Over the past three years, India Inc’s debt burden at the aggregate level has increased significantly without proportionate improvement in either topline or profits.Also, a weaker trend in the rupee against major currencies will make matters worse for companies which raised funds from overseas lenders since it increases the amount of interest outgo as well as the debt that has to be repaid.Thus, it may be important for investors to consider companies that require little or no debt to run operations.The total debt of a sample of BSE 500 companies excluding banks and finance firms rose by 37% to `25.3 lakh crore between 2012-13 and 2014-15. In contrast, sales grew by 13% to `52.4 lakh crore whereas net profit fell by 2% to `2.8 lakh crore during the period. The lower demand and dwindling industrial production resulted in weaker profitability and lower cash generation.Net margin of the sample slipped by 80 basis points to 5.4%. In addition, cash and liquid investments rose by just over 5% to `6.8 lakh crore.
The ET Intelligence Group could identify 52 companies from the sample that reported zero debt in the three years to 2014-15. The list is dominated by sectors like information technology (IT) and fast-moving consumer goods (FMCG) which are less exposed to borrowed money . One out of every four companies belonged to either of the two sectors.
Of the 52 companies with zero debt, there were 17 companies which reported a double-digit three-year compounded annual growth rate (CAGR) in sales and net profit. These include IT giant Infosys, pharma multinationals Abbott India and Sanofi India, consumer healthcare players GlaxoSmithKline Consumer Healthcare, and P&G Hygiene, and pesticide maker Bayer Crop Sciences and agro-biotech firm Monsanto.
Several factors other than the debt levels are factored in before any equity investment. But investors may well keep such companies on radar for further analysis.