Value investing is based on the idea that each stock has an intrinsic value, i.e. what it is truly worth.
Value investors calculate the intrinsic value of a company by using fundamental analysis. They arrive at a per-share estimate of intrinsic value. Then they compare this estimate with the stock price.
If the stock price is lower than the intrinsic value they buy the stock. If the stock price is higher than the intrinsic value, they sell the stock.
The idea in value investing is to buy stocks that trade at a significant discount to their intrinsic values, usually more than a 20% discount. So, if the estimated intrinsic value is ₹100 per share, value investors will buy it only if the stock is trading below ₹80.
They make a profit once the stock price rises above the intrinsic value of the company.
This is why value stocks are also called cheap stocks, in terms of valuations. They usually trade at low price to earnings, i.e., a low PE ratio and a low price to book, i.e., low PB ratio.
So which stocks are trading cheaply today? These well-known stocks are flying under the radar of investors when the Nifty is close to its life highs.
Here are 5 top value stocks in India for your watchlist…
#1 Power Finance Corporation
Power Finance Corp (PFC) maharatna (schedule-A) Government of India enterprise, established as a non-banking finance company (NBFC). It was incorporated on 16th July 1986. It’s under the administrative control of the Ministry of Power.
The company offers term loans, short-term loans, equipment lease financing, transitional financing, etc., catering to various power projects across generation, transmission, and distribution segments.
It has also ventured into the infrastructure and logistics segment, focusing on e-vehicle fleets, charging infrastructure, roads, ports, metro rail, smart cities, and other large infrastructure projects.
As of writing, its marketcap is about ₹1.39 trillion (tn). Its loan book asset size was a massive ₹4.57 trillion as on 31 December 2023.
PFC has become aggressive in giving loans to the renewable energy sector over the last few years. It has grown its renewable energy portfolio at around 20% CAGR over FY 19-23.
As far as financials go, PFC has done well recently. Its net interest income and net profit have grown at a CAGR of about 10% over the last 5 years.
The company’s return on assets (ROA) and return on equity (ROE) are excellent at 2.5% and 20% respectively.
The company is also a good dividend payer. Except for FY19, PFC has been consistently paying dividends since 2007. The dividend payout ratio stands at 22%.
#2 ONGC
Oil and Natural Gas Commission (ONGC) is the biggest publicly traded oil and gas production and exploration company in India.
The company produces 70% of India’s crude oil. This is almost equivalent to 57% of the overall demand in the country. It also produces 84% of India’s natural gas. ONGC is under the ownership of the Ministry of Petroleum and Natural Gas and the Government of India.
It’s engaged in hydrocarbon exploration and exploitation in 26 sedimentary basins in India. It owns and operates over 11,000 km of pipelines in the country.
Last year, ONGC announced its comprehensive strategy for using energy efficiently.
As per the plan, the company will focus on investing ₹1 trillion (tn) into renewable energy projects, offshore wind energy projects, and the production of green ammonia. It has set up a green energy subsidiary, ONGC Green Ltd, which will focus on all its various green energy businesses.
The company is also aiming at multiplying its oil and gas production by 3x within 2040, including production from its overseas plants.
Apart from this, ONGC has kicked off the process of chartering up to four offshore rigs, marking a significant step in its ambitious domestic fleet expansion drive.
These rigs, likely destined for deployment off the western coast, will bolster ONGC’s existing fleet of over 35 (including charters) and play a crucial role in exploring new oil and gas blocks and furthering ongoing brownfield developments in the region.
#3 SBI
State Bank of India (SBI) is India’s largest public sector bank.
The bank provides a wide range of products and services to individuals commercial enterprises large corporate public bodies and institutional customers.
The bank operates in four business segments – treasury, corporate/ wholesale banking, retail ranking, and other segments.
SBI provides a range of banking products through their vast network of branches in India and overseas including products aimed at NRIs.
The company’s profitability has been on a steady rise for several quarters which has been noticed by the market.
Massive capex plans by both government and corporates for the coming decade have been laid out. So, banks like SBI may have to accelerate their disbursals to meet demand.
In the past, the largest public sector banks were known to accumulate huge non-performing loans at peak of every capex cycle. The PSU corporate customers somehow never managed to honour the loans as the cycle turned.
But this time things are different.
The PSU banks have cleansed their books. So not only are the NPA levels lower but their balance sheets are geared to lend for capex. SBI, has particularly seen a flood of new account openings in the past decade thanks to Jan Dhan Yojana.
Hence the bank is armed with one of the largest low-cost deposit bases among Indian banks. It can compete with private sector peers in retail lending.
#4 IndusInd Bank
IndusInd Bank is one of the new-generation private sector banks in India. This mid-sized bank’s business lines include corporate banking, retail banking, treasury, foreign exchange and more.
In retail banking, it has a significant presence in auto loans and microfinance. IndusInd Bank plans to expand its product and service offerings and increase its branch network. The bank is also looking to grow its digital presence and explore new business opportunities.
It serves its customers through a nationwide network of 2,700+ branches and nearly 3,000 ATMs.
The bank has delivered good growth in the past, having doubled its advances in the last five years, reporting a 5-year CAGR of 16.2%. However, the growth in the business comes with erratic NPAs, casting a showdown over its asset quality.
While the bank had reported a massive jump in the net NPAs between in 2019, doubling from 0.39% in 2017 to 1.2% in 2019, things seemed to have changed now. Since 2019, the bank has been working towards improving its asset quality, bringing it back to the 2017-2018 levels.
The credit cycle uptick has helped the lender’s profitability. The improvement in net profits and the margins have helped boost the return ratios. The RoE reported by the company has gone back to its pre-covid levels of 14%.
#5 Hindalco
Hindalco Industries is an Indian aluminium and copper manufacturing company. The company is the flagship company of the Aditya Birla Group.
Along with its subsidiary Novelis, Hindalco is the largest aluminium rolling and recycling corporation in the world, as well as a major copper player. It’s also one of Asia’s top primary aluminium producers.
Along with its global subsidiary Novelis Inc., the company has a strong global footprint spanning 52 manufacturing units across 10 countries.
From bauxite mining to alumina refinement, aluminium smelting, rolling, and extrusions, the company engages in a wide range of operations. Its main verticals are building and construction, automotives, packaging, electrical, consumer durables, refractories, and ceramics.
Hindalco is also getting into the EV business. The company signed an MoU with American battery manufacturer Charge CCCV (C4V) for the supply of coated battery foils and structural components for the manufacturing of lithium-ion batteries.
As per the agreement, Hindalco will supply up to 2,000 tons of battery-grade aluminium foils to C4V for a period of five years. The strategic collaboration also includes joint development of material technologies and related know-how.
It plans to significantly expand its manufacturing capacity of fine quality aluminium foil that is used in rechargeable batteries to serve the rapidly growing market for electric vehicles (EVs) and energy storage systems.
The company is investing ₹8 billion (bn) to build a new plant near Sambalpur in Odisha that will initially produce 25,000 tonnes of the resilient product which forms the backbone of lithium-ion and sodium-ion cells. This capacity will be scaled up later.
Hindalco has already achieved the technology breakthrough of manufacturing fine-quality battery foils at its Mouda unit in Maharashtra.
The company was doing very well on ESG metrics. It was ranked the world’s most sustainable aluminium company in the Dow Jones Sustainability Indices (DJSI) in 2020, 2021, and 2022.
Happy investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
