Three recently debt-free stocks mutual funds can’t get enough of

This significant change from debt-laden balance sheets to zero debt, especially at a time of high interest rates, demonstrates a fundamental shift in their business model and improved cash flow management, catching the attention of smart money.

A few leading mutual funds with stringent investment criteria have swiftly moved to either raise or buy stakes in these companies. Here are three of those firms, ranked by the debt held in recent years.

Jupiter Life Line Hospitals Ltd 

The multi-specialty healthcare provider, which has a market cap of nearly ₹10,000 crore, had debt of ₹261 crore three years ago. In October last year, Jupiter Life Line raised ₹869 crore through an initial public offering of its shares, of which ₹542 crore was through fresh share issues. The company used this money to repay all its debt and the remaining amount for general corporate purposes.  

Typically, raising equity to repay debt may not be a great idea. But at times it works out well if the company uses the money raised to repay, say, high-cost debt and free up resources to invest in growth.   

Jupiter’s debt line

Jupiter Life Line’s sales grew at a compounded annual growth rate of 18% between FY19 and FY24, from ₹398 crore to ₹911 crore. Its net profit jumped from ₹18 crore to ₹152 crore in that same period, at a CAGR of 53%.

The company’s Ebitda (earnings before interest, taxes, depreciation, and amortization) increased from ₹65 crore in FY19 to ₹223 crore in FY24, at a CAGR of 28%. Its operating profit margin improved from 16% to 25% in that period.

The company, which listed on the stock markets in October 2023 at ₹1,052 per share, ended Friday’s trading at ₹1,506 apiece on NSE.

Jupiter Life Line’s market moves 

As for valuations, the stock is trading at a price-to-earnings (PE) of 57 times, comparable with the industry average. Its 10-year median PE is 56x. 

Jupiter Life Line intends to expand in India’s western markets and plans to double its bed capacity from around 1,200 now to over 2,500 in the next few years. 

According to investindia.gov.in, the hospital sector in India is expected to grow to about ₹18.3 trillion by FY27, at a CAGR of 18.24%.

SBI Healthcare Opportunities Fund holds an 8.91% stake in Jupiter Life Line, and Goldman Sachs India Equity Portfolio Fund about 2.25%.

eMudhra Ltd 

eMudhra is a licensed certifying authority for issuing digital signature certificates in India. The company, which has a market cap of ₹7,222 crore, is licensed by the Controller of Certifying Authorities (CCA) and operates under the guidelines set by the Information Technology Act. 

eMudhra’s debt

In January, the company completed its qualified institutional placement (QIP) of 4,739,336 equity shares at ₹422 each for ₹200 crore. The fundraise helped it to lower its debt to zero as of the September quarter. 

eMudhra’s sales improved from ₹102 crore in FY19 to ₹373 crore in FY24 at a CAGR of 30%, while its net profit increased from ₹17 crore to ₹76 crore at a CAGR of 32%. The company’s Ebitda grew at a compounded rate of 28% from ₹32 crore in FY19 to ₹110 crore in FY24. Its operating profit margin, however, shrunk from 32% to 29% in that period.

eMudhra’s share price, which was ₹256 when the company listed in June 2022, ended Friday’s session at ₹874.90 each.  

eMudhra’s market moves 

The company’s shares are currently valued at a PE of 89x, higher than the industry average of 40x. Its 10-year median PE is 57x. 

eMudhra is on a growth spree when it comes to expansion. In June 2023, it completed the acquisition of a 51% stake in Ikon Tech Services Llc, a US-based cyber security and digital transformation solution and services company, for $6.12 million. In July this year, it acquired an 86.8% interest in US-based TWO95 International Inc.

Nippon India Small Cap Fund has been invested in eMudhra since June 2022, when its holding in the company was 3.5%. Between June and the end of September 2024, its holding in eMudhra increased from 6.58% to 7.84%. Motilal Oswal Growth Anchors Fund holds 1.16% of the company’s shares.

TD Power Systems Ltd 

The manufacturer of AC generators and electric motors has maintained zero debt since March last year. 

The company’s sales grew from ₹459 crore in FY19 to ₹1,001 crore in FY24 at a CAGR of 17%, while its net profit improved from ₹3 crore to ₹118 crore, growing at a compounded rate of 105%. Ebitda grew from ₹30 crore in FY19 to ₹171 crore in FY24, while its operating profit margin improved from 7% to 17% in that period.  

TD Power’s debt

TD Power’s share price has vastly increased, from ₹29 apiece in November 2019 to ₹447.00 per share at market close on Friday, making for a 72% compounded growth.

TD Power Systems Ltd Share Price 

The company’s stock valuation is currently at a PE of 52x while the industry average is 65x. Its 10-year median PE is 29x. 

TD Power plans to spend ₹120 crore in FY25 and FY26 on capital expenditure and expects sales of about ₹1,200 crore in FY25. 

Nippon India Small Cap Fund, which has owned TD Power shares since March 2021, currently owns an 8.04% stake. Aditya Birla Sun Life Multi-Cap Fund holds a 5.38% stake.

HDFC Multi Cap Fund, ICICI Prudential Smallcap Fund, Mirae Asset Aggressive Hybrid Fund, Sundaram Small Cap Fund, and LIC MF Multi Cap Fund also hold stakes in TD Power. 

Jupiter Life Line, eMudhra and TD Power have shown that they are capable of funding growth by raising fresh capital. Having said that, debt is not always bad. Sometimes manageable levels of debt can be helpful in running a capital-efficient business. 

On the other hand, raising equity to repay debt can sometimes signal poor corporate health. Thorough diligence is critical for investing success when picking stocks in a declining debt environment.

Note: We have relied on data from www.Screener.in and www.trendlyne.com throughout this article. Only in cases where the data was not available have we used an alternative but widely used and accepted source of information. 

The purpose of this article is only to share interesting charts, data points and opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.  

Suhel Khan has been a passionate follower of the stock markets for over a decade. He was an integral part of a leading equity research organisation based in Mumbai as its head of sales and marketing. Presently, he spends most of his time dissecting the investments and strategies of India’s top investors.

Disclosure: The writer and his dependents do not hold the stocks discussed in this article.