Undervalued Gems: 5 Midcap Stocks Hitting 52-Week Lows. Time to Take a Look?

Over the past year, the BSE Sensex index has demonstrated significant volatility. These fluctuations have been driven primarily by weak global cues.

From US jobless data releases to incessant concerns over the impending banking crisis, the past year has been very turbulent for the markets.

But as the stock market continues to fluctuate, investors are on the lookout for undervalued stocks. Stocks that carry the potential to deliver robust returns in the long run.

Midcap stocks usually offer a balance of growth and stability, making them a favourite among investors.

Here are five that have recently hit their 52-week lows.

#1 Glaxosmithkline Pharma

At the top of the list, we have Glaxosmithkline Pharma.

GSK Pharma India is a subsidiary of GlaxoSmithKline plc, a global pharmaceutical company. The Indian arm develops and manufactures a range of prescription medicines, vaccines, and consumer healthcare products.

Its portfolio includes products for respiratory, oncology, dermatology and infectious diseases, among others.

The stock has been on a downward spiral since the beginning of 2022. It has fallen by over 30% and is trading at its 52-week low of Rs 1,275. The Price-to-Earnings ratio (PE ratio) for GSK stands at 48 x, a 22% discount from its median PE of 59x.

The collapse in the stock price is attributable to the subdued performance of the business. The sales and profitability growth has been patchy in the preceding quarters on the back of volatile input costs.

GSK Pharma Financial Snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue Growth (%)	-1.86%	10.40%	2.26%	-8.09%	10.46%
Operating Profit Margin (%)	19.35%	22.48%	21.90%	22.68%	23.28%
Net Profit Margin (%)	12.11%	14.24%	2.77%	9.19%	10.58%
Return on Equity(%)	17.26%	21.22%	4.71%	17.42%	18.39%

Source: Equitymaster

In the past 5 years, business growth has been subdued, with a cyclical surge in profits. While the sales have grown at a 5-Yr CAGR of 3.7%, the net profit of the company has recorded 2.5% growth.

Consequently, the Return on Equity (RoE) has also been weak and stands at 18% in the financial year 2022.

However, GSK has an innovative pipeline of vaccines and speciality medicines. It plans to continue to grow in key brands such as Augmentin, Calpol, Ceftum, T-Bact and Neosporin and will ramp up its dermatology segment.

Apart from this, it also expects growth from its relatively new corticosteroids and emollient categories.

To know more about the company, check out its financial factsheet and latest financial results.

#2 IPCA Labs

Next on our list is IPCA Labs.

IPCA is an Indian pharmaceutical company. Apart from the domestic market, IPCA has a presence in various international markets like Africa, the EU, the US, LatAm and the Middle East.

The domestic formulations segment comprises 40% of the business and has been growing ahead of the market over the last two years. This has been primarily led by new product introductions supplemented by strong specialist marketing efforts.

The stock price has been dwindling since 2022. From Rs 1,100 since the beginning of 2022, the stock is now down to Rs 695, nearing its 52-week low of Rs 687. It's trading at a PE multiple of 33.6x, a premium of 7% to its 5-Yr median PE of 36x.

While high input costs that have dampened the profit margins, the recent acquisition of the loss-making Unichem business is partly to be blamed.

IPCA Labs Financial Snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue Growth (%)	3.27%	15.22%	23.17%	17.40%	7.14%
Operating Profit Margin (%)	15.23%	19.95%	21.02%	29.71%	23.66%
Net Profit Margin (%)	7.42%	11.77%	13.15%	21.20%	15.63%
Return on Equity(%)	9.47%	15.28%	18.15%	27.63%	17.87%

Source: Equitymaster

IPCA Labs is trying its hand at the US generics market for the second time with its acquisition of Unichem Labs. The deal, valued at Rs 10.3 bn is presumed to be expensive, considering the business is yet to overcome challenges and turn profitable.

However, the company's healthy balance sheet can withstand the cash outflow.

The company enjoys a low debt to equity of 0.1 times, thanks to the strong performance reported by the business over the past 5 years. While the sales have grown at a 5-year CAGR of 12.6%, the net profit has multiplied 5x.

The 5-year average RoE stands at 17.7%.

IPCA Labs will now thrust on brand building in pain, cardiovascular system, central nervous system, anti-infective and anti-malarial segments. It will continue its geographical expansion via both institutional and distribution sales in covered countries through additional field forces.

The company has built an international portfolio of 245 registered products, with plans to ramp it up by 52 more in the coming years.

Over the past five years, the company has consistently allocated more than 2% of its sales towards research and development (R&D) and shall continue to do the same, going forward.

To know more about the company, check out its financial factsheet and latest financial results.

#3 Crompton Greaves Consumer Electric

Third on our list is Crompton Greaves Consumer Electric.

Crompton Greaves Consumer Electricals is India's leading consumer electrical player. It boasts a wide portfolio of consumer durables and lighting products, which includes fans, lighting, pumps and the more recent kitchen appliances.

But despite being a well-recognised brand, the company's stock price has been falling for more than a year. From trading at Rs 450 at the beginning of 2022, Crompton Greaves has now dwindled to Rs 257, close to its 52-week low of Rs 251. It is trading at a PE multiple of 31 times, a discount of 14% to its 5-year median PE of 36 times.

