Stock ideas: Debt free companies

Hi Friends,

We received an overwhelming positive response to our article on “How to find better investments using Accounting Ratios” and few of our readers asked to share few stocks which met those criteria. These are some interesting mid/small cap stock ideas, which have been doing well yet  go un-noticed. They have good accounting ratios and seem to be trading at very compelling valuations.

1. Mazda Ltd (BSE Code – 523792): Mazda is an engineering company, specializing in steam jet vacuum systems and condensers and they find application in process and power industry. The interesting part is the balance sheet and the valuations at which the stock is trading. At CMP of 92, the company is available at a market capitalization of 40 Cr while it has cash of close to 15-20 Cr on Balance Sheet. Company is generating annual sales of 100 Cr & net profits of 10 Cr and is available at an Enterprise Value of just 20-25 Cr. Stock is trading at a PE of just 4 and Price to BV of just 0.60. Company has also started a new factory at the end of March, 12 and may help in growth.

A good detailed post was recently done by Dhwanil, do go through that for details.

2. Kakatiya Cement (BSE Code –

500234, NSE Code – KAKATCEM): KCL is a south based company having three divisions – Cement, Sugar & Power. Though first two segments are cyclical in nature but the interesting thing is that this company hasn’t been expanding, rather they have utilized the cash flows to repay the debts and become a debt free company.

 At CMP of 80, the stock is available at a PE of just 3, Price to BV of just 0.40. The M Cap is just 60 Cr while the company has cash on balance sheet in excess of 20 Cr.

Negative – The company hasn’t expanded its capacity for quite some time and there is cyclical risk but both cement and sugar has been doing well now.

3. Sree Rayalseema Hi-Strength Hypo (BSE Code – 532842, NSE Code – SRHHYPOLTD): SRHHL is the only Indian manufacturer of Calcium Hypochlorite and one of the few in the world. Calcium Hypochlorite is used in water treatment especially in swimming pools etc. Company sells its product by name of Aquafit.

Though the company is not debt free but they have been reporting very healthy operating numbers for last 3 years but the net profits remain lumpy and volatile due to some uneven tax adjustments and extra-ordinary items. For last 4 years the average EBIDT has been about 40 Cr yet the market cap is 50 Cr. The trigger going forward is that the company has undertaken an expansion to almost double it’s production capacity. The expansion should get completed by Q1FY13.

At CMP of 45, the stock is trading at a PE 2.50 and Price to Book Value of 0.50.

Negative – The promoters have been increasing stake by doing preferential allotment and merging of group companies.

4.  Technofab Engineering (BSE Code – 533216, NSE Code – TECHNOFAB): Technofab is an engineering and construction company (BOP) and the company had come out with an IPO @ Rs 240 two years back. Since then the company has almost doubled its turnover and increased its profit by 70% yet the stock is available at just Rs 130.

The company has a pretty good growth record – the sales has grown at a CAGR of 47% for last 5 years from 81 Cr in 2008 to 380 Cr in 2012. The best thing is that the company has remained low on debt during these years and as of FY 2012, the company has excess cash on balance sheet of about 65 Cr. At CMP of 130, the M Cap is just 135 Cr.

Going forward the company the company has an order book of 950 Cr and expects to maintain a 20-25% turnover growth. The promoters have been buyers in the stock and increasing their holding consistently. At CMP of 130, the stock is trading at a PE of 4 and price to BV of 0.80.

Most of the above companies are debt free and having some sort of leadership in their business areas. As they have already done well in the testing times, we expect them to perform better in coming times.

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  • Jatinder221

    very good study. and helpful to all retail clients who regularly read such kind of postings on internet. good jo…keep it going !!!!!!

    • http://www.facebook.com/sunil.tamras Sunil Tamras

      hi Ayush,
      ur views on Zydus wellness is it a good investment at current levels

      • Ayush

        Hi,

        Its a good company but haven’t looked at it recently. If you have some specific insights/rationale then do share.

        • Mann

          Ayush what’s your view on shree rasalyam hypo now at these levels can the stock be accumulated at these levels and what’s the prospect for next 2-3 years.please advise…

          • Ayush

            On the fundamentals front the co hasn’t done well. So we are awaiting more clarity to take a call.

  • JIGS

    Interest rates are not going to come down for next 2-3 years no matter what experts tell us daily. Adding some more debt-free companies I track – Saraswati Industrial (Huge Cash Per share vis-a-vis debt), AIA Engineering, Mahindra Lifespaces, Mindtree, Persistent Systems,  Gateway Distripark.

    • Ayush

      Hi Jigs,

      Though for India we believe some softening is needed but we agree that there might not be an aggressive softening for quite sometime and in challenging times like these, its good to stick to cash rich companies.

      It would also be important to see if these cos would utilize the cash or just sit on. Cash has value only if utilized smartly.

      I do track and like Saraswati

      • http://www.facebook.com/avadhutnigudkar Avadhut Nigudkar

        Hi Ayush,

        Want to ask some questions about stock screener that you developed.
        Do you have a FAQs or How to create custom screener doc? Would love to discuss it with you thru email.

        Regards,
        Avadhut

  • Jayesh

    Speciality Restaurant is also good company. Reliance MF has just bought it from 157. Current rate is 218. What do you think about it.Regards,Jayesh.

    • Ayush

      Don’t track it closely due to high valuations

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  • madhu

    Do you like solar energy space? How is webel solar?

    • Ayush

      We do like this space but most of the listed cos haven’t been doing well and are making losses.

      • madhu

        what about webel solar?

        • Ayush

          The co has been posting big losses…why are you interested?

