Fundamentally Strong Debt-Free Stocks to Watch Out for in 2024

Debt-free companies boast a level of financial stability that is hard to beat.

Such companies generally have a steady cash flow, strategic growth opportunities, and the freedom to address challenges.

The interest payments chain debt-burdened companies down. They must allocate a significant portion of their earnings towards debt obligations. This impedes cash flow, pushing them into even more debt.

As debt-free companies do not need to account for regular debt payments, they can allocate more resources for innovation and expansion.

In the world of financial uncertainty, debt-free companies offer a positive outlook for investors.

While they appear stable and resilient, you cannot just consider debt burden before choosing a company.

Debt-free companies have higher creditworthiness, but the company's past financials hold immense information.

Risk-averse investors should look at a company's financials, profitability, and growth initiatives while investing in debt-free companies.

Let's look at some debt-free companies with supportive financials to add to your watchlist.

#1 CG Power

CG Power is a leading designer, manufacturer, and seller of power generation, transmission, distribution, and rail transportation products. Notably, it is the largest manufacturer of Low Tension Motors in India.

The already well-established business, with a history of 86 years, is now a subsidiary of the Murugappa Group of companies. The company has 17 manufacturing units and a presence in 80 global markets.

In February 2024, the government approved the proposed joint venture of CG Power with Renesas Electronics Corporation of Japan and Stars Microelectronics of Thailand to set up a semiconductor manufacturing plant in Sanand, Gujarat.

This 76 bn JV will have a production capacity of 15 million (m) units per day. CG Power will have 92.3% ownership of this JV.

The proposed semiconductor unit will produce legacy packages like QFP and QFN and advanced packages like FC CSP and FC BGA, catering to multiple sectors like industrial, consumer, automotive, 5G, etc.

Adding a new manufacturing facility could contribute Rs 3 bn to the company's revenue.

In the past four years, the stock has gained 8000%.

The company plans to expand its capacity and focus on exports, leveraging accelerated technological advancements. It plans to invest Rs 4 bn in Goa, Ahmednagar, Bhopal, and Malanpur facilities.

Exports revenue is expected to increase by 5% to 25% in the next 4-5 years. With renewed R&D and collaborative partnerships, the company expects to improve technological innovation.

In FY23, the company recorded its highest standalone revenue and profit before tax before exceptional items in 11 years. The ROCE for FY23 improved to 39% against 27% in FY22.

CG Power Financial Snapshot (2021-2023)

	FY21	FY22	FY23
Total Revenue (in Rs m)	30,754	55,211	70,403
Operating Profit Margin (in %)	56	16.3	15.2
Net Profit (in Rs m )	12,795	6,296	7,963
Net Profit Margin (in %)	43.2	11.5	11.4

Source: Equitymaster

#2 Mazagon Dock

Mazagon Dock is a leading shipbuilding yard in India with a history dating back to 1774.

Now, the company is a premium warship building yard in India that consistently produces warships for the Navy and Bombay High offshore structures. The company has built a total of 802 vessels, including 28 warships and seven submarines.

The company is on a meteoric growth trajectory, with stocks gaining 955% in 3 years, thanks to its core business in the defence sector focusing on domestic production and self-sufficiency.

The company has signed a contract for Rs 16 bn with the acquisition wing of the Ministry of Defence for the delivery of 6 next-generation offshore patrol vessels (NGOPV) for the Indian Coast Guard.

The company's order book is growing strong with the Indian Navy contract for Medium Refit Cum Life Certification (MRLC) of the second Shishumar class submarine INS Shankush worth Rs 27.2 bn in July 2023.

The company has also entered into a US$ 42 m contract with a European client for three 7,500 DWT multipurpose hybrid power vessel units.

Further strengthening its focus on the defence sector, the company has also agreed to deliver 14 Fast Patrol Vessels (FPV) again for the Indian Coast Guard in an Rs 10.7 bn contract in January 2024.

These FPVs will be equipped with high-tech features, including multipurpose remote-controlled drones and AI capability.

In the past year, the stock has gained 200%, tripling investors' money, while Nifty gained 27% in the same period.

The current order book stands at an impressive 375 bn. The ONGC order, which will be completed in the next six months and worth Rs 11.5 bn, is already making headlines.

The company is also looking for an additional Rs 50 bn order wins per year in the $11 bn Indian market.

Mazagon Dock Financial Snapshot (2021-2023)

	FY21	FY22	FY23
Total Revenue (in Rs m)	46,223	61,436	85,140
Operating Profit Margin (in %)	2.5	7.5	10.3
Net Profit (in Rs m )	4,535	5,631	10,461
Net Profit Margin (in %)	11.2	9.8	13.4

Source: Equitymaster

#3 Metro Brands

Next on the list is Metro Brands.

Metro Brands is one of India's most extensive footwear and accessories retailers, with 500+ stores in 110+ cities.