The recent slump in the stock price is attributable to a myriad of reasons. The company's CEO of 8 years, who has been the force behind the phenomenal growth of the business, quit the company to pursue other interests.

Apart from this, the rising raw material costs and the intensifying competition have weakened demand and affected profitability in the preceding quarters.

Crompton Greaves Financial Snapshot (2018-2022)

	2018-2019	2019-2020	2020-2021	2021-2022
Revenue Growth (%)	10.13%	1.16%	6.59%	12.00%
Operating Profit Margin (%)	14.12%	14.56%	16.58%	15.61%
Net Profit Margin (%)	8.96%	10.98%	12.84%	10.72%
Return on Equity(%)	47.83%	43.10%	39.84%	28.33%

Source: Equitymaster

However, the company continues to lead the market in certain segments. This is well-reflected in the business performance over the years.

While the sales have grown at a 5-year CAGR of 7.4%, the net profits have grown by 15.6%.

The RoE has been falling due to the accumulation of profits under shareholder's equity, which is not necessarily a red flag. It simply implies the business is ploughing back its profits for higher future growth.

Crompton Greaves acquired a 55% stake in the leading South India-based kitchen appliances Company Butterfly Gandhimathi Appliances for a total consideration of Rs 13.8 bn.

Butterfly is among the top three kitchen and small domestic appliances players, offering Crompton Greaves a great chance to tap into the market.

The company will invest in R&D with a focus on producing innovative, value-added products. It will continue to ramp up its distribution network and increase its presence in modern trade, rural and e-commerce channels.

To know more about the company, check out its financial factsheet and latest financial results.

#4 Voltas

Fourth on our list is Voltas.

Voltas, a Tata Group company, offers engineering solutions primarily in the air-conditioning market. It offers MEP (mechanical, electrical and plumbing) services, supplies engineering equipment and manufactures branded cooling products like air-conditioners and refrigerators.

A large chunk of the revenues (85%) stem from India, while the balance 15% comes from the rest of the world.

The stock has been underperforming the broad markets in the past year, falling 40% to reach its 52-week low of Rs 807. Despite the massive fall, it is trading at a PE multiple of 110 times, nearly twice its median PE of 56 times.

Part of the reason behind, the battered share price is the poor performance in the quarterly results reported by the company.

Despite recording a profit and experiencing growth in the business during the March 2023 quarter, the company incurred losses in the December 2022 quarter.

Voltas Financial Snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue Growth (%)	5.52%	11.11%	7.75%	-1.83%	4.89%
Operating Profit Margin (%)	13.02%	11.20%	11.98%	10.99%	10.97%
Net Profit Margin (%)	8.93%	7.94%	6.80%	7.00%	6.38%
Return on Equity(%)	15.92%	14.12%	12.42%	11.40%	9.64%

Source: Equitymaster

Moreover, Voltas's robust distribution network and brand salience sets it apart from its peers, but the intensifying competition, in tandem with subdued demand, has dented the profitability in the past 5 years.

While the sales have grown at a 5-year CAGR of 5.4%, the net profits have remained rangebound.

Voltas plans to spend over Rs 4 bn to expand its air conditioning and refrigerator capacity over the next two years. The expansion will be funded via internal accruals as the company boasts a strong balance sheet with minimal debt.

To know more about the company, check out its financial fact sheet and quarterly results.

#5 Bata India

Last on our list is Bata.

Bata India, a subsidiary of Bata Crop (Switzerland), is the largest manufacturer and retailer of footwear and accessories in India. The company enjoys a significant presence in the market, with a vast network of retail stores (1,375) and franchises.

However, off-late the business has been struggling, hit by inflationary pressures in the last 2-3 quarters. The sales growth has also been slow, underperforming its peers marginally. This has caused a notable decline in Bata's stock price.

From its all-time high of Rs 2,100 at the beginning of 2022, the stock has fallen to Rs 1,495, approaching its 52-week low of Rs 1,381.

The stock is available at a PE multiple of 60x, a mere 5% discount to its 5-Yr median of 63x.

Bata Financial Snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue Growth (%)	6.52%	11.73%	4.18%	-42.31%	35.57%
Operating Profit Margin (%)	15.61%	18.97%	29.83%	15.27%	20.15%
Net Profit Margin (%)	8.35%	11.22%	10.76%	-5.23%	4.31%
Return on Equity(%)	15.76%	20.46%	18.10%	-4.89%	5.77%

Source: Equitymaster

Bata's business has been on a similar stride in the past 5 years. The sales and profit growth has been flattish. The RoE has also dwindled to 5% in the financial year 2022.

But despite the weak performance, the balance sheet remains debt free.

Going forward, Bata plans to focus on premiumisation, improving brand perception and expanding distribution.

The company will continue to expand its physical footprint, via both the Franchise stores as well as Multi Brand Outlets (MBOs). It's also ramping up its digital footprint through its own website and marketplaces.

To know more about the company, check out its financial factsheet and latest financial results.

In conclusion

Investors must keep a watchful eye on stocks trading at their 52-week lows. It may seem like an opportunity for potential outsized returns. However, it's crucial to adopt a comprehensive approach and consider multiple factors before making investment decisions.

Market conditions play a significant role in the performance of a company. Industry trends, and other economic factors can impact a company's performance in ways that are difficult to predict.

Therefore, it's imperative to carefully evaluate the fundamentals of each company before making any investment decisions that align with one's risk tolerance and investment goals.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...