Stocks to buy: Consider stocks with healthy return ratios; 5 stocks with up to 39.3% upside potential The data for the past five financial years for RoE, RoCE and RoA were extracted from Reuters-Refinitiv for listed companies (with market cap of more than Rs 100 crore), including the latest data for 2023-24. The companies with highest return ratios in 2023-24 compared to the past five years were selected. Also, only companies with positive ratios in the defined period were included. Furthermore, only those with both RoE and RoCE in double digits in 2023-24 were included. There are only 24 such stocks. The average one-year return of the group of such 24 stocks is 50.9%, compared to the Nifty 500 index with 28.9% returns. Of the 24 stocks, 21 delivered positive returns, with 14, or 58.3%, outperforming the Nifty 500 index. The returns are based on 12 November 2024 closing values
A correction of over 10% since the last week of September has dragged the year-todate performance of the Nifty-50 index compared to the world markets. The domestic benchmark registered 8.3% returns and underperformed benchmark indices of Amsterdam, Italy, Canada, Germany, Spain, China, Hong Kong, and the US. These indices registered gains between 11.1% and 27.3%. The returns are calculated between 29 December 2023 and 14 November 2024 closing values.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} Substantial FPI outflows, weak September quarter results, and high valuations have driven the recent market correction. A JM Financial report highlights slowing urban demand across FMCG, retail, auto and mall sectors, based on the September quarter earnings from 157 companies. Demand moderation is seen in chemicals and consumer durables, while the financial sector shows stress in unsecured portfolios of MFIs, certain private banks and NBFCs.
The beat-to-miss ratio has been adverse so far, with 150 companies out of 268, or 56%, reporting earnings that are less than the estimates compiled (for more than two analysts) by Reuters-Refinitiv. Experts expect volatility to persist, but remain optimistic about long-term growth. Higher government spending and festive season consumption are expected to boost India Inc.’s earnings in the second half of 2024-25.
With markets likely to stay volatile, investing in high-quality companies is key. Efficiency—a company’s ability to maximise output (products, revenue or profits) using minimal resources—can help identify such firms. It reflects how effectively a business converts time, effort, materials and capital into results.
Return ratios are a key measure of a company’s efficiency, showing the returns generated on invested capital. Common ratios include return on equity (RoE), return on capital employed (RoCE), and return on assets (RoA), typically expressed as percentages. Higher ratios indicate better capital efficiency. RoE measures how much a company earns on its equity capital. It is calculated by dividing the annual net income (or PAT) by the average equity capital. An increasing RoE over time means that the company is generating shareholder value by reinvesting its earnings in quality projects that are contributing to profits. A declining RoE could indicate reinvestment of capital in unproductive assets.
Artificial Intelligence(AI)
Mastering C++ Fundamentals with Generative AI: A Hands-On
By - Metla Sudha Sekhar, IT Specialist and Developer
Artificial Intelligence(AI)
Generative AI for Dynamic Java Web Applications with ChatGPT
By - Metla Sudha Sekhar, IT Specialist and Developer
Leadership
Business Storytelling Masterclass
By - Ameen Haque, Founder of Storywallahs
Marketing
Digital Marketing Masterclass by Neil Patel
By - Neil Patel, Co-Founder and Author at Neil Patel Digital Digital Marketing Guru
Leadership
Crafting a Powerful Startup Value Proposition
By - Dr. Anu Khanchandani, Startup Coach with more than 25 years of experience
Web Development
Advanced Java Mastery: Object-Oriented Programming Techniques
By - Metla Sudha Sekhar, IT Specialist and Developer
Finance
Crypto & NFT Mastery: From Basics to Advanced
By - CA Raj K Agrawal, Chartered Accountant
Marketing
Marketing & Sales Strategies for Startups: From Concept to Conversion
By - Dr. Anu Khanchandani, Startup Coach with more than 25 years of experience
Marketing
Future of Marketing & Branding Masterclass
By - Dr. David Aaker, Professor Emeritus at the Haas School of Business, UC Berkeley, Author | Speaker | Thought Leader | Branding Consultant
Data Science
SQL Server Bootcamp 2024: Transform from Beginner to Pro
By - Metla Sudha Sekhar, IT Specialist and Developer
Finance
AI and Generative AI for Finance
By - Hariom Tatsat, Vice President- Quantitative Analytics at Barclays
Leadership
Validating Your Startup Idea: Steps to Ensure Market Fit
By - Dr. Anu Khanchandani, Startup Coach with more than 25 years of experience
Artificial Intelligence(AI)
AI for Everyone: Understanding and Applying the Basics on Artificial Intelligence
By - Ritesh Vajariya, Generative AI Expert
Web Development
Mastering Full Stack Development: From Frontend to Backend Excellence
