Companies that have an ideal amount of debt, usually outshine the market as debt provides financial leverage. The cost of raising debt is usually lower than the cost of raising equity. However, too much debt has its own cons. For example, the company has to pay interest to its lenders, even when it is not making profits.
Here are a few companies that have reduced their debt in the past few years:
Aether Industries
Aether Industries manufactures speciality chemicals and advanced intermediates. It also provides contract research and manufacturing services and contract/ exclusive manufacturing services built upon technology, research and development and pilot plant facilities.
In the past two years, the company has reduced its debt by 63.79 percent from ₹ 116 crores to ₹ 42 crores. At the same time, its share price increased by 54.47 percent in the past three years.
With a market capitalization of ₹ 13,861 crores, Aether Industries is a small-cap company. It has an ideal return on equity of 15.99 percent and an ideal debt-to-equity ratio of 0.01.
Supreme Petrochem
Supreme Petrochem is a petrochemical company that manufactures polystyrene, compounds of styrenics and other polymers.
In the past three years, the company has reduced its debt by 26.67 percent from ₹ 60 crores to ₹ 44 crores. Its share price increased by 346.30 percent in the past three years, to deliver multibagger returns.
With a market capitalization of ₹ 8,036 crores, Alembic Pharma is a small-cap company. It has a high return on equity of 29.66 percent and an ideal debt-to-equity ratio of 0.01.
Alembic Pharmaceuticals
Alembic Pharmaceuticals develops, manufactures, and markets pharmaceutical products like formulations and active pharmaceutical ingredients.
In the past three years, the company has reduced its debt by 82.81 percent from ₹ 1018 crores to ₹ 175 crores. However, its share price decreased by 31.13 percent in the past three years.
With a market capitalization of ₹ 12,926 crores, Alembic Pharmaceuticals is a small-cap company. It has a low return on equity of 7.12 percent but an ideal debt-to-equity ratio of 0.17.
Written by Simran Bafna
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