The best way to start investing is to identify the undervalued stocks in the market. These undervalued stocks are available at a very favourable valuation in the market and have good return records in the past. These stocks usually go unnoticed by many investors and hence can be a gem in your portfolio.
This article will talk about the Top Undervalued Stocks in India which you can keep under your radar if you are looking for such stocks.
Without wasting any time, let’s first look at the stocks the article mentions
|Stock Name||PE Ratio||ROCE|
|DCM Shriram Ltd||16.51||23.6|
|Eris Lifesciences Ltd||23.04||21.53|
|Globus Spirits Ltd||23.56||29.86|
|JK Lakshmi Cement||12.06||18.87|
How do we know if a stock is undervalued?
Before looking at the details of these gems, we first need to understand, how we can judge a stock and conclude if the stock is undervalued.
The most basic and fundamental criterion to identify such a stock is by looking at the PE ratio of the stock. The PE ratio tells what price is one paying per unit of profit earned by the company. Every industry can have a different ideal PE ratio, hence it becomes important to compare the ratio with the peers of the company you are analyzing.
A low PE ratio is not the only indicator. We must also consider factors like Return on Equity, Operating Profit Margins and Net Profit Margins. The valuation of a company depends on its profitability of the company and, a company with low profitability or losses will have a low PE too. So, it is extremely essential to not rely on any one of the indicators.
Now that you know how can we identify such stocks, let’s discuss these stocks –
1. DCM Shriram Ltd
The first stock on our list is DCM Shriram Ltd. The company is in various sectors and is engaged in the business of manufacturing facilities of Fertiliser, Chloro Vinyl & Cement in Kota (Rajasthan) and of Chlor- Alkali, for which it is also the top manufacturer in India.
The price for this stock has been rising for the past few years but has recently been declining to move towards a low, which indicates a good opportunity for investors to put their money in this stock.
The PE ratio of the company is 16.51, which is much lower than its competitors ITC, SRF and Grasim. Along with this, the company has also been serving impressive returns on capital employed for its valuation.
|DCM Shriram Ltd||March 2022||March 2021||March 2020||March 2019|
|Operating Profit Margin||17.14||12.17||13.85||16.71|
|Net Profit Margin||11.07||8.09||9.26||11.61|
|Return On Equity||19.4||14.48||17.69||25.68|
Other important numbers for better understanding are depicted in the following table.
The operating profit margin of DCM Shriram Ltd as seen above has been low in the year 2020 and 2021, which was the case for most companies of its category. A similar case is represented by the Net Profit Margin of the company. The Return on Equity, however, shows a positive image, as it has significantly improved within a year. Even though the numbers of the company still haven’t reached the pre-pandemic levels, the improvement is impressive, and the stock offers a good deal.
2. Eris Lifesciences Ltd
The next stock on this list is Eric Lifescience Ltd. This pharma stock has been declining for the past year. With a PE of 23.04 times, the stock is valued much less than its peers. Its revenue comes from the domestic market for branded formulations, with chronic and sub-chronic medicines making up a sizeable share of the company’s sales.
The sales of the company have grown with a CAGR of 13% in the past 5 years and other essential measures are as follows –
|Eris Lifesciences Ltd||March 2022||March 2021||March 2020||March 2019|
|Operating Profit Margin||33.13||32.7||31.05||34.64|
|Net Profit Margin||30.12||29.3||27.6||29.64|
|Return On Equity||21.28||22.52||22.87||25.27|
Being a pharma company, there was not much impact on the company in the pandemic period and has been able to manage itself well in the time frame. Although the return on equity of the company has been clearly declining, the net profit margins have been stable. And the improving sales of the company also show a positive image of the company. When measured with the value it offers, and the growth it has, the prices do seem less, and hence the stock is clearly undervalued.
3. Globus Spirits Ltd
Globus Spirits Ltd is primarily engaged in the business of manufacture and sale of Indian Made Indian Liquor (IMIL), Indian Made Foreign Liquor (IMFL), Bulk Alcohol hand sanitiser, and Franchise Bottling. They are the first company to launch branded Distillers Dried Grains with Solubles in India.
The PE of the stock 23.56 is not among the lowest of its competitors, but offers the best profitability and return on the given price. Currently trading at around Rs. 770, the company has the following essential parameters –
|Globus Spirits||March 2022||March 2021||March 2020||March 2019|
|Operating Profit Margin||18.53||18.73||8.6||6.71|
|Net Profit Margin||11.85||9.64||5.09||3.1|
|Return On Equity||24.24||20.23||12.64||7.45|
It is very well clear, that the company has been on a rise since the past 4 years. The company’s return on equity has reached more than 3 times its value in March 2019, and so is the case with the net profit margin as seen in the above table. The revenue of the company has remained similar in the past 5 years and has been stable, which can be a stagnant position and can indicate a full potential position, hence should be researched more into.
4. JK Lakshmi Cement Ltd
Next on the list is JK Lakshmi Cement Ltd, a part of the JK group, and is a manufacturer and supplier of Cement and related products like RMC & AAC in India. A majority of the company’s sales come from dealings with retailers and distributors. The remaining sales are from trades with non-retailers which are direct consumers.
The Return on Capital Employed by this stock is not at par with its peers, but given the valuation of the company, the numbers can be justified. The stock is slowly gaining popularity and the value it really deserves, hence has been on a rise for the past few months. It has specifically gained almost 3/4th of its value in the past year.
Other important factors are as below –
|JK Lakshmi Cement||March 2022||March 2021||March 2020||March 2019|
|Operating Profit Margin||14.67||16.62||14.3||6.96|
|Net Profit Margin||8.81||8.9||5.79||0.94|
|Return On Equity||18.5||19.35||14.7||3.45|
The net profits of the company have significantly risen in the past 4 years and are still on a rise, which can be seen from the margins as shown above. The return on equity of the company is also seen improving, except where it has seen a slight fall in the previous year. Other than this, the stock is still a great deal and can be considered a potential stock in your portfolio.
These were some stocks that are the most undervalued stocks in India. Other than the analysis performed above, it is important that the investors themselves perform analysis and check the future plans of the company to have a better idea of how the company plans to implement its upcoming ideas and what can be the upcoming valuations of the company.
Also Check: Most Overvalued Stocks in India 2023