  • Sreekanth

    Hi Ayush you are doing a good job out there keep up the good work….

    Do u track GHCL and Uflex? Both are under very good valuations from a long term investment perspective.

    Also what are your views on Vikram Thermo India and Cenlub Industries?

    Thanks once again..

    • Ayush

      Hi,

      Thanks :) We don’t track GHCL & Uflex as they are in commodity areas and mgmt is also not that good and clean.

      We do like Vikram Thermo and seems to have potential at these prices. Cenlub is also interesting due to high div pay-outs.

  • Siddharth

    Hi Ayush , What is ur view on Sanwaria Agro Oils?

    • Ayush

      We are not tracking the same.

  • http://twitter.com/kjbmathew kjbmathew

    hey,,
    do you track swaraj engines?

    • Ayush

      We don’t track it closely but its a good company.

  • Vignesh

    Hi Ayush,

    I am an MBA student. I want to do my intern in equity research. I have some queries. Are there any option available here for sending private messages or your email id. I will send my queries to you. Please help me when you find free time..

  • Sushil

    Hi Ayush,
    Your views on Asbestos companies esp Everest industries.
    Regards,
    Sushil.

    • Ayush

      Most of the cos from this sector have posted very good nos. Hyderabad & Everest both look good for medium term

  • stocky

    Ayush,Any update on andhra petro? last two qtrs company made loss.Any observation from your side??

    • Ayush

      The last two qtrs performance is quite concerning. We had exited the stock post last qtr.

  • Manmohan

    Any comment on recent remuneration to Directors of Manjushree Technopack. Rc 8cr for a company making 20 cr profit?

    • ASHOK

      Very Bad

      Shareholder should object resolution and demand poll atAGM

  • NR

    Hi Ayush,

    Whats your take on Parekh Alum & EssDee Alum, has it bottomed out. Can we take fresh investments and which is better.

    Regards

    NR

    • Ayush

      Sorry we don’t track them

  • Austin

    Hi Ayush,
    Just wondering how much is cash flow and receivables pose a concern for technofab… any comment ? ( by the way your screener is the best there is !! )
    Austin

    • Ayush

      Yeah, cash flow is not great but receivables look ok. Being a infra stock, there will be some concern on quality of nos.

  • dhaval parikh

    Tanla is a debt free company with huge reserves and cash balance is greater than marketcap. Even though we assume that there is a corporate governance issue dont you think that marketcap to cash looks attractive?

    • Ayush

      I think we should strongly avoid poor cos. These stocks can be value traps

  • Manmohan Toshniwal

    Hi Ayush,

    Do you have annual report of Sree Rayalseema Hi-Strength Hypo 2011-2012. Could you please let me know the source of information on their expansion.

    • Ayush

      The co hasn’t posted the annual report as there was some merger going on and the same has got cleared very recently.

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  • ASHOK

    WIMPLAST AGM Note :-

    (1)Co
    would report Rs.320 to 340 Cr sales for 13 – 14 at gross level next
    year Co may grow up to Rs.380-400 Cr next yr if market demand
    permits.This may be 90 %
    capacity utilization also at 400 Cr.They are growing due to new designs
    which they come out regularly by visiting in world.For others like
    NILKAMAL and Supreme this in not main business.They do not do R & D
    to claim tax benefits but do so to develop new designs and remain more
    profitable.

    (2)Co would not reduce div from Rs.8 in bad times also but would think of increasing div in next year.

    (3)As
    Co is facing major problem while launching new design for MOULD Co
    would enter in this business and has acquired land near Chennai Plant
    and would start in next 6 -12 months.This was informed without name when
    We had meeting last time at Reg office but details was not given.They
    would also cater to auto sector also.

    (4)MD
    discussed about business for 30 minutes after agm with 8 -10 analyst
    as analyst from MUMBAI,BANGLORE and PUNE had come as Co is not meeting
    anyone except at AGM.

    (5)They did show plant to all in details also.

    (6)Co
    would try to maintain and keep extra profit margin compared to other
    but would not try to become No 1 and loose margin also.

    (7)Good
    Plastic chair cost just less then 10 % at entry level compared to wood
    chair at entry level and Premium Plastic chair cost less then 5 % of
    premium wood chair and hence market replacement would continue due to
    many benefits of plastic chairs.They are in Cup boards also.They have
    more then 100 different plastic chairs,tables and some storage solution
    products.

    (8)No
    major Tax benefits available except some in Haridwar for 3 yr and
    Baddi 30% for 2 yr and may be in WB for Sale Tax also if approval
    obtained.

    (9)They
    are in all four areas of INDIA So market development and logistic
    becomes manageable as chair is bulky but weight less also.

    (10)They would do ads in TV in regional channels with regional festivals only to increase sales / margins of new capacity.

    (11)Total
    plastic furniture Market may be Rs.2500 Cr with 25-30% Nilkamal,Supreme
    15 % and Wimplast 15 % and remaining unorganised.

    (12)Chairman
    does not want to give rosy picture to increase stock price and would
    like to remain conservative but would like to do business strongly with
    No 1 in margins only and not in No 1 in sales.

    “Invest in Knowledge, Share with Others, Grow Together”

    • Ayush

      Dear Ashok Sir,

      Thanks for taking up this important task of visiting AGMs and spreading investor awareness.

  • kamlendra kumar

    Exact this answer I was looking for. Else, others started to show big companies.
    well done!!!

  • RAJU

    how about taking positions in debt free companies like CASTROL OBEROI REALITY ETC ADD A FEW MORE SCRIPS THAT HAVE GOOD PROSPECTS IN SHORT/MEDIUM TERM HORIZON