highest operating margin among key IT/ICT companies in India.

The company's revenue has grown at a CAGR of 16% over the last three years. It also enjoys a debt free balance sheet.

Railtel Financial Snapshot (2018-2022)

Rs m, consolidated	FY18	FY19	FY20	FY21	FY22
Revenue	9,868.0	10,033.0	11,281.0	13,778.0	15,485.0
Growth (%)	15.9%	1.7%	12.4%	22.1%	12.4%
Operating Profit	3,187.0	3,375.0	3,742.0	3,632.0	4,497.0
OPM (%)	32.3%	33.6%	33.2%	26.4%	29.0%
Net Profit	1,557.0	1,116.0	1,411.0	1,425.0	2,089.0
NPM (%)	15.8%	11.1%	12.5%	10.3%	13.5%
Debt to Equity (x)	0.0	0.0	0.0	0.0	0.0
ROE (%)	13.1	8.8	10.6	10.2	14.2
ROCE (%)	16.6	14.9	14.6	14.7	19.7

Data Source: Ace Equity

Shares of the company have been on a roll ever since it received a big order from Bangalore Metro.

As part of its expansion strategy, the company is now exploring new sectors which it could leverage using with artificial intelligence, loT, and other technologies.

It has an order book of over Rs 50 bn which should help revenue and profit in the medium term.

In the past one year, Railtel Corp share price is down 5%.

To know more, check out Railtel's financial factsheet and its latest quarterly results.

Snapshot of fundamentally strong debt-free stocks from Equitymaster's stock screener

Though we have discussed only 5 stocks, the list doesn't end here.

The following image shows a list of companies with low or zero debt obtained using Equitymaster's powerful stock screener.

Happy Investing!

Also check out the below list of zero debt stocks, which we highlighted in early 2022.

5 Fundamentally Strong Companies with Zero Debt Worth Adding to Your Watchlist (as of 2022)

Debt on a company's books might not always be bad. In fact, it often helps a company expand its business.

However, in the current market conditions, with interest rates rising and inflation going up, having debt doesn't bode well.

Back in February 2022, we wrote to you about five fundamentally strong companies with zero debt.

Read on to find out how these companies are doing right now.

Fundamentally Strong Companies with Zero Debt

Debt plays a significant role in the present performance and future growth of any company.

It's important to know the extent of leverage in a company. This is especially true in these challenging times when many businesses are struggling.

Companies with low or zero debt stand a better chance at surviving than those with high debt.

However, if managed well, debt could help companies meet some of its expenditure. This is true to a certain extent for companies operating in capital-intensive sectors.

Therefore, a company with debt on its books shouldn't be seen in bad light unless its fundamentals suggest it.

However, if you are an investor with low-risk appetite, then you should stick to fundamentally strong companies with no debt.

In fact, such companies are a gold mine for any investor irrespective of their risk appetite.

In today's article, we list out the top 5 fundamentally strong companies with zero debt on their books.

#1 Bharat Electronics (BEL)

Bharat Electronics is an Indian Navratna public sector undertaking (PSU).

The company manufactures a range of specialised electronic products for military as well as non-military use.

Its product portfolio can be broadly classified into defence & non-defence. It includes a slew of simple and complex products such as batteries, radars, electronic voting systems, encryptors, etc.

BEL has 9 states of the art manufacturing facilities to cater to the requirements of its clients.

On the R&D front, BEL has 4 R&D centres. It spends an average of 7% of its annual sales on R&D to equip the armed forces with advanced equipment.

The company has been exploring other avenues to diversify its revenue sources. It has entered into a joint venture with General Electric Medical Systems to manufacture medical electronic systems.

Moreover, the company is going to support India's burgeoning electric vehicle (EV) market. It will manufacture products essential for the EV ecosystem such as li-ion batteries, fuel cells, etc.

BEL is a profitable entity with its sales and profits growing at a CAGR of 9.4% and 6% respectively over the last five years.

Though engaged in a capital-intensive business, BEL doesn't have any debt on its books.

Since the past two decades, Bharat Electronics has had very minimal or zero debt on its balance sheet.

