2 Beaten Down Stocks with High ROCE With Market Cap Over ₹20,000 Crores
Market corrections can be nerve-wracking, but they also unlock lucrative investment opportunities in form of Beaten Down Stocks. If you’re an investor searching for fundamentally strong businesses during these downturns, look no further. In this article, we’ll explore two stocks with market caps exceeding ₹20,000 crores that are currently beaten down stocks but boast improving Return on Capital Employed (ROCE)—a key metric for long-term value creation.
What Makes ROCE Important for Investors?
ROCE is a powerful metric that shows how efficiently a company uses its capital to generate profits. It answers the question: For every ₹1 invested in the business, how much profit does it generate?
High ROCE often indicates strong operational efficiency and better potential for wealth creation. It’s especially crucial during market corrections when prices of good stocks fall, presenting an opportunity for savvy investors to buy quality businesses at a discount ( know as Beaten Down Stocks )
Stock #1: Global Health (Medanta)
- Market Cap: ₹24,000 crores
- Current Performance: The stock is down 25% from its all-time high.
- Business Overview: Operates the Medanta brand with hospitals in Gurugram, Indore, Ranchi, Lucknow, and Patna. A new Noida hospital is set to launch by 2026.
- Key Metrics:
- ROCE Growth: From 5% to 19% over four years.
- Operating Margins: Improved from 14% to 24%, thanks to reduced employee costs and efficient resource utilization.
- Fixed Asset Turnover: Increased from 0.89x (2021) to 1.4x (2024).
- Revenue Growth: In FY24, revenue grew by 12.5% YoY, driven by a 10% rise in bed capacity and in-patient volumes.
Why Consider Medanta?
- Future Growth: Plans to add 2,900 new beds in five years, nearly doubling capacity.
- Negative Cash Conversion Cycle: Upfront payments from patients improve cash flow.
- Solid Financials: EBIT growth outpaces sales growth, improving bottom-line efficiency.
Risks:
- Regulatory pressures and capex-driven debt could impact financials.
- Falling occupancy rates need close monitoring.
Stock #2: Himadri Specialty Chemicals Limited (HSCL)
- Market Cap: ₹21,500 crores
- Current Performance: The stock is down 25% and trading within a downward channel.
- Business Overview: A diversified player in the carbon value chain, HSCL produces lithium-ion battery materials, carbon black, and specialty oils.
- Key Metrics:
- ROCE Growth: Improved from 4% (FY21) to 19% (FY24).
- Fixed Asset Turnover: Jumped from 1.14x (2021) to 2.7x (2024).
- Revenue Growth: Sales grew by 2.5x in three years, while EBIT rose by 4.92x.
Why Consider HSCL?
- Expansion into EV Batteries: Strategic acquisitions in battery materials and lithium-ion technology.
- Improved Cash Conversion Cycle: Reduced from 155 days to 73 days in FY24 due to better inventory management.
- Growing Export Potential: Aiming for 35% revenue contribution from exports in three years.
Risks:
- Cyclical nature of carbon black business may impact margins.
- Aggressive capex in new sectors like EV batteries could strain execution.
Why These Stocks Stand Out
Market corrections often create a unique window to invest in quality businesses at attractive valuations (Beaten Down Stocks). Both Global Health (Medanta) and Himadri Specialty Chemicals (HSCL) exemplify companies with robust fundamentals, improving ROCE, and ambitious growth plans. While Global Health focuses on expanding its healthcare footprint with efficient cash flows, HSCL is strategically diversifying into high-growth areas like EV batteries and specialty chemicals.
Investors must weigh the potential risks, such as sector cyclicality and regulatory challenges, against the opportunities these companies present. With disciplined research and a focus on long-term value creation, these beaten down stocks could be strong candidates for portfolio growth.
As always, make informed decisions and consider your risk tolerance before investing. Corrections come and go, but fundamentally strong companies continue to thrive over time, making them a smart choice for patient investors.
Disclaimer
This article is for educational purposes only and not a recommendation to buy or sell any securities. Always consult your financial advisor before making investment decisions.
Do you think beaten down stocks are worth considering? Share your thoughts in the comments below!
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