When it comes to smart stock picking, smart investors look for companies that have near zero debt, as that means the company is free from hefty interest payments, which usually eat into the profits. And if a company that is near zero debt also has good capital efficiency or in simple words good at making profits on the capital invested, it is a compelling combination.
Now, imagine having two such companies that are good on both the counts of capital efficiency and debt management, that too from a sector like manufacturing. Let us dive into these two zero debt kings of capital efficiency.
Gearing up for big growth?
Established in 1972, Shanthi Gears Ltd is in the business of design, manufacture, supply and servicing of gears and gear boxes.
With a market cap of Rs 3,684 cr, the company is a subsidiary of Tube Investments of India Ltd (a Murugappa Group flagship company) and is a leader in industrial gearbox manufacturing for over five decades, specializing in customized solutions.
Looking at capital efficiency, the company’s current ROCE (Return on Capital Employed) is 35%, while the industry median is 16%. This means for every Rs 100 the company uses as capital, it earns a profit of Rs 35 on it while industry peers average around Rs 16.
Also, the company has zero debt, making it free from huge interest payments. Add the profits from capital investment and the money saved in terms of interest payments, the company can use that money for other purposes like buyback of shares, expansion purposes or giving back to investors.
And it does that, as it has a current dividend yield of 1.04% while the industry median is 0%. It maintains a healthy dividend payout ratio of 48%. In the past 12 months, Shanthi Gears Ltd has declared an equity dividend amounting to Rs 5 per share.
Let us look at the financials for Shanthi Gears Ltd.
The company’s sales have grown from Rs 242 cr in FY20 to Rs 605 cr in FY25, logging a compound growth rate of 20% in the last 5 years.
The EBITDA (earnings before interest, taxes, depreciation, and amortization) for Shanthi Gears grew from Rs 35 cr in FY20 to Rs 129 cr in FY25, recording a 30% CAGR.
As for the net profits, the company has logged a compound growth of 31% in the last 5 years from Rs 25 cr in FY20 to Rs 96 cr in FY25.
The share price for Shanthi Gears Ltd was around Rs 100 in November 2020, and as of closing on 11th November 2025 the price was Rs 482, which is a jump of over 380%. Rs 1 lac invested in the stock 5 years ago would have been about Rs 4.82 lacs today.
Even at the current price of Rs 482, the stock is trading at a discount of over 31% from its all-time high price of Rs 704.
As for valuations, the company’s current PE is 40x, while the current industry median is 35x. The 10-year median PE for Shanthi Gears is 45x while the industry median for the same period is 29x. This means that buyers are willing to pay a premium to own a piece of the company.
The company’s last annual report calls FY25 as a milestone year. The Chairman in the same report said, “Looking forward, we remain focused on identifying and capturing strategic market opportunities… True growth is not just about expanding faster but expanding smarter. At Shanthi Gears, we believe in ‘Scaling with Systems and Strategy’ where every step forward is backed by process excellence, digital integration, and a clear strategic roadmap.”
Big engine changes with growth
Incorporated in 1985, Swaraj Engines manufactures diesel engines specifically for tractors in the range of 22 HP to above 65 HP and hi-tech engine components.
With a market cap of Rs 4,767 cr, the company was jointly promoted by Punjab Tractors and Kirloskar Oil Engines Ltd. Kirloskar provides know-how, design, documentation, process details, and tooling designs for manufacturing diesel engines for ‘SWARAJ’ tractors by Punjab Tractors Ltd. Mahindra & Mahindra acquired a majority stake in Punjab Tractors in 2007 and merged the Swaraj brand with its Farm Division.
The company has a current ROCE of 56% which is more than double of the current industry median of 26%.
Swaraj Engines is also debt free and has a current dividend yield of 2.66%, while maintaining a dividend payout of an impressive 77%.
The sales for the company grew at a compounded rate of 17% from Rs 773 cr in FY20 to Rs 1,682 cr in FY25.
EBITDA for Swaraj Engines has grown at a compound rate 18% from Rs 100 cr in FY20 to Rs 227 cr in FY25.
As for the net profits, the company logged a compound growth of 19% from Rs 71 cr in FY20 to Rs 166 cr in FY25.
The share price of Swaraj Engines Ltd was about Rs 1,380 in November 2020 and as of closing on 11th November 2025, it was Rs 3,924, which is a jump of almost 185%. Rs 1 lac invested in the company 5 years ago would have been close to Rs 2.85 lacs today.
Valuation wise, the company’s share is trading at a PE of 27x, while the industry median is 40x. The 10-year median PE for Swaraj is 22x and the industry median for the same period is 30x.
The company has recently seen a reshuffle at the management level, as Rajesh Jejurikar, Chairman and Director resigned w.e.f October 16, 2025. Rajya V. Kanoria (existing Non-Executive Independent Director) was appointed as new Chairman from October 17, 2025. These changes occurred alongside Q2 results approval, potentially signalling a strategic refresh amid growth.
Efficiency and low leverage: A compelling case
Shanthi Gears and Swaraj Engines are not the known big names that usually attract all the attention, but they are showing great promise. With strong capital efficiency and a debt-free status, these stocks meet the key criteria – High ROCE and Low DEBT.
Now the question is if these two less known stocks continue to log such numbers in the near and long-term future. Or will the steam be lost?
Whatever happens, one thing is for sure, that as of now these stocks deserve the attention of all smart investors. A good course of action right now would be to add them to a watchlist and follow them closely.
Note: We have relied on data from www.Screener.in and www.trendlyne.com throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Suhel Khan has been a passionate follower of the markets for over a decade. During this period, He was an integral part of a leading Equity Research organisation based in Mumbai as the Head of Sales & Marketing. Presently, he is spending most of his time dissecting the investments and strategies of the Super Investors of India.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
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