For these industries, a higher debt load is normal. For example, utilities often borrow large sums of money when building new power plants. It may take several years to build the plant, which means no revenue and lots of debt.
We learnt from the great crisis of 2011 that companies with high debt on their books simply get slaughtered. While debt per se is not bad (if the company is able to borrow at a lower rate and deploy it in its business at a higher rate, the operating leverage works in its favour), excessive debt with high interest and repayment obligations can crunch the stock in times of downturn. So, as a long-term investment philosophy, it is best to steer clear of high-debt companies.
Avoid Investing in Companies with High Capex Requirement
We know the demerits of investing in stocks like Suzlon & GMR which have an insatiable appetite for more and more capital. To feed their perennial hunger, these companies dilute their equity by making FPOs, GDRs & FCCBs resulting in total destruction of shareholders wealth. Companies should be lean and mean requiring minimal capital but generating huge returns there from.
Also Read: Strong Fundamentals are Key to Multibagger Returns
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Wish you happy & safe Investing!
Team - Saral Gyan