In the volatile environment of the stock market, every sensible investor is looking for a safe and profitable destination. The biggest rule of safe investment in the market is that the financial position of the company should be strong and the debt burden on it should be negligible. In such a time when some selected shares are being sold below their actual price i.e. ‘book value’, it is natural for investors to pay attention towards them. Currently, there are three big names in the Indian stock market like GIC Re, ONGC and Tata Chemicals, whose balance sheets are very strong. The debt-to-equity ratio of all these three companies is less than 0.5 and they are trading at a discount to their book value.
Why is it important to understand the mathematics of book value and low debt?
To understand the intricacies of the stock market, it is important to first know two basic parameters. The first is book value, which reflects the actual net worth of a company after subtracting its liabilities from its total assets. In simple words, this is the value of the company’s real safe. If a share is being sold below its book value, then it is considered to be at a very attractive level in terms of valuation.
The second measure is the debt-to-equity ratio (D/E Ratio), which tells how much debt the company is raising from the market to run its business. A ratio of less than 0.5 clearly indicates that the company is far away from the debt trap and its financial health is excellent.
1- GIC Re
General Insurance Corporation of India i.e. GIC Re is the country’s largest and reputed company in the field of reinsurance. The total market cap of this government giant is around Rs 65,106 crore. The biggest feature of this company is that its debt-to-equity ratio is absolutely zero, which simply means that it is a completely debt-free company.
If we look at the valuation, the actual book value of this share is Rs 402 per share, whereas in the market it was trading only around Rs 371. In the trading session of June 22, the company’s shares closed at Rs 369, registering a gain of 0.27 percent. If we look at the long term, this company has given an excellent return of 84 percent to its investors in the last five years.
2- ONGC
Oil and Natural Gas Corporation (ONGC) is a big name in India’s energy sector. This government company with a huge market cap of about Rs 3,11,173 crore is the largest oil and gas producer in the country. In terms of financial strength, its debt-to-equity ratio is only 0.47, which places it in the safe category.
The book value of ONGC is Rs 296 per share, but the attractive thing for investors is that its share is available at a price of around Rs 247. On June 22, this share was trading at Rs 245 with a slight decline of 0.37 percent. The most important thing is that this stock has earned a full 100 percent return, doubling investors’ money in the last five years.
3- Tata Chemicals
Investors’ trust in Tata group companies has always been unwavering. The third name in this list is that of Tata Chemicals, whose shares are currently seeing the biggest discount compared to their book value. The total market cap of the company is around Rs 18,651 crore.
While the book value of Tata Chemicals is Rs 832 per share, its stock was trading at around Rs 732 in the market. On June 22, amid market turmoil, this share closed at Rs 726 with a decline of 0.34 percent. The debt-to-equity ratio of the company is 0.38, which proves that along with strong parentage, the company is also internally completely safe on the financial front.
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Disclaimer: This article is for information only and should not be considered as investment advice in any way. TV9 Bharatvarsha advises its readers and viewers to consult their financial advisors before taking any money-related decisions.
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