Best Value Stocks to Buy Now in India 2022

Last Updated – Sept 2022

Best Value Stocks In India
Best Value Stocks In India

In this article, we will cover,

1. What is value investing
2. List of the best value stocks to buy now
3. Things to consider while deciding the best value stocks to buy
4. A model portfolio to gain optimal exposure to the best value stocks
5. Portfolio companies
6. A detailed table with various parameters for Best value Stocks

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

Sr. No. Company Name BSE Scrip Code NSE Symbol CMP – Sept 2022 Rating Industry
1 Sonata Software Ltd. 532221 SONATSOFTW 546.35 3 IT – Software
2 Avanti Feeds Ltd. 512573 AVANTI 476.35 4 FMCG
3 HCL Technologies Ltd. 532281 HCLTECH 902.3 4 IT – Software
4 KEI Industries Ltd. 517569 KEI 1,504.35 0.5 Cable
5 Aurobindo Pharma Ltd. 524804 AUROPHARMA 527.55 1 Pharmaceuticals & Drug
6 Castrol India Ltd. 500870 CASTROLIND 113.8 4.5 Lubricants
7 Coal India Ltd. 533278 COALINDIA 232 3 Mining & Minerals
8 Cummins India Ltd. 500480 CUMMINSIND 1,276.70 1 Automobile & Ancillaries
9 Excel Industries Ltd. 500650 EXCELINDUS 1,344 0.5 Chemicals
10 Oracle Financial Services Software Ltd. 532466 OFSS 3,016.35 4 IT – Software
11 Central Depository Services (India) Ltd. N.A. CDSL 1,329.35 0.5 Finance
12 Oil & Natural Gas Corporation Ltd. 500312 ONGC 131.2 1 Crude Oil
13 Gujarat State Petronet Ltd. 532702 GSPL 242.5 4 Gas Transmission
14 Mphasis Ltd. 526299 MPHASIS 2,081.55 3 IT – Software
15 ITC Ltd. 500875 ITC 342.25 4 FMCG
16 Persistent Systems Ltd. 533179 PERSISTENT 3,212.85 3 IT – Software
17 Balkrishna Industries Ltd. 502355 BALKRISIND 1,924.90 0.5 Automobile & Ancillaries
18 Finolex Industries Ltd. 500940 FINOLEXIND 148.4 3 Plastic Products
19 TTK Prestige Ltd. 517506 TTKPRESTIG 847 4 Consumer Durable
20 Pidilite Industries Ltd. 500331 PIDILITIND 2,825.15 3 Chemical

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:

Sonata Software Ltd.

Sonata Software Ltd. provides varied IT services. IT consulting, product engineering services, application development, application management, managed testing, business intelligence, infrastructure management, packaged applications, and travel solutions. The company’s share of cloud business revenue in its business at 78% has consistently increased over last several quarters. Sonata Software has an established position in the IT services sector. It is one of the leading players catering to the travel, tourism, and logistics verticals. It operates a software distribution business for companies such as Microsoft, Oracle, and IBM and has longstanding relationships with clients and has been actively adding customers.

Its financial risk profile is marked by a healthy capital structure, net debt free and healthy double digit return ratio. Supported by a healthy net worth of Rs. 978 Crs. Its financial risk profile is also supported by a comfortable liquidity position of Rs. 671 Crs as on December 31, 2021. It derives nearly 39% of its revenue from overseas. This exposes the company to the risk of economic slowdown in these regions, as well as regulatory changes such as restriction on H1B visas. Additionally, Sonata also operates with a high concentration risk of clients. Moreover, the travel and tourism sector, which contributed to almost one-fifth of revenue, may be adversely affected in the near term due to the Covid-19 pandemic. Company has over the years steadily improved its business risk profile, with material increase in revenue share of high-margin IT services business. In addition to this, Sonata has a dividend payout ratio of nearly more than 59.6%.

Avanti Feeds Ltd.

