# Top Debt Free Companies listed in BSE/NSE in India 2019

Analysts and investors like stocks of debt free companies. Why? Because in the process of intrinsic value estimation of stocks, debt plays a decisive role. In this blog post we will try to see the debt of companies through the lenses of intrinsic value.

Sounds interesting right? But what does it mean, and how will I go about it?To understand this, one must first know about two things:

• First, what type of debt a company can avail?
• Second, why company avail these debts?

There are two types of debts visible in companies balance sheets:

• Short term debt (current liability).
• Long term debt (non-current liability).

Companies generally resort to short term debt to manage their immediate cash flow needs.

Short term debts give liquidity to companies working capital (WC).

Which debts are of short term in nature?

Those debts, which the company will settle within next 12 months from the date of incurring.

#### How short term debt effects intrinsic value?

Short term debt does not negatively effect the intrinsic value a lot. How?

To understand this, lets know a bit of maths about intrinsic value.

Intrinsic value is dependent on free cash flow (FCFE)

Higher will be the free cash flow (FCFE), more will be the intrinsic value.

What is free cash flow?

FCFE = PAT – [Capex – D&A] – Increase in WC + (Net LT Debt).

How short term debt effects this FCFE equation?

Short term debt will have two effets:

• It will not increase working capital (WC).
• But it will reduce PAT by a very small amount.

Why PAT will reduce? Due to increased “interest” expense.

But as it is a short term debt (period <12 months), interest expense will be too small to cause any major harm to FCFE.

Overall the FCFE will reduce due to short term debt, but the change will be too small.

Example:

• PAT = Rs.4,108 Crore.
• Short term debt = Rs.669.88 Crore.
• Interest expense @8% = Rs.55.6 Crore.
• Reduced PAT = Rs.4,055 Crore (98.7% of PAT).

The effect of short term debt on FCFE (hence intrinsic value) is shown below:

[Note: New Debt – Debt Repaid, talks only about long term debts]

Why there is no increase in working capital?

Because a new short term debt (of say \$100) will add to both current assets and current liability.

• Current Asset (CA)
• Increase Cash (\$100)
• Current Liability (CL)
• Increase in Borrowings (\$100)

Increase in working capital = Increase in CA – Increase in CL

### Debt free companies and short term debt.

How does the above analysis on short term debt compliments our topic of “debt free companies”?

As free cash flow (FCFE) is not effected by short term debts, its impact on intrinsic value is also small.

So does it mean that a company can take as much short term debt as it wants? No.

If the level of short term debt crosses a limit, it might lead to problems in repayment.

How to define this limit?

Short term debt / Cash and Cash Equivalent < 1

Formula_1

So if a company satisfies the Formula_1, it can be treated as good as a debt free company.

#### How long term debt effects companies intrinsic value

The impact of long term (LT) debt is more visible on intrinsic value of a company. Why?

FCFE = PAT – [Capex – D&A] – Increase in WC + (Net LT Debt).

There are two reasons for it:

First, Compare to PAT, LT debts are bigger in size than short term debt.

Hence the impact of its “interest expense” on PAT is more significant.

Second, LT debt directly increases the FCFE (see the above FCFE formula).

The net effect of LT debt is, it always increases the FCFE.

Example:

• PAT = Rs.4,108 Crore.
• LT debt = Rs.24,568 Crore.
• Interest expense @8% = Rs.1,965 Crore.
• Reduced PAT = Rs.2,142 Crore.

FCFE = Reduced PAT – (Net Capex) – Increase in EC + New LT Debt.

FCFE before LT debt (LT debt = 0)

FCFE = 4108 – (Net Capex) – Increase in EC + 0 = Rs. (4,108 – K) Crores.

FCFE after LT debt.

FCFE = 2,142 – (Net Capex) – Increase in EC + 24,568 = Rs. (26,710 – K) Crores.

What we can understand from this example?

LT debt can significantly increase the free cash flow (FCFE), irrespective of its negative effect on PAT (reduced PAT).

