Now that the RBI is back to raising interest rates to keep inflation in check, debt-free companies are becoming lucrative options to invest in. This is because these companies are not saddled with higher financing expenses as the interest rates are raised, thus keeping a lid on their overall costing. But what are debt-free companies, and which debt-free stocks can you invest in? Let’s find out.
What are Debt-Free Companies?
A company usually finances its operations by either raising equity or by issuing debt. So, when a company decides not to hold any outstanding loans on its balance sheet, then such a company is considered to be debt-free. Debt-free companies have more control over their finances and are generally self-reliant.
This does not mean that such companies have never borrowed throughout their lifetime. Instead, it only indicates that the company has no debt burden. A company will be considered debt-free once the loans taken have been repaid in full.
What are the Advantages of Being Debt-Free?
No debt translates to no interest burden, thereby insulating debt-free companies from the vagaries of the interest rate regime.
Additionally, since a company has been running its operations without debt, the company likely has strong fundamentals and a stable financial position. Such debt-free companies also tend to have higher dividend yields and offer better returns.
Furthermore, a zero-debt company represents a lower risk to investors since there are no creditors to lay claims over the company’s assets. It also provides debt-free companies with the bandwidth to borrow in case of any emergencies.
Below is a list of top Indian stocks with no debt whose market capitalisation exceeds Rs. 50,000 crores that you can consider investing in.
A part of Tata Group, TCS is India’s largest IT services and consulting company, headquartered in Mumbai. It is India’s 2nd largest company based on market capitalisation and ranks amongst Forbes’ World’s Most Innovative Companies.
Another tech giant, Infosys, is India’s 2nd largest IT company, which provides services related to information technology, outsourcing, and business consulting.
Incorporated in 2000, SBI Life Insurance was initially started as a joint venture between SBI and BNP Paribas Cardif. It features among India’s leading life insurance companies and is listed both on BSE and NSE.
India’s largest FMCG company, HUL, is a subsidiary of Unilever, a British company. HUL provides several products not limited to foods, beverages, personal care, and water purifiers.
The tobacco-to-paper giant has managed to remain debt-free despite its investment in hotels. Founded in 1910, ITC is India’s largest cigarette manufacturer but has since diversified into paper, packaging, hotels, and agri-business.
An Indian multinational pharmaceuticals company, Divi’s Laboratories is engaged in the manufacturing of generic APIs, nutraceutical ingredients, and intermediates.
Incorporated in 1999, IRCTC is a Mini Ratna CPSE under the Ministry of Railways. It is primarily focused on the upgradation and management of catering and hospitality services on trains and at railway stations.
But most of these companies are highly-priced. In case you are looking to invest in debt-free stocks that cost under Rs. 50, you can consider the following options.
Incorporated in 1983, Mangalam Industrial is registered as an NBFC with RBI and is focused on providing several financial solutions. It has a significant presence in the state of West Bengal.
Incorporated in 1985 and headquartered in Mumbai, Toyam Industries is the only listed sports marketing and management company in India. It is engaged in the business of sports, fitness, gyms, gaming, food and beverages, fashion, and even films.
Founded in 1959, Hathway is engaged in the business of the provision of cable television services, broadband internet, digital voice, and home networking. Reliance holds over 70% stake in Hathway.
Famous for its ‘Next-Gen Vakrangee Kendras’—its one-stop solution for accessing various financial products and services, Vakrangee is a tech-driven company engaged in the delivery of BFSI, e-commerce, e-governance and logistics services in the deepest pockets of the country. It is the main software provider of voter-ids and aadhaar cards.
Acquired by Reliance in 2019, Den network is a mass media and entertainment company engaged in the business of providing cable TV, over-the-top (OTT) entertainment and broadband services. It has the largest subscriber base amongst all cable players in India. It became a zero-debt company in FY 2021.
A debt-free company, Cressanda Solutions provides a range of services, including software, digital media, and ITES. This stock has surged almost 500% YTD.
Founded in 2010, Brightcom Group is a digital marketing company with a global presence. It functions through three verticals, namely media, software services, and future technologies.
While debt-free companies reflect strong fundamentals and more headroom to invest in growth opportunities, being debt-free should not be the only criteria for you to base your investment decisions on. You will be well served to invest in companies that grow by managing their debts well than in companies with no debt but limited growth potential.
Disclaimer: This blog is exclusively for educational purposes. The securities quoted are exemplary and are not recommendatory.