By - Metla Sudha Sekhar, IT Specialist and Developer
Finance
Tally Prime & GST Accounting: Complete Guide
By - CA Raj K Agrawal, Chartered Accountant
Finance
A2Z Of Money
By - elearnmarkets, Financial Education by StockEdge
Leadership
Boosting Startup Revenue with 6 AI-Powered Sales Automation Techniques
By - Dr. Anu Khanchandani, Startup Coach with more than 25 years of experience
Artificial Intelligence(AI)
AI-Powered Python Mastery with Tabnine: Boost Your Coding Skills
By - Metla Sudha Sekhar, IT Specialist and Developer
Leadership
From Idea to Product: A Startup Development Guide
By - Dr. Anu Khanchandani, Startup Coach with more than 25 years of experience
Marketing
Digital marketing - Wordpress Website Development
By - Shraddha Somani, Digital Marketing Trainer, Consultant, Strategiest and Subject Matter expert
Finance
Financial Literacy i.e Lets Crack the Billionaire Code
By - CA Rahul Gupta, CA with 10+ years of experience and Accounting Educator
Web Development
Django & PostgreSQL Mastery: Build Professional Web Applications
By - Metla Sudha Sekhar, IT Specialist and Developer
Office Productivity
Excel Essentials to Expert: Your Complete Guide
Web Development
Intermediate C++ Skills: Master Pointers, Structures and File Stream
By - Metla Sudha Sekhar, IT Specialist and Developer
However, RoE does not take into account other sources of financing like debt. A company with high leverage or debt may show a high RoE, but the risks associated with high interest costs or debt servicing are not reflected.
For levered companies (with capital structure comprising both equity and debt), RoCE proves useful as it measures the profit earned by a company relative to its total capital (equity and debt). It is calculated by dividing the EBIT (measure of operating profit) by the capital employed. Companies that generate higher RoCE can manage and service debt in a very efficient way. Also, RoCE must be higher than the rate at which the company borrows money, otherwise it indicates that the company is not employing the capital efficiently.
The third return ratio, RoA, indicates how efficiently a company converts the money used to purchase assets into net profits. In other words, the ratio measures how profitable the company’s assets are. The ratio is useful for both investors and management.
We have identified companies that have a strong return ratio profile. The data for the past five financial years for RoE, RoCE and RoA were extracted from Reuters-Refinitiv for listed companies (with market cap of more than Rs 100 crore), including the latest data for 2023-24. The companies with highest return ratios in 2023-24 compared to the past five years were selected. Also, only companies with positive ratios in the defined period were included. Furthermore, only those with both RoE and RoCE in double digits in 2023-24 were included. There are only 24 such stocks. The average one-year return of the group of such 24 stocks is 50.9%, compared to the Nifty 500 index with 28.9% returns. Of the 24 stocks, 21 delivered positive returns, with 14, or 58.3%, outperforming the Nifty 500 index. The returns are based on 12 November 2024 closing values.
The following are the five such stocks that have good analyst coverage and are currently offering a double-digit share price potential.
Birlasoft
THE IT SERVICES and solutions provider reported a 2.6% quarter-over-quarter growth in revenue in the September quarter. The growth was led by a ramp-up of deals that were deferred in the June quarter. Moreover, except life sciences vertical, the growth was broad-based across manufacturing, energy & utilities and ERP verticals. Overall, the performance was weak, with a 15% q-o-q decline in deal TCV.
The change in strategy on winning more annuity and transformational deals has put margins under pressure. However, such strategy change will improve revenue stability in the long run. While the December 2024 quarter performance is likely to be impacted by salary hikes, the management expects an improvement in margins from the fourth quarter of 2024-25. It has indicated that the contribution of new deals in the order book is increasing, which will support growth momentum.
The management also expects its ERP business to improve in the March 2025 quarter amid strong partnership with SAP and Oracle. The likely improvement in the demand environment (after the US elections) is expected to support performance in the future. A report from Nirmal Bang states that the company’s proactive investment in operational efficiencies and offshore transitions provides margin tailwinds from the March 2025 quarter.
Polycab India
THE MANUFACTURER OF wires and cables reported a strong 30% year-onyear revenue growth in the September quarter and surpassed Reuters-Refinitiv estimates by 10.9%. The performance was supported by strong demand and healthy volume growth across segments. While the revenue of the wires and cables segment grew by 24%, the FMEG segment registered 20.5% revenue growth on a y-o-y basis. However, the EBITDA margins contracted by 295 basis points y-o-y amid an increase in competitive intensity and lower export contribution.