### Debt free companies and short term debt.

How does the above analysis on long term debt compliments our topic of “debt free companies”?

The above FCFE calculation shows that, the bigger is the LT debt, higher will be the FCFE.

But does it means that a company can take as much LT debt as it likes?

No, too much LT debt will make the firm too susceptible to bankruptcy.

LT debt must not cross a safe limit.

What is that limit?

To identify debt free companies, I use the below three (3) screeners:

Total Debt minus Cash < 0 (negative).

Formula_2.1

Use of this formula will supersede the formula_1.

Total Debt / Equity ratio < 0.25

Formula_2.2

Total Debt / Total Asset < 0.20

Formula_2.3

What we can conclude from this analysis?

A company which satisfies the above 3 formulas are as good as debt free companies.

They may not be a zero debt company, but their debt level is so low that they can still earn the tag of a “debt free company”.

## Debt Free Companies & Debt minus Cash…

Let me introduce a concept of “Enterprise Value”.

To understand this lets take a small hypothetical example.

Suppose there are two companies ABC & XYZ.

ABC has a debt of Rs.80 Crore and B has a debt of Rs.120 Crore.

Which company looks better here?

If we have to look only at debt levels, Company ABC looks less risky.

Now suppose, Networth of ABC is Rs.80 Crore and Net worth of XYZ is Rs.120 Crore.

Means, the debt equity ratio (D/E) of ABC is 1 (80/80) and that of XYZ is also 1 (120/120).

So which company is better?

Debt/Equity ratio being a very reliable debt burden indicator is not able to differentiate between ABC & XYZ.

What to do?

##### There is a way out.

Suppose Company ABC and XYZ has a cash/cash equivalent reserves of Rs.75 Crore and Rs.132 Crore respectively.

Debt -(minus) Cash for Company ABC is = Rs.5 Crore (80-75).

Debt –(minus) Cash for Company XYZ is = Rs.-12 Crore (120-132).

A negative value for Company XYZ indicates that company is having enough cash to pay-off all its debt.

Hence, even if companies like XYZ is carrying high debt (Rs.120 Crore), they are still as good as zero debt companies. Why?

This is because XYZ also has enough cash reserves (Rs.132 Crore) to negate its debt burden.

Such companies (like XYZ), whose Debt minus Cash value is negative, can be included in our list of debt free companies.

In stock metric terms, we will use the Enterprise Value and Market Cap to understand how big is the cash reserves of a company compared to its debt.

Enterprise Value minus Market Capitalisation = Debt – Cash

Example: In the below list of companies, you will note that companies like Interglobe Aviation, ICICI Securities, has a debt/equity ratio of 0.35 & 0.81 respectively. They have still been included in the list. This is because of negative “Debt minus Cash” component.

[Note: If you want to know more about Enterprise value, check this link….]

## List of Top Debt Free Companies in India – 2019

(Updated for: February’2019)

