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Impact of Debt Reduction On Stock Returns

Debt always feels burdensome, whether in the real life of an individual or in companies. However, it is also true that to acquire certain assets that are expected to generate profits soon, we use debt for procurement. One of the reasons we opt for debt is our confidence that the acquired assets will enable the company to generate a substantial amount of money, facilitating normal business operations and eventual repayment of the debt.

However, obtaining debt is an easy task, but the timely repayment of it without any defaults leaves a positive impression and improves credit ratings, whether for a company or an individual.

Banks or lenders are hesitant to lend money to those companies with an unclear or tarnished payment history. Similarly, we also exercise caution and do not lend money to those whose creditworthiness is inadequate.

Furthermore, investors always seek out companies that have reduced their debt burden. This not only attracts the attention of retail investors but also big institutional investors.

In this article, we will explore the top fifteen companies with market capitalization ranging from Rs 1000 crore to Rs 2000 crore that have managed to reduce their debt by half on a YoY basis. Additionally, we will analyse their stock performance, starting from the beginning of the financial year, particularly on the first trading day of FY24.

Company Name Debt in FY22 Rs in Cr Debt in FY23 Rs in Cr % Reduction CMP Rs Stock Price on Apr-03 Rs % Return from 1st April
Jeena Sikho 7.43 0.81 89.1% 1,019.00 297.00 243.10%
Indraprastha Medical 5.31 2.48 53.3% 174.00 79.05 120.11%
NIIT 25.22 12.88 48.9% 121.25 76.50 58.50%
XPRO India 89.88 38.68 57.0% 1,074.20 702.00 53.02%
Gujarat Themis Biosyn 1.17 0.42 64.1% 1,019.30 689.90 47.75%
Kitex Garments 73.07 25.00 65.8% 207.35 141.00 47.06%
Steelcast 62.80 23.65 62.3% 681.85 465.00 46.63%
Shree Digvijay Cement 0.21 0.03 85.7% 91.90 62.80 46.34%
Linc 3.46 0.97 72.0% 765.10 527.40 45.07%
NDTV 21.82 7.50 65.6% 213.05 186.20 14.42%
Praveg 5.51 1.81 67.2% 544.00 480.00 13.33%
Andhra Sugars 55.05 23.61 57.1% 117.65 110.20 6.76%
Excel Industries 7.41 2.67 64.0% 876.65 852.00 2.89%
Manali Petrochem 18.67 6.60 64.6% 67.85 66.75 1.65%
Kiri Industries 95.86 45.18 12.9% 268.65 297.20 -9.61%


According to the data above, the highest reduction in debt was achieved by Jeena Sikho Lifecare Limited, significantly reducing it by 89%, and the stock generated an impressive return of 240% during the specified period and topped the list.

Among all the 15 stocks, there is an exception, as exceptions exist all over the world. Kiri Industries reduced its debt by nearly 13%, but the stock has not yet reacted, resulting in a negative return of approximately 10% during the same period. However, it’s important to note that debt reduction is not the sole factor influencing stock performance, and there may be several reasons behind this outcome.

Furthermore, the second-highest return was generated by Indraprastha Medical Limited, reaching 120% during the same period, while the company’s debt burden was reduced by 53% in the last financial year.

Investors should monitor companies that are actively reducing their debt and consider keeping those stocks on their radar.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
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