If a company is able to achieve earnings growth by using internally generated funds, this is proof of the strength of its business model. Internally generated funds like retained earnings for instance are the cheapest and most easily available funding source for companies. Moreover, by using such funds companies can continue their growth momentum without raising any additional debt or equity and without impairing its capital structure.
We zeroed in on companies that have registered earnings and sales growth aided by capital expenditure over the last five years. This capex was incurred using internally generated funds.
Further, we specifically looked for companies whose total debt went down, with no dilution in equity share capital. Also, the companies have returns on the capital employed and equity of above 15 per cent in each of the last five years. These filters ensured that the quality of growth is good and value-accretive and the capital structure is well-shaped. The table below lists the companies that made the cut.
Three companies stand out in this list: Havells, Indraprastha Gas and Solar Industries. While the industries in which these companies operate require a heavy capex, they have still managed to take care of it through internally generated funds.
Havells is a fast-moving electrical-goods and power-distribution-equipment manufacturer. It has seen volume growth across categories fuelled by continued investments. Indraprastha Gas is a leading natural-gas distributor. It has witnessed volume growth due to surging petrol and diesel prices. Solar Industries manufactures explosives that mainly cater to the mining sector.