Best Value Stocks to Buy Now in India 2024

Last Updated - Jan 23

In this article, we will cover,

What is Value Investing?

Investing in value stocks is a strategy which focuses on buying undervalued stocks of strong companies and holding them over a long period of time. Investment in these stocks focuses on investment in quality companies that you think are undervalued and this decision is backed by strong fundamental analysis. Benjamin Graham coined the term value investing and is also known as father of value investing, sums up the crux of value investing in his classic book ‘The Intelligent Investor’: An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative. Warren Buffett, protégé of Benjamin Graham embraced and mastered the value investing approach and went on to become the richest investor ever.

Summary Table for Best Value Stocks to Buy Now

Investing in value stocks is a strategy which focuses on buying undervalued stocks of strong companies and holding them over a long period of time. Investment in these stocks focuses on investment in quality companies that you think are undervalued and this decision is backed by strong fundamental analysis. Benjamin Graham coined the term value investing and is also known as father of value investing, sums up the crux of value investing in his classic book ‘The Intelligent Investor’: An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative. Warren Buffett, protégé of Benjamin Graham embraced and mastered the value investing approach and went on to become the richest investor ever. Value investing is a strategy which consists of cherry picking those stocks that has their current value much lesser than the intrinsic value. But if the company has potential to grow, then the current investment is cheaper as the market price will eventually rise and meet its intrinsic value. This difference can be capitalised to making hefty returns. Picking up value stocks works on a process of finding out stocks that are currently undervalued; buying them at much lower price and staying with them until they gain and provide excellent returns. In simple terms, value investing is an investment approach that seeks to profit from identifying undervalued stocks. It is based on the idea that each stock has an intrinsic value, i.e. what it is truly worth. Through fundamental analysis of a company, an investor can determine what this intrinsic value is. The sole idea is to purchase stocks that trade at a significant discount to their intrinsic values (i.e. they are cheaper than their true value – which would give an investor a margin of safety). Once an undervalued stock is purchased, the stock price eventually rises towards its intrinsic value, and makes a profit in the long run. Generally, value investors use margin of safety to demand risk associated with any purchases. It means purchasing a share when its prices are lower than a particular limit. Thus, even if an investment turns sour about a specific company, losses, if any, would not be catastrophic. Therefore, greater the difference between the intrinsic value and the current stock price, the greater the margin of safety is for value investors looking for investment opportunities.

Things to consider while deciding the best value stocks to buy

Investors are advised to analyze and understand the company to be invested in before buying any stock. A few characteristics which should be kept under one’s radar while investing in these value companies: company’s run-way i.e. its long-term plans, its business principles, financial stability with healthy capital structure along with identification of management efficacy running the organization. Value investors should also place a great deal of importance on companies that pay consistent dividends. Some useful valuation techniques are used to compare stocks from the same industry and analyse if it’s over or under valued. Relative valuation multiples such as P/E, P/B, EV/EBITDA, P/S are famously used. Another well known valuation method is Discounted Cashflows. This valuation style uses a number of parameters right from free cash flows of the company to cost of capital to reach the final true value which is then compared to the current market price of the stock to judge if the company is fairly valued. Certain investors also look at the PEG ratio instead of PE which compares the PE to the growth of the company. But not all multiples will give you the same value hence certain investors use the blended valuation technique. It is the weighted average of various intrinsic values by different methodologies. It is important for an investor to see which valuation technique best applies depending on the company’s business model. For instance for capital intensive companies it is best to use the EV/EBITDA multiple. Investors investing in this basket of stocks should look for immediate, market-beating returns and consistency of performance while taking on moderate risk. Since these stocks are meant to be held for a longer time period, the growth averages out over time and returns are consistent.

Looking at a few stocks from our model portfolio:

Axis Bank

Axis Bank is the third largest private sector bank in India. As of March 31, 2022, the bank's total asset was at INR 11.75 lakh crore. In India, the bank operates 4,758 branches and 16,900+ ATMs and Cash deposits/Withdrawal machines. The bank offers a wide range of banking products and financial services to retail and commercial and wholesale customers through a variety of delivery channels. Mr. Amitabh Chaudhry joined Axis Bank as MD and CEO in January 2019, after heading HDFC Life for nine years. He joined at a time when the bank was facing a lot of legacy issues. He brought in new hunger within the bank and had a two-eyed focus both on growth and asset quality issues. The Bank’s financial performance has been improving quarter by quarter. The bank’s total assets stood at INR ~7,60,000 IN March 2019, while in March 2022 it stood at INR 11,75,178 crores growing at a CAGR of ~16%. The return on assets of the bank improved to 1.46% from 0.88%, while its Return on Equity improved to 15.87% from 11.33%. The bank appears to be on track to fulfill its ROE target of 18%. The bank’s retail portfolio has witnessed significant improvement which has been the management’s focus in the past three years reaching 56.5% from 49%. Owing to low GNPAs and adequate provisioning the NNPA of the bank currently stands at 0.73% vs 2.36% three years ago. Axis Bank has demonstrated improvement in its asset quality, NIM, and Profitability in the past few years. The bank has also changed gears in building digital infrastructure and has made investments in the same. The bank's ongoing efforts to expand its asset portfolio in a targeted way (retail loans make up 57% of the total book) focus on the mobilization of low-cost granular deposits, declining credit costs, margin expansion, and an improved return ratios matrix are encouraging signs for future growth in earnings.