 SL Company (Debt – Cash) / Asset Debt Equity Ratio Debt Asset Ratio 1 Max Financial Services Ltd. -2.37 0 0.00 2 Rites Ltd. -1.57 0.03 0.02 3 Coal India Ltd. -1.41 0.08 0.07 4 GE Power India Ltd. -1.27 0 0.00 5 NBCC India Ltd. -1.26 0 0.00 6 Interglobe Aviation Ltd. -1.10 0.35 0.26 7 Engineers India Ltd. -1.09 0 0.00 8 Indian Energy Exchange Ltd. -1.08 0 0.00 9 Glaxosmithkline Consumer Healthcare Ltd. -1.03 0 0.00 10 Cochin Shipyard Ltd. -1.00 0.04 0.04 11 India Tourism Devp. Corpn. Ltd. -0.99 0 0.00 12 Hindustan Unilever Ltd. -0.87 0 0.00 13 KIOCL Ltd -0.87 0 0.00 14 BSE Ltd. -0.80 0 0.00 15 Moil Ltd. -0.77 0 0.00 16 Castrol India Ltd. -0.77 0 0.00 17 Zydus Wellness Ltd. -0.75 0.04 0.03 18 Pfizer Ltd. -0.66 0 0.00 19 Honeywell Automation India Ltd. -0.65 0 0.00 20 Sonata Software Ltd. -0.65 0.05 0.05 21 Info Edge (India) Ltd. -0.64 0 0.00 22 Glaxosmithkline Pharmaceuticals Ltd. -0.63 0 0.00 23 Hindustan Zinc Ltd. -0.62 0 0.00 24 Bajaj Consumer Care Ltd. -0.61 0.03 0.03 25 Lakshmi Machine Works Ltd. -0.59 0 0.00 26 Dr. Lal Pathlabs Ltd. -0.58 0 0.00 27 Kaveri Seed Company Ltd. -0.58 0 0.00 28 Sun Pharma Advanced Research Company Ltd. -0.57 0.02 0.01 29 Vakrangee Ltd. -0.57 0 0.00 30 Oracle Financial Services Software Ltd. -0.56 0 0.00 31 Tata Sponge Iron Ltd. -0.56 0 0.00 32 ICICI Securities Ltd. -0.55 0.81 0.45 33 Whirlpool Of India Ltd. -0.55 0 0.00 34 Bandhan Bank Ltd. -0.54 0.03 0.03 35 Avanti Feeds Ltd. -0.54 0.01 0.01 36 Tata Elxsi Ltd. -0.53 0 0.00 37 Wabco India Ltd. -0.53 0 0.00 38 Monsanto India Ltd. -0.51 0 0.00 39 3M India Ltd. -0.50 0.01 0.01 40 Unichem Laboratories Ltd. -0.50 0.06 0.05 41 TCS -0.50 0 0.00 42 P&G -0.50 0 0.00 43 eClerx Services Ltd -0.49 0.01 0.01 44 Schaeffler India Ltd. -0.49 0 0.00 45 CARE Ratings Ltd. -0.49 0 0.00 46 Merck Ltd. -0.47 0 0.00 47 Hero Motocorp Ltd. -0.46 0.02 0.02 48 Akzo Nobel India Ltd. -0.45 0 0.00 49 Siemens Ltd. -0.44 0 0.00 50 Hindustan Aeronautics Ltd. -0.44 0.08 0.07 51 Thermax Ltd. -0.43 0.09 0.08 52 NIIT Technologies Ltd. -0.42 0.01 0.01 53 SKF India Ltd. -0.42 0.05 0.04 54 Larsen & Toubro Infotech Ltd. -0.42 0 0.00 55 Jubilant FoodWorks Ltd. -0.41 0 0.00 56 Infosys Ltd. -0.40 0 0.00 57 Sun TV Network Ltd. -0.40 0 0.00 58 Bata India Ltd. -0.40 0 0.00 59 Indraprastha Gas Ltd. -0.40 0 0.00 60 AIA Engineering Ltd. -0.39 0.04 0.04 61 Persistent Systems Ltd. -0.39 0 0.00 62 Symphony Ltd. -0.39 0.04 0.04 63 Bharti Infratel Ltd. -0.39 0 0.00 64 Havells India Ltd. -0.38 0.03 0.03 65 TeamLease Services Ltd. -0.37 0.02 0.02 66 Mahanagar Gas Ltd. -0.37 0 0.00 67 Praj Industries Ltd. -0.36 0.01 0.01 68 Rajesh Exports Ltd. -0.36 1.22 0.55 69 Sanofi India Ltd. -0.36 0 0.00 70 Bharat Heavy Electricals Ltd. -0.34 0 0.00 71 Suven Life Sciences Ltd. -0.34 0.04 0.03 72 Gillette India Ltd. -0.34 0 0.00 73 Escorts Ltd. -0.34 0.02 0.02 74 GE T&D India Ltd. -0.34 0.08 0.08 75 Central Depository Services (India) Ltd. -0.33 0 0.00 76 Balmer