Any company, irrespective of its size and nature, requires financing on a regular basis. Such companies usually address their requirements of business financing by acquiring debts or loans or selling equity ownerships. Debts form an integral part of finances. Everybody, at some point of time, requires some kind of debt. But have you ever felt that feeling of freedom which comes after clearing all debts? Indeed that’s a great feeling. Similarly, a particular company can find it difficult to run its business on limited capital. They require extra money, and one way to achieve this is through debts. Experts believe that auto sector has a lot of potential due to the buzz around EVs. What better than a list of debt free auto ancillary stocks?
If the company has zero debt outstanding on its balance sheet, we refer them as debt free companies and their stocks are referred to as debt free stocks. Debt-free auto companies are the ones having zero outstanding debt or external borrowings. Now this does not mean that such companies have never borrowed. They might have borrowed for different needs, but they have paid their debts in full and have no current debt. As the result, debt free auto ancillary stocks are always preferred by investors.
If you are planning to invest in the company for long term purposes, you should always look at the company’s financial position. Analysing the financial position means understanding existing debts of the company, their profits, their industry and their revenues which they have generated over past few years. Finally, to understand the financial health of the auto ancillary companies, study their balance sheet. Investing in debt free auto ancillary stocks has always been a good idea as such companies tend to have greater chance to survive and grow over the long term. Read on to find some of the debt free auto ancillary stocks to buy in India for long-term purposes.
1. Munjal Showa Limited
Established in 1985, in collaboration with Showa Corporation of Japan, the leaders in manufacturing shock absorbers, Munjal Showa Limited is the member of Hero Group. This group is a major player in the manufacturing sector in India and consists of 15 active companies having complete backward integration for automotive manufacturing. Munjal Showa Limited in its JV with Showa Corporation designs and manufacturers shock absorbers and struts for 2-wheelers and 4-wheelers. Munjal Showa manufacturing plant spreads across an area of 24,075 sq. mt. in industrial area of Gurgaon, Haryana.
The Company has achieved turnover (net of GST) of INR1,24,053.90 lakhs in FY23 as against INR1,05,994.62 lakhs during FY22. The company’s profit before tax came in at INR4,218.77 lakhs as against INR1,387.61 lakhs in FY22. The increase in PBT was of 204.03% and PAT of the company grew by 162.57% to INR3,184.93 lakhs as against INR1,398.99 lakhs in FY22.
Growth of the company is expected to be supported by favourable dynamics of the industry. Indian automotive industry should reach US$300 billion by 2026 and the country has a strong position in global heavy vehicles market. This is because India has been categorised as the largest tractor producer, 2nd largest bus manufacturer, and 3rd largest heavy trucks manufacturer in the world.
2. Jullundur Motor Agency (Delhi) Ltd
The company trades and distributes car parts, accessories, and gasoline products. It is one of the largest distribution companies in Independent after Market in the country. With branch network of 77 branches and a dealer network of 75,000 dealers PAN India, the company covers almost all parts for all vehicles dealing in only in OE and premium quality brands.
The company saw a turnover of INR40,868.86 lakhs, which translates to the growth of 13.19% in FY23. Its PBT came in at INR3,034.23 lakhs, exhibiting a growth of 6.93% in comparison to INR2,837.54 lakhs in previous financial year. It is a debt free company.
Focus of the company is on adding new products/lines in product mix and it has plans to open up new outlets/sales units in certain tier-II & tier-III cities / towns throughout the country to address areas which have remained uncovered. It continues to invest in technology to help increase efficiency. Since OEMs are facing issues regarding supply chain, the company continues to see opportunity of higher consumption of spare parts for old vehicle. This should help in increasing its sales/volume of parts in which it deals.
3. Indag Rubber Limited
Founded in 1978, the company changed Indian retreading industry as it introduced its cold retreading technology and is now being regarded as pioneer of retreading in India. Over last four and half decades, the company has travelled far, growing into vast family of retread partners serving fleet owners across India. The company manufactures and sells precured tread rubber and allied products.
In 1Q24, the company saw strong sales performance and profitability. After reporting 15% year-over-year growth in revenues in 1Q24, it reached INR66 crores. On profitability front, EBITDA grew by 151% to INR7.5 crores and PAT went up by 220% to INR4.7 crores. On year-over-year basis, its volumes saw an increase, because of healthy macroeconomic environment. The company saw improvement in its EBITDA margins which came in at ~11.4%, while PAT was 7.2%. This enhancement in margin was mainly attributed to stable input costs in comparison to abnormal input costs experienced during 1H23.
The company expects that India’s growth story should present remarkable opportunities, and it continues to shape its strategies to facilitate accelerated progress in upcoming years. During FY23, the company saw net revenue of INR252.24 crores against INR173.33 crores in FY22. Profit before finance cost and depreciation came in at INR22.03 crores against INR7.22 crores in FY22. During FY23, the company saw higher sales because of correction in market post COVID recovery. This trend should continue in FY24 too.
The company’s growth stems from strong brand, market presence in organised retreading segment, and pan-India distribution network of dealers, retreaders and fleet owners. Strong financial risk profile of the company supported its comfortable capital structure and coverage indicators persuaded by the company’s debt-free status.
Bottomline
Generally, debt free auto ancillary stocks are considered by the investors can of sound financial health and favourable industry dynamics. This is because they have lesser liabilities to cover and they can invest their surplus for better performance of the company’s business or for setting up new manufacturing plants for EVs or batteries. It is generally advised that first-time investors should consider investing in debt free stocks as they have lower risk and strong potential for long-term growth.
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