The company has been able to maintain and slightly improve its operating margins consistently over the years. This just shows that BEL has managed to grow at a steady pace without taking any debt.

Update: In the June 2022 quarter, BEL's revenue and net profit grew by a whopping 90.2% and 2,618% year on year (YoY) respectively. This was mainly due to improved order execution.

The company also recently announced a bonus issue of 2:1 worth Rs 4.87 bn after it received approval for increasing its authorized capital by Rs 5 bn.

Going forward a strong order book and strategy to diversify into non-defence areas will ensure double-digit revenue growth.

Bharat Electronics is among the top defence stocks in India with big growth stories.

For more details, check out BEL's financial fact sheet and quarterly results.

#2 Avenue Supermarts (DMart)

Avenue Supermarts is a company that operates in India's retail sector.

The company operates the chain of DMart stores. DMart focuses on selling a range of FMCG goods such as staples, groceries, dairy products, toiletries, etc.

Mr Radhakishan Damani, a veteran value investor, had a keen understanding of consumer psyche and wanted to test the same.

As a result, DMart was incorporated in 2000 starting off with just one store in Mumbai. Since then, DMart has grown steadily to become one of India's largest retail chains operating close to 234 stores across India.

What works in the favour of DMart is its focus on providing deep discounts to its customers thereby creating value for them.

DMart has a track record of posting robust financials.

It has grown its revenue and profit at a CAGR of 14.9% and 19.2% respectively over the last five years.

Being an offline retail chain, DMart is required to add more stores if it needs to grow. Adding more stores translates into higher capex for the company.

With no debt on its books, Dmart has been funding its capex through its earnings. This reflects Dmart's operational efficiency and the strength of its business model.

Avenue Supermarts has incorporated Avenue E-commerce, its wholly owned subsidiary which will compete with emerging online platforms such as JioMart, Amazon Fresh, etc.

The company did have substantial but manageable debt between 2015 to 2019. It reduced it to nil in the financial year 2021.

Update: Avenue Supermarts' revenue grew by 93.1% YoY due to good recovery in sales post pandemic in the June 2022 quarter. Net profit also jumped 573.9% YoY

Despite opening 110 new stores in the last three years, the company has managed to remain debt-free indicating strong operations of the company.

For more details, check out Avenue Supermarts' financial fact sheet and quarterly results.

#3 Relaxo Footwears

Relaxo Footwears is India's largest manufacturer of footwear products in terms of volume.

The company sold 190 m pairs of footwear in the financial year 2021 despite the challenging environment posed by the pandemic.

Relaxo manufactures a range of products under several brands such as Flite, Sparx, Bahamas, etc.

Headquartered in New Delhi, it has 8 manufacturing plants.

Relaxo has many popular Bollywood stars such as Salman Khan and Akshay Kumar as brand ambassadors of the company.

It boasts of enviable finances with revenue and profit growing at a CAGR of 9.3% and 24.9% respectively over the last five years.

What works in the favour of Relaxo Footwears is its focus on providing its customers with high quality products at an affordable price.

It is imperative for companies like Relaxo Footwear to invest in manufacturing facilities to grow consistently.

However, installing a manufacturing facility is an expensive affair and cost millions of rupees.

Manufacturing companies operating in capital intensive sectors do carry some debt on their books. However, this isn't the case with Relaxo.

Relaxo is debt free and funds its expenditure through internal accruals. The company is highly efficient and generates sufficient cash from operations to meet its operational and capital expenditure.

Update: In the June 2022 quarter, Relaxo's revenue grew by 33.6% YoY. Net profit also improved by 24.8% from the previous year.

For more details, check out Relaxo Footwears' financial fact sheet and quarterly results.

#4 Bayer Cropscience

Bayer Cropscience is an Indian subsidiary of Bayer AG, world's largest pharmaceutical and life sciences company based out of Germany.

The company's association with India dates back to the 19th century. Since then, it continues to make significant contributions to India's agriculture and public health.

It provides various products and services through its 3 business divisions: Crop science, pharmaceutical products, and consumer healthcare.

Out of its three divisions, cropscience is the biggest business driver. The company offers products and services such as genetically engineered seeds, and digital farming solutions aimed at empowering farmers with small landholdings.

