A fundamentally good company also relates to the company that is low on debt while leveraging enables expansion, capital expenditure etc., too much of its existence on the company's balance sheet is not a good financial indicator. As is reported despite the disruption seen amid the pandemic, India Inc. is treading on the path of mending its balance sheet and there are few companies which have cut down on debt by a substantial amount say as in the case of Chambal Fertilisers which for the just ended FY21 has reduced its debt by over 50 percent.
Now below are listed some such companies that have cut down on debt substantially as well as offer good investment opportunity owing to near term upside:
1. Chambal Fertilisers:
As it is the fertilizers stocks in the country were seeing an uptick and some of them are trading very close to their 52-week high price. Last traded price for Chambal Fertilisers as on June 23 is Rs. 302.45, while its 52-week high is Rs. 321.
The subsidy dole out by the government has helped the company in a big way in reducing its debt over the fiscal year 2020-21. As per ETIG database, Chambal Fertiliser debt stands reduced to Rs. 3165 crore in FY 2020-21 from Rs. 9696 in FY 20.
Upside potential in Chambal Fertilisers
As with other fertilizer stocks, the stock of Chambal Fertilisers may see a re-rating owing to a strong forecast for monsoon and also debt reduction by the company. As per the Bloomberg consensus estimates, the stock of Chambal Fertiliser can rise up to 37% in the ongoing year 2021.
2. Tata Steel:
From the commodity space, this Tata company has cut down debt heavily owing to rising steel rises and the commodity cycle uptick is likely to stay so hence the bullishness in this scrip. As of 2021, the company's debt to equity on a standalone basis is at 0.3 while on a consolidated basis it is at 1.11 as per the Money control site.
Rationale for investment: Currently steel prices in India are at a discount to import parity prices thus steel companies have considerable scope of hiking rates in the near term.
Debt level and potential upside in Tata Steel: For the FY 2021, the company has cut down its debt to Rs. 88,501 crore. ICICI Securities has given a ‘Buy' recommendation on the scrip of Tata Steel at a price of Rs. 1182 for a target price of Rs. 1500
3. Jubilant Pharmova:
The pharmaceutical company has also reduced debt substantially as majority of its debt to the tune of Rs.600 crore is now transferred to its other demerged entity Jubilant Ingrevia. The improving outlook for the company is making analyst sound bullish on the scrip.
Potential upside for the scrip of Jubilant Pharmova
There are 8 active buys on the scrip of Jubilant, together with 2 sell and 4 hold recommendations for a average price target of Rs. 957.5, i.e. an upside of over 28 percent.
Molilal Oswal in its report dated June 19 has given a buy call on the scrip at a price of Rs. 747.5 for a price target of 29%.