India Inc’s cash kings

Holding high cash by companies is usually frowned upon by shareholders, who’d rather any surplus be paid out as dividends, if not deployed in growing the business. That’s true in normal times. COVID-19 and lockdowns are unusual once-in-a-lifetime phenomena. And in these unusual times, cash is coveted. In fact, the resilience of a business and its future prospects weigh heavily on how long a company can hold out without significant cash inflows.

Using this premise, we ran the numbers to dig up companies that could cover their core operational expenses and their finance costs for a significant length of time. We started out with some pessimism but were surprised by the final numbers. There were 11 non-financial companies in the BSE-500 that could meet such expenses for a good 12 months or more with their holdings of cash and liquid investments at the end of fiscal 2020.

A few further filters—such as a healthy return-on-equity, free-cash-flow generation, growth in sales and profits historically and low leverage—were applied to this set to come up with six companies that seem to have the resources to see through a long haul cash inflow hiatus. These six companies, in alphabetical order, are footwear king, Bata; food & snacking major, Britannia; oral care market leader, Colgate Palmolive; port operator, Gujarat Pipavav; cement major, Shree Cement.

 

 

While big consumer brand companies like Britannia and Colgate Palmolive aren’t surprising names on such a list, Gujarat Pipavav and Shree Cement are interesting core economy-focused companies. Even Bata, as a brand-cum-retailer, is an interesting name on the list.

In the current circumstances, with their strong cash reserves and usually healthy free cash flows, such companies can leverage their liquidity in several ways to outdo their competitors and gain share. And at a time when cash is hard to come by, eking out more for every rupee invested in the business is easier. For those who use it well, it can translate to bigger gains when the economy recovers.

So, if you are hunting for safe havens in this market, considering companies with strong cash reserves may be worth the while, though one could argue that many of them may not be particularly attractive on valuations.