5 Beaten Down Stocks with Strong Fundamentals, Poised to Make a Comeback in 2024

In the past one year, benchmark indices Sensex and Nifty have grown nearly 14% and have touched all-time highs of 20,200 and 67,927 last month.

While the markets are growing along with the Indian economy, there are some fundamentally strong stocks that took a hit due to falling profit margins.

These stocks are market leaders in their respective industries and have a competitive edge over their peers.

They could potentially stage a comeback in 2024.

Take a look...

#1 Polyplex Corporation

First on the list is Polyplex Corporation.

Polyplex manufactures polyester films for packaging, electrical and other industrial applications.

The company is an industry leader with a market share of about 25% in Thailand and Turkey and around 10% in India, the US, and Indonesia.

In the last one year, the company's shares have fallen around 39%.

The primary reason behind this fall is poor quarterly results owing to high input costs and demand disruptions in the overseas market.

Add to this the constant selling by promoters and one could make a compelling case for the decline.

However, with softening input prices, the company is expected to showcase an improved financial performance.

In the last five years, its revenue has grown at a compound annual growth rate (CAGR) of 10.4% driven by volume growth. The net profit has grown at a CAGR of 1.1% during the same time.

The company's return on equity (RoE) and return on capital employed (RoCE) stand at 17.7% and 19.3%, respectively.

It also has low debt on its books, having a debt-to-equity ratio of 0.1x and an interest coverage ratio of 21.2x.

The company has a healthy track record of being generous to its investors, with a five-year average dividend payout of 35.4% and a dividend yield of 2%.

Polyplex Corporation has plans to incur around Rs 7.8 billion (bn) in capex for the financial year 2024 for completing the BOPET project in the US and other projects in the value-added segment.

It also plans to expand its product portfolio by leveraging its in-house R&D facilities and renew old contracts with its clients.

Going forward, the company's growing scale of operations and rising demand for its products will drive its growth in the medium term.

To know more, check out Polyplex Corporation's financial factsheet and latest quarterly results.

#2 Delta Corp

Second on the list is Delta Corp.

It is the largest gaming company in India and the only listed company in casino gaming with 2,000+ live gaming positions.

The company has a dominant presence in Goa's offshore casino market. It has around 55% market share in the organised casino market in India with three major areas of business.

It also forayed into online gaming with the acquisition of Adda52.com.

In the last one year, shares of the company have fallen around 25%.

The share price primarily fell after the government announced GST of 28% on online gaming industry.

The company's financial performance has consistently improved in the last three quarters.

Delta Corp also reported strong growth in revenue and net profit over the last three years. The revenue has grown at a CAGR of 32.4% driven by the growth of visitations in Goa. It also reported a net profit of Rs 2.6 bn as against a loss of Rs 255 million (m) three years ago.

The RoE and RoCE are 12% and 16.2% at the end of financial year 2023. Delta Corp is also a debt-free company and has a record of paying consistent dividends to its shareholders.

Being one of the primary players in the industry, Delta Corp has a first-mover advantage. It is unlikely that the government will give licenses to new players soon. This makes the company a near monopoly.

To add to this, the company is building a resort-cum-casino township with a capex of Rs 3 bn, which is expected to be completed in 2027. This ensures the company's growth in revenues in the future.

Going forward, despite a levy of GST on the gaming industry, growing demand for gaming will enable the company to earn steady revenue in the medium term.

To know more, check out Delta Corp's financial factsheet and latest quarterly results.

#3 Gujarat Gas

Third on the list is Gujarat Gas.

The company is a government enterprise engaged in the business of distribution of natural gas.

It is India's largest player in city gas distribution (CGD), with 27 licenses across 44 districts in six states and one union territory. The company has a market share of 24% in domestic connections, 41% in commercial connections, 18% in CNG stations, and 36% in industrial connections.

Gujarat Gas shares have fallen over 10% in the last one year.

The primary reason for the fall is weak quarterly results in the last few quarters. The revenue and net profit fell consistently for many quarters due to a fall in industrial volumes as customers switched to cheaper alternatives such as propane due to increased prices of RLNG.