They sell products for every occasion, such as casual, work, athletic, and embellished footwear. The company also sells multiple products under sub-brands like Mochi and Walkway.

Unlike its competitors struggling with rising costs, Metro Brands strategically focuses on the premium segment. This shields them from the woes of mid-priced and value segments.

Brand diversity in terms of Mochi and Crocs solidifies a loyal customer base, protecting their bottom line.

As of December 2023, the stocks gained 10% with the growing popularity of premium footwear as the income of the younger generation continues to increase.

Its competitors, Bata India and Relaxo Footwear, are losing out to competition from local and regional players. However, Metro Brands has a sales CAGR of 18% in the last three years.

Metro Brands is better positioned because 86% of its portfolio contains premium products priced above Rs 1,500. This helps the company protect its margins even with increasing rubber costs.

Also, the company penetrated across categories through its aggressive takeovers. Moreover, the company has expanded to 795, adding 171 stores after September 2022.

In October 2022, the company entered the athleisure segment after acquiring Cravatex. It also has exclusive rights to sell Fila and Proline brands in India.

The company also has a partnership with exclusive selling rights with New York-based Foot Locker for sneakers. This will generate a revenue of Rs 10 to 15 bn in the next three to five years.

Metro Brands Financial Snapshot (2021-2023)

	FY21	FY22	FY23
Total Revenue (in Rs m)	8,785	14,016	21,815
Operating Profit Margin (in %)	21.6	30.5	31.9
Net Profit (in Rs m )	652	2,130	3,634
Net Profit Margin (in %)	8.2	15.9	17.1

Source: Equitymaster

#4 NBCC India

Next on the list is NBCC India.

NBCC India is engaged in multiple activities, such as project management consultancy, civil construction, electrical and mechanical works, real estate development, EPC contracting and PMC services.

The company is well known for its popular brands like NBCC Infrastructure, NBCC Real Estate, NBCC Engineering & Construction, etc.

The company looks forward to increasing its revenue from Rs 110 bn in 2023-24 from Rs 89 bn in 2022-23. Also, the company has a roadmap to reach Rs 250 bn in revenue in the next five years.

Recently, the company received a work order of Rs 1.4 bn for HSCC India Ltd to procure lab equipment to install in the upcoming Himachal Pharma testing lab.

NBCC is one of the very few public sector companies that are engaged in the business of project management consultancy services for civil construction projects.

The company completed one of the most significant CSR projects in Seyochung, which was carried out with an investment of Rs 23.5 m. Compared to last year, the company registered a profit of 60.69%.

NBCC's subsidiary HSCC acquired another work order worth Rs 920 m from the Post Graduate Institute of Medical Education and Research.

NBCC India Financial Snapshot (2021-2023)

	FY21	FY22	FY23
Total Revenue (in Rs m)	73,395	80,545	91,469
Operating Profit Margin (in %)	1.9	1.7	2
Net Profit (in Rs m )	2,401	2,379	2,780
Net Profit Margin (in %)	3.5	3.1	3.2

Source: Equitymaster

#5 IRCTC

Last on the list is IRCTC.

Indian Railway Catering and Tourism Corporation of India (IRCTC) is a public sector company established to improve, manage, and professionalise the hospitality and catering services of Indian Railway stations. It also promotes domestic and international tourism with exclusive tour packages and hotels.

IRCTC has recently partnered with Swiggy in March 2024 to bring pre-ordered meals straight to train passengers, revolutionising the on-board dining experience.

The stocks of IRCTC have gained 5% in 2024 and 52% in the last year. The company has posted a revenue growth of 22.66% in 2023 compared to the previous year. Net profit increased to Rs 3 bn just in one quarter.

For the first time in India, IRCTC is embracing blockchain to issue NFT train tickets for Tejas passengers of trains 82501 and 82502 during the upcoming Holi season.

IRCTC Financial Snapshot (2021-2023)

	FY21	FY22	FY23
Total Revenue (in Rs m)	8,616	19,557	36,619
Operating Profit Margin (in %)	29.2	46.2	36.8
Net Profit (in Rs m )	1,870	6,596	10,059
Net Profit Margin (in %)	24.1	35.1	28.4

Source: Equitymaster

Conclusion

While debt-free companies are considered a safe haven for risk-averse investors, debt for companies is not always bad.

Smart debt management can be an effective tool for businesses. Short-term debt can help a company to improve a company's ability to handle day-to-day operations, while long-term debt can fuel strategic growth plans.

A debt-free company doesn't automatically translate to success. Cash flow is the key parameter that investors must look into.

A company with zero debt and stagnant cash flow is not ideal. Economic downturns can still impact any company, regardless of debt status.

So, look beyond debt-to-equity ratios. While a lower ratio is positive, some debt-free companies might lack financial experience.

Don't base your investment decisions solely on debt levels. Conduct a thorough financial analysis to assess a company's overall health and ability to overcome market challenges.

Invest wisely, not blindly!

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...