Bajaj Electricals

With a product line that includes electrical appliances, fans, and lighting, Bajaj Electricals (BEL) is a market leader in consumer durables. It is one of the top three companies in the lighting industry and dominates the markets for electric irons, mixer grinders, and water heaters. BEL's consumer goods (CP) category has risen at a CAGR of 11.1% over FY19-22, driven by new product releases and dealer growth into new territories, despite pandemic-related obstacles and supply issues. The company's revenue is anticipated to grow more quickly in the future, driven by the introduction of new products (into the lighting and appliance segments), the growth of its sales and distribution network, and market share gains in its important product categories. By the conclusion of FY23E, BEL intends to demerge its low margin engineering and project operations in order to simplify its organizational structure. Long-term benefits for the company include excellent balance sheet health, strong growth in the consumer products sector, and business profile restructuring.

Manappuram Finance

Manappuram Finance is the country’s second-largest NBFC in the gold financing segment. The Company has also diversified its business in Micro-Finance, Vehicle Loans, and MSMEs. As of Q2FY23 its total AUM stands at INR 305 bn. The company has a presence Pan-India with 5,000+ branches. There was intense price-led competition happening in the gold loan market where players were offering enticing teaser rates to attract consumers. This led to a margin deterioration for the players involved. This however has been stopped by the gold financiers from the past two quarters. In FY17 the company’s Gold AUM as a percentage of total AUM stood at 81%, whereas now as of FY22 it stands at ~66%. This has been a conscious decision by the company to lower its dependence on Gold AUM. As of FY22, the Microfinance AUM constitutes 23.1% of its total AUM, whereas Vehicle Finance and MSME AUM stand at 5.4% & 3% respectively. This diversification is expected to aid the company in the near future at a time when gold demand is expected to be subdued. The pressure on yields has significantly come down and this will aid in a margin improvement going forward. The demand and competition in gold loans still seem a little challenging for the industry but the long-term story remains intact. The Non-Gold portfolio contributes 37.4% to its total AUM and will be driving the growth. This timely diversification makes Manappuram distinct from its Gold Financiers Peers.

CAMS

CAMS is a financial infrastructure and services provider operating in 7 business verticals: Mutual Funds Services Business, Electronic Payment Collection Services Business, Insurance Services Business, Alternative Investment Fund Services Business, Banking, and Non-Banking Services Business, KYC Registration Agency Business, and Software Solutions Business. The company is India’s largest registrar and transfer agent of mutual funds with an aggregate market share of approximately 70% based on mutual fund average assets under management managed by clients and serviced. The nature of its services to mutual funds spans multiple facets of its relationship with the investors, distributors, and regulators. By providing a range of services, CAMS plays an important role in developing and maintaining its clients’ market perception. The company has a solid 5-year sales growth of 13.2%, whereas its 5-year profit growth stands at 21.1%. The operating margin is healthy at 44.4% thanks to its asset light business model. The company has miniscule debt on its balance sheet its Debt to Equity is 0.11. The return ratios are impressive -ROCE stands at 62.9% & ROE at 54.3%.

ITC

Established in 1910, ITC is the largest cigarette manufacturer and seller in the country. ITC operates in five business segments at present - FMCG Cigarettes, FMCG Others, Hotels, Paperboards, Paper and Packaging, and Agri Business. The stock of ITC has generated a healthy growth in the past year but considering its diverse products and scope of growth the stocks still appear attractive. Possibility of a potential price hikes in cigarettes, robust underlying performance with improved profitability in the Foods portfolio, an improving outlook and potential demerger for the Hotel business, and a bridging valuation gap urges well for continued performance of the stock. The company has a solid 5-year sales growth of 7.32%, whereas its 5-year profit growth stands at 8.30%. The operating margin is healthy at 34% thanks to its asset light business model. The company is debt free. The return ratios are impressive -ROCE stands at 33.6% & ROE at 24.8%.

L&T

The largest engineering and construction (E&C) corporation in India, Larsen & Toubro (L&T), specializes in EPC projects, high-tech manufacturing, and services. The corporation principally engages in business segments related to infrastructure, heavy engineering, defence engineering, power, hydrocarbons, and services. There has been a pick-up in capex cycle led by government spending and the private players are too expected to join soon. In this scenario L&T appears as one of the best capex play in the capital goods segment. The company seems on path of meeting its revenue guidance of 15% in FY23. The company has a decent 5-year sales growth of 7.44%, whereas its 5-year profit growth stands at 6.63%. The operating margin stands at 12.5% thanks to its asset light business model. The return ratios are impressive -ROCE stands at 11% & ROE at 10.2%. Coronavirus & the Russia-Ukraine crisis has destroyed economies and wiped-out years of savings. In times like these, for companies, cash in hand allows them to continue operations. Further, incurring costs without having to borrow money. During such a challenging environment, markets are likely to reward companies that are generating high free cash flows. Which can service their debt and other fixed obligations through cash accruals and reinvestments. Hence, investors should focus on such stocks for their portfolio. For the most part, investment in value stocks is associated with long-established companies. With steady (but not rapid) growth rates, comparatively stable revenue, and consistent profitability. The idea behind investing in value stocks is generally not to make you rich overnight and that is not the goal. If you've heard the expression: slow and steady wins the race, it is one of the best ways to summarize the strategy behind value investing.

Watch our video on how to analyse and pick Value Stocks for investments

Model Portfolio

In order to get an exposure to Best Value Stocks, you would need a total of Rs. 26,671 for the below curated portfolio as of 22 Dec, 2022.

The below table covers some of the most important factors while evaluating value stocks such as return ratios including RoE and RoCE, operating margins, sales and earning growth and market cap among others.

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