Undervalued Stocks in India

‘Investing today is buying tomorrow‘ but if you overpay today, you don’t make money tomorrow. The only way to make money is to buy undervalued stocks. Undervalued stocks are those which are available at a price less than what they will be in the future.

We have compiled a list of stocks that in our opinion are currently undervalued. 

Contents

List of Undervalued Stocks

1. Hindustan Petroleum Corporation Ltd

PE < 5 

Market Capitalization ~ 48500 Crs

ROCE ~ 20%

ROE ~ 31%

The “group”, as mentioned in the annual report is engaged in the business of refining crude oil and marketing of petroleum products, production of hydrocarbons as well as providing services for the management of E&P Blocks.

With a PE < 5, it is really tough to not have considered this company, there could be various reasons why the market has priced it so. The reasons could range from the current government’s play on privatization to the past performance of the stock.

Rest assured, the company’s fixed assets and reserves almost pay the borrowings and other liabilities. 

10Year Profit CAGR = 20%

10Year Stock Price CAGR = 18%

2. JSW Steel Ltd. 

PE < 10 

Market Capitalization ~ 160000 Crs

ROCE ~ 16%

ROE ~ 19% 

 The company has India’s largest single-location steel plant. Aside from this, it has recently performed one of the largest capex in its history and has announced an investment of $3.4B to expand its capacities. 

10 Year Profit CAGR = 16%

10 Year Stock Price CAGR = 26%

If the country’s capex starts, the company should be amongst the top picks. 

3. Kanchi Karpooram Ltd

PE< 10

Market Capitalization ~ 383 Crs

ROCE ~ 66%

ROE ~ 50%

The company is South India’s first & the largest producer of a variety of Terpene & Paper chemicals.

The stock itself looks undervalued while the company may even be considered on qualitative grounds, the management has recently started increasing the company’s fixed capital, is producing better ROCE but most importantly – it has enough reserves to pay for liabilities. 

10 Year Profit CAGR – 51%

5 Year Stock Price CAGR – 87% 

4. Kilpest India Ltd

PE < 10

Market Capitalization ~ 339Crs

ROCE ~ 179%

ROE ~ 139%

The company is reporting supernormal ratios because of some inherent business change. The company is a supplier to Government Agencies. It is also into crop protection and bio-products and has recently entered into molecular diagnostics.(Very profitable)

10 Year Profit CAGR ~ 65%

10 Year Stock Price CAGR ~ 40% 

5. Supreme Petrochem Ltd – 

PE < 10 

Market Capitalization ~ 6300 Crs

ROCE ~ 72%

ROE ~ 54%

On a statistical basis, the company is extremely undervalued. The PE is less than 10, the ROCE average is greater than 20%. 

10 Year Profit CAGR – 23%

10 Year Stock Price CAGR – 29%

Multibagger Stocks in India

These are not statistically ‘cheap’ but can surely turn out to be fortune-changing. These are, in our opinion, mispriced opportunities that can unlock at any time. Holding these stocks consistently might be a good idea.

1. ITC

The retail favourite is lagging behind for some years but there are certain reasons for that. According to us, ITC is a deep-value stock. 

Market Capitalization ~ 287000Crs making it the second-largest FMCG company. ITC’s profits alone are twice as much as HUL’s. But HUL is the largest FMCG company. 

ITC has a hammerlock on the organized cigarette market and has a pan-India distribution network – both of which are its greatest strengths. 

The problem with ITC was its margin in the FMCG sector but these are improving in recent years. In the coming years, it can be the portfolio driver. 

2. Hero MotoCorp

Hero MotoCorp needs no introduction but luckily is extremely underpriced at the moment.

It is the world’s largest manufacturer of 2 Wheelers, in terms of unit volumes sold by a single company in a calendar year, for 19 years in a row.

The plausible reason for its cheap price can be the EV craze, the market might be underestimating the EV potential this company has because they have never thought of it as an EV company. We disagree. 

The company has an in-house EV startup and has partnered with Ather, both of these can act as the key which make Hero the leader in the Indian EV Market. 

3. Exide Industries Ltd. 

The company is a supplier to almost all major automobile manufacturers in India. Its industrial customers include BHEL, TATA, GE, Cipla. 

The company has a strong pan-India distribution network with about 50,000 dealers. 

The company is producing decent ROCE and after the management got rid of the insurance business, their focus seems to have returned. Even the market signaled positively when the company sold Exide Life Insurance to HDFC Life.

However, there are concerns with respect to how the company plans to be a part of the EV revolution. The management hasn’t been very clear with respect to its plans. If the management steps up – it can turn the company’s fortune for the better. 

Disclaimer: The views expressed by the writer are their own and not of the website or the management. The writers may or may not have a stake in the mentioned companies. Readers are requested to consult a SEBI registered investment advisor and make a decision accordingly.

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