Sunday, October 25, 2009

Zero Debt Cos.......

I read this news in ET internet edition of Saturday .....and saw that 30 cos has cut the borrowings.Now if the borrowings are cut then it means that these paid up borrowings will have a very positive effect on the bottomline as they will not have to pay the interest to banks or creditors....
This is a simple thing to understand.If one pays loans , which is named as borrowings in corporate language , then it is obvious that co will have not to pay the interest of the loans paid and hence that Interest amt will be directly added to the bottomline and hence will flare up the EPS and hence the stock will become cheap with P/E also going down.
Anyone can read this news and understand it.It is very simple.But who wants to read?That is a moot question .But if one needs to learn and understand things in stock market , people has to find his own way because unless you do it yourself, u do not have the confedence and one ends up asking again and again whether the stock is still a buy or hold or sell etc etc.....and that is why I put emphasize that try to find facts on your own.......
I remember when I was in India I tried to read almost all, ET, BS, FT....all I cannot buy ,I use to buy ET and BS daily and use to go to library to read FT and other stock market magazine......I was a subscriber of Business India Magazine and Capital Market Magazine and never missed a single issue for last 4-5 yrs and more ....and use to read Business Today, Businees World etc, else where.
Knowledge is Wealth.When one is investing his hard earn money why he do not try and find out what he can for that stock?That is what Peter Lynch has said.If one go for buying a Refregerator or Washing Machine or AC or Scooter he will ask everyone what is it, how it is performing, will also ask numerable queries to showroom manager but when they buy stocks they depend on others.....That is the biggest anamoly of a human.....
I can say that what I have posted here which I read in ET is easily readable by anyone and there is no finer lines to pick.If someone would have read this news he should have been able to pick couple of damn cheap stock from this article......
Zero Debt co is a great thing to have.........NO me is the biggest positive....moreover it is not easy to find which co has less debt eq ratio as one has to go through the BS or AR which is not possible and hence readers needs to be always on toes to pick up such news from newspaper......Needs to be vigilent .....
There is one Box in which they have written the list and how much debt has been lessoned.I tried to copy paste it but was not able to do it but in it one can see that many cos hass become a Zero Debt cos after this and these stock are a BUY this rate....Insiders must have cornered some stock listed here...but it is hard for investors or even Fund Manager can have this it is still not too late to go ahead and buy these stocks...........
I give u one more hint......on every saturday in ET if you will try to look at the quotes of stocks which use to come daily in ET it on every Saturday after almost a month is over..after the quaterly results are declared they keeps on adding new results I use to read it when I was in India and also sometimes I do it here on Internet edition whenever time permits will find all results declared of cos at the end of the quote.....and how much the NP has increased or decreased then last previous year qr.....sometimes we do not read this results on BSE site but can see in ET....from that atleast we can see that which co NP has increased or decreased from last qr NP.....and take the decision accordingly....or find a new stock....
It is all not EASY as People THINKS.......I put lots of effort in finding and constantly tracking the stocks which I recomend and this takes away lots of time of mine to do such things.....

Corporate India gets ready to wear the debt-free tag

Around 30 Cos Cut Their Borrowings, While Some Reduced Them To Zero In FY09

Vijay Gurav & MV Ramsurya MUMBAI

IFB Industries, Eicher Motors, Tata Sponge Iron, Balmer Lawrie & Co, and Hind Copper are among 30 companies that are leading Indian corporates in attaining the status of a zero-debt company, which fetches higher valuations in stock markets. The slashing of debt helps them to save on interest cost which eats into net profit and also leaves more cash to be distributed to shareholders in the form of dividends. It will also insulate the companies from any future hike in interest rates that looks inevitable, given the rising prices. After studying the balance sheets of many companies across sectors, ET shortlisted about two-and-ahalf dozen companies which have brought down total borrowings, including secured and unsecured loans, to significantly low levels or even reduced them to zero in the last financial year. According to analysts, more and more companies will try to get rid of debt as market conditions turn conducive for raising funds from other relatively cheaper sources. Funds from alternative sources can be used to repay existing loans and to reduce interest outgo. “If a company pays off its loans, that could be because the company is confident of generating enough cash internally and does not need to raise debt for future growth,” said Maulik Patel, head of research, KR Choksey Shares and Securities. The market tends to favour stocks of such companies even in bad conditions. Highlighting the disadvantages of being a debt-heavy company, he said investors are cautious about them because of concerns over impact of large interest outgo on bottomline. Citing examples of companies like Tata Motors and Wockhardt, Mr Patel said mounting debt puts pressure on valuations. While reducing debt is a positive move, a company should also see that it is done without diluting equity significantly. If any company raises funds through equity issues like preferential allotment or QIP to retire debt, it would help reduce the debt-equity ratio. However, such moves would raise the equity capital and bring down earnings per share or EPS. “To avoid dilution in the equity, the company can instead tap the foreign market to raise debt like FCCB or FCCN where the cost of borrowing is much lower than the funds raised in local market through issue of debentures and in the form of loan from banks and financial institutions,” said an analyst with a leading Mumbai-based brokerage on condition of anonymity. Of the shortlisted companies, BOC India has become a zero-debt company after the industrial gases major repaid the entire loan of Rs 219 crore in 2008. The company had raised Rs 597 crore through preferential allotment to the foreign parent BOC Group, part of which was utilised for retiring the debt. State-owned Hindustan Copper, which is currently on the government’s list of possible candidates for disinvestment, is another example where the company has met its debt obligations from internal accruals. The company, which had a debt of Rs 216 crore, in 2006-07, was able to pare the outstanding to Rs 36 crore in the subsequent two years amidst the bull run in commodities. “The years 2006 and 2007 were the best periods, with copper prices ruling at all-time highs,” said one senior executive with Hindustan Copper, who asked not to be named. “This is also the time when we reduced our debt by about Rs 300 crore.” Tata Sponge Iron, IFB Inds and Eicher Motors are some of the other companies which are reducing debt to almost nil. The figures stood at Rs 0.1 crore, Rs 0.5 crore and Rs 8 crore respectively as on March 31, 2009, compared to Rs 147 crore, Rs 398 crore and Rs 218 crore as on March 31, 2007. Most of the abovementioned companies have recorded a sharp improvement in their performance. BOC India, Tata Sponge Iron and IFB Industries have recorded a net profit growth between 26% and 744% in FY09.