Avanti Feeds manufactures and sells shrimp feed and exports processed shrimp. It has a total shrimp feed capacity of 600,000 million tonnes per annum (mtpa), of which 60,000 mtpa is in Gujarat and remaining 540,000mtpa in Andhra Pradesh also, Avanti plans to complete new plant for manufacturing of shrimp feed, in Bandapuram, Andhra Pradesh, by June 2022. This plant will expand capacity by 175,000mtpa. Company commands a market share of about 48% in the domestic feed business and 1.6% market share in shrimp exports as of September 2021. Its shrimp processing subsidiary, Avanti Frozen Foods which has an installed capacity of 22,000 mtpa, is one of the leading shrimp exporters in the country. Thai Union holds around 8.7% stake in the company and 40% stake in Avanti Frozen Foods. The company which is among the largest shrimp, fish and pet food manufacturers and processed seafood producers, with a strong marketing and sales network worldwide across the globe.

This strategic partnership provides Avanti with the technical know-how in feed formulation and shrimp processing, and access to its global marketing network. Avanti Feeds has a healthy cash balance of Rs. 61 Crs with minimal term debt repayment requirement. Cash flow from operations continued to be robust at Rs. 383 owing to increased scale and robust working capital management which is sufficient to fund dividend payments and modest capex requirements. The Income Tax Department conducted a search on the premises of Avanti Feeds and its subsidiaries recently but the search did not impact the operations and the authorities have not initiated any coercive actions or proceedings such as freezing of bank accounts, seizure of stocks, etc.

However, any adverse finding in this regard in the future would have a negative impact on its stock price. Moreover, the Company is also exposed to raw material risk but has exhibited an ability to manage raw material price volatility effectively. Risk of any disease outbreak on shrimps could also impact the feeds and processing division of Avanti feeds.

Oracle Financial Services Software Ltd.

Oracle Financial Services Software Limited (Oracle) is a world leader in providing IT solutions to the financial services industry and is a majority owned subsidiary of Oracle Corporation. Oracle provides a wide range of technology solutions covering Retail Banking Corporate Banking and Payments. The products business which comprises product licensing consulting and support is the company’s principal business segment. The two other smaller business segments comprise consultancy services business and the business process outsourcing services business. Oracle has established an extensive global presence across leading markets through its sales and marketing network. Its topline has grown at a CAGR of 4% and bottom line has grown at a CAGR of 11% over 5 years. The Company has an operating margin of 49.2% in Q2FY22. Oracle’s dividend yield is amongst the highest in its industry at 5.77%.

This IT solutions provider has a history of financing majority of working capital requirement, capital expenditure and other requirements through its operating cash flow. Key risk which the company has identified is increased competition from vendors with digital solutions and new players, negative pricing pressure as customers seek to streamline their IT budgets on back of uncertainties caused by COVID-19 pandemic, etc. Company operates with the best financial risk profile of zero-debt and has stated the cash generated from operations will be sufficient to satisfy the foreseeable capital expenditure and working capital requirements in future.

Gujarat State Petronet Ltd.

Gujarat State Petronet Ltd. (GSPL) derives strength from its established position as one of the largest players in the gas transmission business in India together with its leadership position in Gujarat, strategic location with connection to all major natural gas supply sources; along-with its synergies with Gujarat State Petroleum Corporation group which has presence across the energy (natural gas) value chain. GSPL operates with an open-access model which supplements healthy profitability for the company. The Company also has a majority stake in Gujarat Gas Ltd. which is India’s largest city gas distribution company in its kitty.

GSPL has a 2,700 km long pipeline network which is the second largest gas transmission pipeline network operator in the country, after GAIL. Total revenue increased by around 67% YoY in Q3FY22. Which was primarily driven by transmission volumes. Further, its capital structure was comfortable with an overall debt to equity ratio of 0.15 as on December 31, 2021. GSPL has adequate liquidity which is characterized by sufficient cushion in its accruals. In the event of any significant change in Government policy and the tariff, the revenues generated from the pipeline may be impacted.

Accordingly, GSPL remains exposed to regulatory risk obligations. In addition to this, there exist risks associated with its large-size capex and investment plans being implemented through its two JVs of around Rs. 13,000 Crs to be funded with a debt to equity ratio of 70:30.

Mphasis Ltd.

