The Indian stock market has shown robust growth, with a 1.5% increase over the last week and an impressive 46% rise over the past year, accompanied by expectations of a 16% annual earnings growth in the coming years. In this context, identifying undervalued stocks can be particularly compelling as they may offer potential for significant returns amidst these positive market conditions.
Top 10 Undervalued Stocks Based On Cash Flows In India
Overview: RITES Limited offers consultancy, engineering, and project management services across various sectors including railways, highways, and renewable energy, with a market capitalization of approximately ₹178.47 billion.
Operations: RITES Limited generates revenue from several key segments, including domestic consultancy at ₹11.94 billion, domestic turnkey construction projects at ₹9.03 billion, domestic leasing at ₹1.38 billion, exports at ₹1.03 billion, and consultancy abroad at ₹0.95 billion.
Estimated Discount To Fair Value: 20.6%
RITES Ltd., currently trading at ₹742.7, which is 20.6% below its estimated fair value of ₹935.47, appears undervalued based on discounted cash flow analysis. Despite a robust partnership strategy as evidenced by recent MoUs with DMRC and others for comprehensive railway management and operations, the company's dividend sustainability is questionable due to insufficient coverage by earnings or cash flows. However, RITES shows promising revenue growth forecasts at 13.4% annually, outpacing the Indian market's 9.7%, though its annual profit growth projection of 18.54% slightly exceeds the market but doesn't reach high growth thresholds.
Overview: Texmaco Rail & Engineering Limited is an engineering and infrastructure company operating both in India and internationally, with a market capitalization of approximately ₹108.66 billion.
Operations: Texmaco Rail & Engineering's revenue is generated from three primary segments: the Freight Car Division, which brings in ₹27.50 billion, and two infrastructure segments—Electrical and Rail & Green Energy—which contribute ₹2.26 billion and ₹5.27 billion, respectively.
Estimated Discount To Fair Value: 17.9%
Texmaco Rail & Engineering, priced at ₹272, is below the calculated fair value of ₹331.25, suggesting undervaluation based on cash flows. Despite this, its forecasted annual earnings growth of 28.9% surpasses the Indian market's 15.8%, and revenue growth expectations at 14.2% annually also outdo the market average of 9.7%. However, its Return on Equity is expected to remain low at 9.4%. Recent dividend approval and positive earnings reports indicate financial health but share price volatility persists.
Overview: Vedanta Limited is a diversified natural resources company engaged in exploring, extracting, and processing minerals and oil and gas across India, Europe, China, the United States, Mexico, and other global markets with a market capitalization of approximately ₹1.73 trillion.
Operations: Vedanta's revenue is primarily derived from Aluminium (₹483.71 billion), Zinc - India (₹279.25 billion), Copper (₹197.30 billion), Oil and Gas (₹178.37 billion), Power (₹61.53 billion), Iron Ore (₹90.69 billion), and Zinc - International (₅35.56 billion).
Estimated Discount To Fair Value: 37.5%
Vedanta Limited, priced at ₹465.65, trades below its fair value estimate of ₹745.13, indicating a potential undervaluation based on cash flows. While the company's profit margins have declined from 7.2% to 3%, its earnings are expected to grow by 43.25% annually, outpacing the Indian market forecast of 15.8%. However, it carries a high debt level and its dividends are not well covered by earnings, posing risks despite the growth prospects and current discount to fair value.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include NSEI:RITES NSEI:TEXRAIL and NSEI:VEDL.