Bayer markets its pharmaceuticals products via Bayer-Zydus Pharma, a joint venture between Bayer Cropsciences and Zydus Cadila Healthcare. The company manufactures these products at 6 manufacturing facilities across the country.

R&D is at the core of Bayer's business. The company has established 3 R&D centres In India.

In the financial year 2019-20, the company had a moderate debt of Rs 15 m. However, the company paid off all its debt in the financial year 2020- 2021 and became a debt free company.

On the financial front too, it is an extremely well-managed company. Bayer's revenue and profit have grown at a CAGR of 9.9% and 11% respectively over the last five years.

Technological innovation continues to be the biggest competitive advantage for the company. Bayer recently used drones for spraying farm fields in Hyderabad.

Update: For the June 2022 quarter, Bayer Cropscience's revenue grew by 17.5% YoY while net profit grew by 19.3% YoY. This was mainly led by volume growth across its product categories.

The top fertilizer companies in India like Bayer will remain in focus this year as they ramp up automation.

You must have already heard about how agriculture companies are using drone technology in the agriculture sector to boost crop production. This is a classic example of multiplier effect which will benefit agriculture companies as well as Indian companies in the exploding drone market.

For more details, check out Bayer Cropscience's financial fact sheet and quarterly results.

#5 Grindwell Norton

Grindwell Norton is a subsidiary of French multinational Saint Cobain group. As of December 2021, the group holds 51.6% stake in the company.

Grindwell Norton manufactures a range of technical products via its four business divisions. These products find their application across several industries such as automobiles, jewellery, etc.

The company pioneered the manufacturing of grinding wheels. Grinding wheels are used in industries to smooth out several types of surfaces. These wheels are made up of abrasives, one of the many products manufactured and marketed by Grindwell Norton.

Apart from abrasives, Grindwell Norton is a global leader in geotextiles. Geotextiles are permeable fabrics made up of polyester. These fabrics find their use in critical applications such as coal mining and road reinforcement.

Grindwell Norton manufactures its products across 6 manufacturing facilities in various parts of the country.

The company's robust financials reflect its leading position in the market. It's sales and profit figures have grown at a CAGR of 7% and 14.5% respectively over the last five years.

On top of this, the company has been funding its expenses purely through its earnings which implies the company is debt free. It has remained debt free for the past four years.

Update: For the June 2022 quarter, the company reported revenue growth of 43.1% YoY and net profit growth of 45.6% YoY. The growth was led by volume growth.

For more details, check out Grindwell Norton's financial fact sheet and quarterly results.

Snapshot of debt-free stocks in India from Equitymaster's stock screener

Though we have discussed only 5 stocks, the list doesn't end here.

The following image shows a list of companies with low or zero debt obtained using Equitymaster's powerful stock screener.

Please note these parameters can be changed according to your selection criteria.

This will help you in identifying and eliminating stocks that are not meeting your requirements and give emphasis on those stocks that are well inside the metrics.

Should you invest only in debt free companies?

India is a credit averse country. A lot of people in India see debt or credit in a bad light.

However, in the business world such a perception could prove to be counterproductive.

Consider a small company which aims to make a dent in a capital-intensive sector. Suppose, the promoters of this company are adamant to not take on debt even though they need it to fund their capital expenditure.

Wouldn't such decisions hinder the company's growth? Of course, it will

You see, taking on debt is no crime. In fact, debt could help companies manage their liquidity and grow faster, especially in their initial stages of growth.

What matters more is prudential management of debt. And that is related to the company's fundamentals.

So, investing in a company with strong fundamentals along with manageable debt can be a worthy investment.

Any company having debt to equity ratio of less than 1 should be preferred over others. Such companies are in a good place to generate higher returns.

However, the ratio alone doesn't paint the whole picture.

It is important to check a company's debt repayment capacity. For this, check for the company's free cashflows. If the free cashflows of a company is 3 times that of its long-term debt, it indicates the company can pay off its debt in three years.

A company with consistently negative free cashflows, and rising level of debt indicates its inability to pay debt.

An investor should follow up with thorough analysis of a company's fundamentals before investing.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...