Mphasis is a mid-sized IT company primarily engaged in providing IT / ITeS / BPO services catering to clients in the banking and capital markets, emerging industries, information technology, communication and entertainment and insurance. Company derives its revenues primarily from software services & projects, licensing arrangements & application services, infrastructure outsourcing services. It’s financial profile remains healthy marked by stable earnings, sizable net worth, and strong liquidity with large cash reserves, healthy capital structure and coverage metrics. The revenues grew by 26.24% YoY during Q3FY22 which was supported by higher order executions and new deal wins. Mphasis’ operating margins have remained at 17.4% in Q3FY22 aided by enhanced scale and operating efficiencies. Given the Blackstone Group’s parentage, Mphasis has access to its investment portfolio.

The company has leveraged the same since its acquisition. With Blackstone expanding its AUM across verticals and geographies, new opportunities for client wins would continue. As of March 2021, the company’s cash and cash equivalents were robust at Rs. 1,062 Crs. Mphasis is also vulnerable to pricing pressure from peers, moderate scale of operations, foreign currency fluctuations, higher revenue share of time and material contracts, wage inflation, challenges of training and geo-political risks, with approx. 77% of revenues derived from North America.

Pidilite Industries Ltd.

Pidilite operates with two main divisions: pigment emulsions and adhesives. Over the years, the company diversified into branded consumer and bazaar products and industrial specialty chemicals. These accounted for approx. 79% and 21%, respectively of sales in Q3FY22. Besides the mother brand, Fevicol, its prominent brands include Steelgrip, Dr. Fixit, M-seal, Fevicryl, Fevikwik, Fevistik, Fevilite, Fevibond, and Acron. The Company saw robust volume growth in Q3FY22. Where volumes of consumer and bazaar segment and industrial products segment grew by 22.5% and 16% respectively. Financial risk profile is marked by a healthy net worth of Rs. 5,798 Crs as on December 31, 2021 and debt to equity ratio of 0.13. Debt protection metrics remained strong with interest coverage of about 42.9 times. Networth is expected to improve further, led by healthy accretion to reserves over the medium term. Key risks include substantial capital expenditure, unrelated acquisition. Any unrelated diversification may lead to deterioration of capital profile and substantial erosion of liquidity. Which will lead to significant weakening of operating performance or profitability in future.

Coronavirus has destroyed economies and wiped out years of savings. In times like these, for companies, cash in hand allows them to continue operations and incur costs without having to borrow money. During such a challenging environment, markets are likely to reward companies that are generating high free cash flows and thus can service their debt (deleveraging) 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 that have 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. 31,700 for the below curated portfolio as of 14 March, 2022. 

Company Name Weightage CMP – Sept 2022 Quantity Total (Rs.)
Sonata Software Ltd. 13% 546.35 5 2,731.75
Avanti Feeds Ltd. 10% 476.35 7 3,334.45
Oracle Financial Services Software Ltd. 12% 3,016.35 1 3,016.35
Gujarat State Petronet Ltd. 11% 242.5 12 2,910.00
Mphasis Ltd. 22% 2,081.55 2 4,163.10
Pidilite Industries Ltd. 31.70% 2,825.15 4 11,300.60
100% Total 27,456.25

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.