Lawrie & Co. Ltd. -0.33 0.01 0.01 77 FDC Ltd. -0.33 0 0.00 78 Finolex Cables Ltd. -0.33 0 0.00 79 Divi’s Laboratories Ltd. -0.32 0.01 0.01 80 Delta Corp Ltd. -0.32 0 0.00 81 National Aluminium Co. Ltd. -0.31 0 0.00 82 Bajaj Auto Ltd -0.31 0.01 0.01 83 Pidilite Industries Ltd. -0.31 0.03 0.03 84 Mphasis Ltd. -0.30 0.07 0.07 85 Reliance Nippon Life Asset Management Limited. -0.30 0 0.00 86 Cyient Limited -0.30 0.12 0.11 87 TV Today Network Ltd. -0.30 0 0.00 88 Bharat Dynamics Ltd. -0.30 0 0.00 89 Ambuja Cements Ltd. -0.30 0 0.00 90 Colgate-Palmolive (India) Ltd. -0.30 0 0.00 91 Petronet LNG Ltd. -0.30 0.15 0.13 92 ACC Ltd. -0.29 0 0.00 93 Bosch Ltd. -0.28 0 0.00 94 Grindwell Norton Ltd. -0.27 0 0.00 95 ABB Ltd. -0.27 0.17 0.14 96 Hexaware Technologies Ltd. -0.27 0 0.00 97 Graphite India Ltd. -0.27 0.1 0.09 98 Kansai Nerolac Paints Ltd. -0.27 0.01 0.01 99 Sheela Foam Ltd. -0.26 0.08 0.07 100 JB Chemicals & Pharmaceuticals Ltd. -0.26 0.02 0.02 101 Crisil Ltd. -0.26 0 0.00 102 Greaves Cotton Ltd. -0.26 0 0.00 103 TI Financial Holdings Ltd. -0.26 0.03 0.03 104 ITC Ltd. -0.26 0 0.00 105 Wipro Ltd. -0.25 0.29 0.22 106 MindTree Ltd. -0.25 0.11 0.10 107 Page Industries Ltd. -0.24 0.08 0.07 108 Eicher Motors Ltd. -0.24 0.02 0.02 109 Britannia Industries Ltd. -0.23 0.06 0.06 110 Navin Fluorine International Ltd. -0.23 0.01 0.01 111 Caplin Point Lab -0.23 0 0.00 112 Thyrocare Technologies Ltd. -0.22 0.02 0.02 113 IFB Industries Ltd. -0.22 0.06 0.05 114 Karur Vysya Bank Ltd. -0.22 0.38 0.28 115 Exide Industries Ltd. -0.22 0.01 0.01

P.Note: The above list of stocks has been evaluated on the parameter of the debt burden they carries. But the analysis is  based on only rough estimates.

I prefer to do a deeper analysis of my shortlisted stocks using my stocks analysis worksheet

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Hi. I’m Mani, I’m an Engineering graduate who in pursuit of financial independence, has converted into a full time blogger. After working in the corporate world for almost 16+ years, I bid it adieu....read more

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1. Harish Pawar says:

Very nice information, helpful for investirs. Thanks

• Mani says:

• Sachin says:

Sir earlier there were excel sheets of these debt companies, fastest growing companies and highest return on capital companies. Can you please start uploading those excel sheets again? They become handy and useful. Thanks

2. nabi says:

its very informative sir. it helped me a lot as i am starting beginner , the information about fundametals of company is most important auspect for investment in equity market. plz continue your valuable research on financial market

• Mani says:

Thanks Nabi for liking the work.

3. D c maniar says:

Good article

4. MAHESH says:

CAN YOU PLEASE CLARIFY IN THE FORMULAS, WHAT ARE THE LINE ITEMS FROM THE BALANCE SHEET THAT HAVE BEEN CONSIDERED FOR DEBT AND CASH CALCULATION