Three recently debt-free stocks mutual funds can’t get enough of

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Subscribe to enjoy similar stories. One of the biggest red flags for investors when picking stocks is debt. High debt usually raises considerable questions about the company’s operational efficiency and sustainability.

Recently, a few mid-cap companies quietly achieved what many consider the holy grail of financial management—complete debt elimination. This significant change from debt-laden balance sheets to zero debt, especially at a time of high interest rates, demonstrates a fundamental shift in their business model and improved cash flow management, catching the attention of smart money. A few leading mutual funds with stringent investment criteria have swiftly moved to either raise or buy stakes in these companies.

Here are three of those firms, ranked by the debt held in recent years. The multi-specialty healthcare provider, which has a market cap of nearly ₹10,000 crore, had debt of ₹261 crore three years ago. In October last year, Jupiter Life Line raised ₹869 crore through an initial public offering of its shares, of which ₹542 crore was through fresh share issues.

The company used this money to repay all its debt and the remaining amount for general corporate purposes. Typically, raising equity to repay debt may not be a great idea. But at times it works out well if the company uses the money raised to repay, say, high-cost debt and free up resources to invest in growth.

Debt in Cr 252 263 262 322 298 0 Jupiter Life Line’s sales grew at a compounded annual growth rate of 18% between FY19 and FY24, from ₹398 crore to ₹911 crore. Its net profit jumped from ₹18 crore to ₹152 crore in that same period, at a CAGR of 53%. The company’s Ebitda (earnings before interest, taxes, depreciation, and amortization)