Sr. No. Company Name BSE Scrip Code NSE Symbol CMP – Sept 2022 Rating Industry Market Cap (in Crs) Promoter Holding Compounded Sales Growth (5 years) Compounded Profit Growth (5 years) Operating Profit Margin (%) Price to Earnings (times) Price to Book (times) EV/EBITDA Debt to equity (times) Dividend Yield (%) Return on Equity (%) Return on Capital Employed
1 Sonata Software Ltd. 532221 SONATSOFTW 546.35 3.0 IT – Software 7938.0 28.20% 16.80% 9.25% 8.88% 22.10 8.12 14.00 0.2 1.85% 31% 41.60%
2 Avanti Feeds Ltd. 512573 AVANTI 476.35 4.0 FMCG 5794.0 43.70% 16.20% 16.00% 5.90% 26.00 3.27 15.70 0 1.47% 20.40% 28.90%
3 HCL Technologies Ltd. 532281 HCLTECH 902.3 4.0 IT – Software 323862.0 60.30% 19.30% 14.40% 24.20% 29.40 5.34 15.30 0.1 2.68% 19.80% 25.70%
4 KEI Industries Ltd. 517569 KEI 1504.35 0.5 Cable 9111.0 38.00% 12.40% 34.50% 10.70% 26.30 4.70 16.60 0.16 0.25% 16.60% 21.40%
5 Aurobindo Pharma Ltd. 524804 AUROPHARMA 527.55 1.0 Pharmaceuticals & Drug 37632.0 51.80% 12.50% 21.40% 19.70% 13.10 1.61 7.58 0.2 0.70% 27.50% 18.50%
6 Castrol India Ltd. 500870 CASTROLIND 113.8 4.5 Lubricants 10786.0 51.00% 4.46% 2.67% 25.40% 14.20 6.55 8.51 0.00 2.75% 49.60% 67.40%
7 Coal India Ltd. 533278 COALINDIA 232 3.0 Mining & Minerals 112008.0 66.10% -3.05% -2.30% 21.20% 7.34 65.50 3.75 0.08 8.80% 37% 46.10%
8 Cummins India Ltd. 500480 CUMMINSIND 1276.7 1.0 Automobile & Ancillaries 27599.0 51.00% -1.67% -3.98% 14.40% 35.40 5.95 22.80 0.01 1.51% 14.30% 18.00%
9 Excel Industries Ltd. 500650 EXCELINDUS 1344 0.5 Chemicals 1941.0 52.50% 10.80% 21.40% 19.60% 14.20 1.87 8.74 0.01 0.73% 9.07% 13.00%
10 Oracle Financial Services Software Ltd. 532466 OFSS 3016.35 4.0 IT – Software 29913.0 73.10% 3.82% 10.60% 49.20% 16.00 4.88 9.65 0.01 5.77% 26.30% 36.70%
11 Central Depository Services (India) Ltd. N.A. CDSL 1329.35 0.5 Finance 15873.0 20.00% 22.80% 24.10% 65.40% 55.60 17.00 40.30 0 0.59% 25.00% 32.40%
12 Oil & Natural Gas Corporation Ltd. 500312 ONGC 131.2 1.0 Crude Oil 221036.0 60.40% 19.60% -2.48% 14.50% 5.15 0.89 4.10 0.49 4.13% 7.39% 9.95%
13 Gujarat State Petronet Ltd. 532702 GSPL 242.5 4.0 Gas Transmission 15095.0 37.60% 63.40% 28.10% 20.20% 9.32 2.10 4.32 0.15 0.65% 28.50% 37.60%
14 Mphasis Ltd. 526299 MPHASIS 2081.55 3.0 IT – Software 61711.0 55.90% 9.84% 13.50% 17.90% 45.50 28.60 0.24 1.16% 19.70% 25.20%
15 ITC Ltd. 500875 ITC 342.25 4.0 FMCG 291252.0 0.00% 4.68% 7.08% 34.10% 19.70 4.78 13.20 0 4.55% 21.00% 28.60%
16 Persistent Systems Ltd. 533179 PERSISTENT 3212.85 3.0 IT – Software 33311.0 31.30% 12.60% 9.92% 16.70% 53.10 10.80 32.00 0.04 0.46% 16.10% 21.20%
17 Balkrishna Industries Ltd. 502355 BALKRISIND 1924.9 0.5 Automobile & Ancillaries 38088.0 58.30% 12.30% 21.10% 26.80% 26.4 5.82 16.20 0.24 0.86% 21.10% 23.90%
18 Finolex Industries Ltd. 500940 FINOLEXIND 148.4 3.0 Plastic Products 9692.0 52.50% 6.89% 25.90% 27.00% 11.30 2.82 7.36 0.01 1.28% 28.90% 35.60%
19 TTK Prestige Ltd. 517506 TTKPRESTIG 847 4.0 Consumer Durable 11632.0 70.40% 8.01% 14.00% 16.20% 38.60 7.30 25.60 0.06 0.60% 16.20% 20.80%
20 Pidilite Industries Ltd. 500331 PIDILITIND 2825.15 3.0 Chemical 118845.0 70.00% 6.35% 7.10% 20% 94.20 20.50 60.90 0.13 0.36% 22.50% 29.40%

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3 Comments

  1. Sudhansu

    Verygood information for a beginner. I like your article.

    1. Team Samco

      Glad you found it helpful, thank you very much for this feedback!

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