  1. Dear Mr Desai,
    1. Thanks for the wonderful writeup on zero debt cos.It is really mind tingling.
    2. Can you pl give your comments on Money Matters Financial Services Ltd. which has a low pe, good profit record and a large promoters stake with very low equity for the general public. does it fit into the category of a multi bagger.
    Warm regards sandeep

  2. Dear Sandeep,
    Money Matters can become a big multibagger......

  3. Hi Rajeev,
    Thanks for the article. I read only BS and not ET. so missed this article. And thanks to Sandeep for pointing such a nice company which you think can be A BIG MULTIGAGGER....
    Ok out of the companies in the ET article, IFB looks great. But after going through MMB i am in doubt. Sudden up and sudden down puts doubt in mind. Do you think IFB can be a multi-bagger? Also i liked TATA Sponge Iron ( Planned to merge in Tata Steel- BS 23/24 Oct.)and Balmer Lawrie( continuous decreasing debt and continuous increasin EPS for last 5yrs). But both of them above 100. What you think about them?
    With Regards

  4. Hi desai,
    Thank u for ur calling deep ind..
    What do u think abt IDBI bank and
    Aries Agro LTD...

  5. lucky,
    IDBI and Aries Agro both are looking good.I have already recomended IDBI many times here.Aries Agro I track it for long.Definately looking good to me...

  6. Vikas,
    IFB, Tata Sponge and Balmer all looks good to me...

  7. Dear Rajeev,

    Wonder and admire u track so many counters and i bet its requires lots of reading.
    I am just zapped after reviewing Money Matters Financial Services Ltd. There is hardly few lakh shares left with public (0.75% =2L shares) of the total equity of 2.7 cr shares.

    Needless to say that you would like it and a candidate for a BIG MULTIPLIER for the following

    - 10rs paid up
    - promoter holding 71.04%
    - corp holding 28.21%,
    - Performance consistent for the last 4 Qtrs after new management take over
    - Sector that gets high PE during the bull phase.
    - Available at low PE for annualized EPS
    - Interim dividend likely (first time i think its planning for dividend)
    - Finally there client list.. this is where i fell in love with this

    ( Did i miss any thing else
    Caution to new entrants:
    - free float is low and hence buying and selling needs patience
    - As its a relative small company,earnings could see rapid fluctuation (i could be wrong here)

    Thanks to sandeep for bringing it out. This is a perfect example of how a small comment written could manifest.


  8. Barat,
    What u have written is perfect.Very Low public holding is a big big plus.
    Morever they have gone through right issue with detachable warrents and that will be converted in shares at the average price of 6 months and that can be 134 and over.That is the reason the price has been supressed so that the conversion of warrents price do not beyound 134....

  9. Rajeevji,
    Where to find warrants issued , FCCB conversion etc for a script. I follow and can't find these informations for any company. I go through all the tabs (Balance sheet , P&L , Ratios ,Cash flows etc).Am I missing any section?

  10. mk,
    u need to go to bse site and read the annoucement of cos where u wants to find it.....u need to go through all annoucement....all means all....2-3-4 yrs is a hard job but I do it....for each co where I am interested....moreover , mk, u yourself need to find ways to read annoucement of co...there is one tab at moneycontrol to see the annoucement as is all trial and error.....explore tabs of the cos at moneycontrol site u will find many things...

  11. Dear Rajeev,
    Yes the equity is going to 4.5crs shares after the conversion of all warrants.

    I missed to mention that they are attracting talents for banks and other NBFC's. Have a feeling that they are in for some thing very very big

    This warrant conversion in stages is going to complete by Sep 2010. its any ones guess on how long this suppression game is going to continue.

    Pls share if any one has got soft copy of the last AR report.