Clean-balance-sheet compounders

Find clean-balance-sheet compounders: low debt (D/E < 0.5), zero pledge, consistent profit & sales growth (>12% 3Y), quality (ROCE > 18, ROE > 12), positive cash generation (OCF > 0), reasonable valuation (P/E 8–30), and minimum size (₹1,000cr mcap). 🔎 Logic (why each clause exists) D/E < 0.5 → avoids balance-sheet risk; room to fund growth. Current ratio > 1.5 → lower working-capital stress. EPS > 0 & EPS last year > 0 → filters chronic loss-makers. Profit growth 3Y > 12 & Sales growth 3Y > 12 → growth from demand, not only margin luck. ROCE > 18 & ROE > 12 → moat/quality & efficient reinvestment. OCF last year > 0 → cash profits, not accounting smoke. Pledged % = 0 → no collateral risk from promoter pledging. Mcap > ₹1,000cr → basic liquidity/governance bar. P/E 8–30 → avoids deep value traps (<8) and extreme quality premiums (>30). 🧭 How to use the results (10-minute checklist) Add columns: ROCE, ROE, Sales/Profit growth 3Y, OCF, FCF, P/E, EV/EBIT, Receivables/Sales, Inventory/Sales. Cash quality: OCF/PAT (3–5Y median) ≳ 0.8; FCF positive in ≥ 3/5 years. Working capital: Receivables & inventory not rising faster than sales. Debt/interest: If any debt, interest coverage > 4–5×. Promoters/audit: Pledge stays 0%, promoter stake stable/rising, no frequent auditor changes. Runway/capex: Capacity addition, new products/geographies, policy tailwinds (e.g., PLI). Valuation sense-check: Prefer ≤ own 5-yr median P/E or EV/EBIT ≤ ~15. 🚫 Known blind spots / caution Financials (banks/NBFCs/insurers/AMCs): D/E & current ratio aren’t comparable—evaluate with sector metrics separately. High-P/E quality compounders (paint/FMCG/adhesives) may be excluded. Cyclicals: Can look cheap at peak—verify cycle position. Turnarounds: Often filtered out by profit/OCF rules. 📐 Positioning & maintenance (optional rules of thumb) Sizing: 6–12 names, 5–10% each for high conviction. Review triggers: ROCE < 15%, sales/PAT growth < 10% for 2–3 quarters, pledge appears > 0%, or receivables balloon. Re-run quarterly after results; prefer adding on weakness near own median multiples. Mnemonic: C.L.E.A.N.-G12/Q18-P8-30 Cash (OCF>0), Low debt (D/E<0.5), Earnings positive, Active growth (Sales/Profit >12% 3Y), No pledge; Quality (ROCE>18/ROE>12); Priced right (P/E 8–30).

by Subhakanta K