However, the company's financial performance has improved over the last five years. The revenue and net profit have grown at a CAGR of 16.3% and 29.6%, respectively, driven by volume growth.

The RoE improved from 19% to 21.7% and RoCE also grew from 18.7% to 29.8%.

In the financial year 2023, Gujarat Gas prepaid all its debt and became debt-free.

The company also pays consistent dividends to its shareholders and has a five-year average dividend payout and dividend yield of 15% and 0.5%, respectively.

It plans to spend around Rs 10-12 bn in capex each year for the next four years to expand in existing and new states. The company plans to use its internal cashflows to fund this capex.

Going forward, the company's expansion plans will drive volume growth, which in turn will strengthen its market position in the medium term.

To know more, check out Gujarat Gas' financial factsheet and latest quarterly results.

#4 Jubilant FoodWorks

Next on the list is Jubilant FoodWorks.

Part of the Jubilant Bhartia Group, the company has two strong international brands in its portfolio: Domino's Pizza and Dunkin' Donuts.

It enjoys exclusive rights to develop and operate Domino's Pizza Restaurants across India, making it the largest franchisee of Domino's outside the USA. It also has exclusive brand rights for Sri Lanka, Bangladesh, and Nepal.

In the last one year, shares of the company have fallen over 10%.

Weak financial performance amid rising inflation, change in leadership, high valuations, and FII selling, have all contributed to the fall.

However, post-COVID-19, the company was able to grow its revenue at a fast rate. In the last three years, the revenue and net profit have grown at a CAGR of 15.5% and 15.3%, respectively, due to growth in the dine-in and delivery channels.

The RoE and RoCE currently stand at 17.4% and 31.2% respectively.

Its India operations are debt-free, and on a consolidated basis, the company has a negligible debt with a debt-to-equity ratio of 0.1x.

The company is opening new stores across India and entering new cities to expand its reach. In the last year, it opened 213 stores and entered 45 cities.

It is also targeting to open around 40 new stores of Popeyes across India in the financial year 2024.

Jubilant FoodWorks also stands to benefit from the ongoing cricket season. It has launched several new offers and combos, which will improve its volumes and revenue in the current quarter.

Going forward, the company's expansion plans will drive its revenue and growth in the medium term.

To know more, check out Jubilant FoodWorks' financial factsheet and latest quarterly results.

#5 Voltas

Last on the list is Voltas, a Tata Company.

The company is a household name that offers engineering solutions primarily in the air-conditioning market, with a market share of 22.8%.

Apart from catering to the retail market with its branded cooling products like air-conditioners and refrigerators, it offers MEP (mechanical, electrical, and plumbing) services and supplies engineering equipment.

Over the last one year, the shares of Voltas have fallen over 4%.

The fall can be attributed to FIIs selling and falling profits.

FIIs have been continuously selling their shares in the company since March 2022, bringing down their share from 26% to 20.6% in March 2023.

In the last five years, the revenue of the company grew by a CAGR of 5.7%. However, the net profit fell by a CAGR of 23.3% due to a rise in the prices of key inputs such as aluminium, steel, copper, and high-density polyethene.

As a result, the net margin, RoE and RoCE contracted.

In its recent quarterly presentation, the company said it has taken steps to reduce its costs and improve margins. It also announced the launch of a range of products with enhanced features and quality and plans to manufacture more value-added products to improve margins.

Voltas also announced a capex of Rs 3.5 bn to Rs 5 bn for the next 18 months to increase its manufacturing capacity to 5 m units.

All this indicates that the growth prospects of the company are high.

To know more, check out Voltas' financial factsheet and latest quarterly results.

Investment Takeaway

Even the most fundamentally strong stocks can take a hit in the short term due to market volatility.

This shouldn't create a panic though.

Stock market investing isn't tricky. You just need to be patient.

If history is any indication, you can see that fundamentally strong stocks have rewarded their shareholders handsomely in the long term.

So, sit tight and focus on your investing strategy.

Happy Investing!

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...