The margins are expected to normalise in the second half of the current financial year due to expectations of stability in the commodity prices and improvement in the export segment. The demand for cables and wires segment is expected to remain strong, aided by both government and private capex.
On the other hand, the FMEG segment demand will be supported by an uptick in the real estate market. The EPC business segment has a robust order book aided by projects from the government’s Revamped Distribution Sector Scheme.
The management is planning to invest Rs.1,000-1,100 crore in capacity expansion to meet the rising demand. A recent AnandRathi report states that the company is set to capitalise on the strong demand for cables and wires, compared to its peers due to its leadership position.
Voltamp Transformers
THE MANUFACTURER and supplier of electrical transformers reported a 4.3% and 10.7% y-o-y growth in revenue and PAT, respectively, in the September quarter. However, the numbers missed Reuters-Refinitiv estimates by 10.7% and 0.7%, respectively, amid a fall in realisations. The volumes remain strong, and margins witnessed an expansion due to lower expenses. It has a healthy order book of Rs.1,020 crore. Energy transition, industrial capacity expansion by the private sector in various industries (steel, cement, petrochemicals, metals, etc.), PLI scheme benefits and ‘China plus one’ strategy will continue to drive the domestic demand momentum. Also, there are strong opportunities in sectors like commercial real estate, data centres, oil & gas and green energy.
It is also expanding its capacity by 6,000 MVA (megavolt ampere) to cater to the rising demand for electricity (and transformers), and entailing a capital expenditure of up to Rs.200 crore. An Emkay report sees the capacity expansion as a strong growth lever and will reflect in dual growth—top line as well as bottom line—leading to RoE and RoCE of 21% and 29%, respectively, in 2026-27. The report lists a strong order book, robust balance sheet and improved cyclical demand tailwinds as key strongholds.
Bajaj Auto
THE AUTOMOBILE MANUFACTURER reported 22% y-o-y growth in revenue in the September quarter and met estimates of analysts compiled by Reuters-Refinitiv. Improvement in volumes and realisation supported the revenue growth, whereas better cost control measures led to stable EBITDA margins at 20.2%.
The exports are seeing a steady revival with good growth in the LATAM region. Though the African region continues to decline, recovery in Nigeria is expected. A richer mix and favourable exchange rate will boost export revenue in the future. The management expects 10% q-o-q growth in exports in the December quarter. The company’s investments in the CNG, electric 2W and 3W segments will support its future expansion. An AnandRathi report expects Bajaj Auto’s volume growth to be stronger in 2025-26, aided by the success of its CNG motorcycle launch, a rebound in Africa and an EV ramp-up. The report expects the domestic 2W segment to register a robust 9% CAGR over the next three years, led by the favourable base, pent-up demand and better rural economy.
Though the analysts list an upswing in domestic and export markets, strong cash flows, better profitability, strong return ratios and market share gains due to the success of CNG 2Ws and EVs as key positives. They also acknowledged near-term risks amid high valuations, strong stock price run-up in the past and muted festive season sales across industry (till Dussehra).
Torrent Pharmaceuticals
THE PHARMA COMPANY reported 8.6% y-o-y growth in revenue in the September quarter. It missed Reuters-Refinitiv estimates by 3% amid reduced insulin sales and depreciation of the Brazilian currency (against rupee). The domestic formulations segment was strong and grew by 13% y-o-y, led by healthy demand for chronic therapies. The EBITDA margins saw a 150 basis point expansion y-o-y, aided by a better product mix and lower employee costs.
The management has guided a 50-100 basis point improvement in EBITDA margins over the next 2-3 years. Price hikes and operating leverage benefits are expected to support this guidance. The company will benefit from the recovery in export business, an improved contribution from new launches, price hikes and growth in the Curatio portfolio.
Furthermore, the company has reduced its debt by `900 crore in the first half of 2024-25 and aims to turn net cash positive by 2025-26. A recent Ambit Capital report states that Torrent is well-placed to benefit from the likely outperformance of chronic therapies over acute segments in India. Also, clearance of Dahej and Indrad has opened up the possibility for new launches in the US. Another report from DAM Capital states that improving revenue momentum with continued cost optimisation will lead to a significant FCF generation, healthy return ratios and 27% PAT CAGR over the next three years.
#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
This story originally appeared on: India Times - Author:Faqs of Insurances
