These five beaten-down stocks could be massive winners in 2025

Buying fundamentally strong companies at beaten-down valuations can deliver strong gains when the tide turns. Image: Pixabay
Buying fundamentally strong companies at beaten-down valuations can deliver strong gains when the tide turns. Image: Pixabay

Summary

  • Despite their recent declines, these companies have strong fundamentals, efficient operations and good growth prospects.

The Indian stock market has been anything but predictable in recent months, with many stocks in the BSE 500 index falling to 52-week lows.

This volatility has forced investors to reassess their portfolios and take a closer look at stocks that are beaten down and potentially undervalued.

While a drop in the price of a stock can be a sign of business difficulties, it can also provide a unique opportunity for those looking out for turnaround plays.

This approach, of buying fundamentally strong companies at beaten-down valuations, can deliver strong gains when the tide turns.

With that in mind, we look at five beaten-down stocks that could stage a sharp recovery in 2025.

#1 India Pesticides

This is one of the fastest-growing agro-chemical companies in India. It manufactures insecticides, fungicides and herbicides, and operates in two verticals – technicals and formulations.

India Pesticides has developed strong and long-term relationships with various multinational companies over the years, which has helped it expand its product offerings and geographical reach.

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These relationships are driven primarily by the company's ability to manufacture complex technicals that go off-patent in a cost-effective, safe and environmentally conscious manner, as well as its ability to meet stringent quality specifications.

The stock currently trades at ₹170. It touched a 52-week high of ₹429 on 8 February 2024 and is down about 60% since then. Over the past year, the stock is down 55%.

Several factors have contributed to this decline. In 2024, the company came under pressure owing to regulatory issues. It also posted weak numbers in FY24, which further dampened sentiment. And in December 2024, the income tax department conducted searches at its registered office and other premises.

The company’s profit more than halved in FY24, primarily due to a fall in realisations and reduced demand in the export market. Most of its clients deferred their orders due to channel destocking and pricing pressure from China’s re-entry into the market. Back home, demand for the company’s products remained subdued due to lower prices offered by Chinese counterparts and the impact of El Nino. As a result, its operating margin fell from 22% in FY23 to 13% in FY24.

Nevertheless, the company is a strong contender for a comeback as demand improves.

For the September 2024 quarter, revenue came in at ₹230 crore, up 13.6% year-on-year. Net profit came 33% higher at ₹26 crore.

To reduce its reliance on imports, the company has commissioned an intermediate plant for backward integration of core fungicides. It is also expanding capacity with a total capex of ₹110 crore for FY25.

It expects the topline to grow from FY26, with projected revenue of ₹60 crore from its new Hamirpur facility. India Pesticides has also received European approval for a niche insecticide, with potential interest from customers for future sourcing.

It also plans to expand the formulation setup in Sandila to meet growing demand.

#2 Prince Pipes & Fittings

Prince Pipes, a leader inIndia's PVC solutions market, caters to the residential, commercial and infrastructure sectors. The company's diverse product portfolio includes PVC pipes, fittings, drainage systems, and hot- & cold-water applications.

It serves a broad client base encompassing residential developers, commercial construction companies, and infrastructure projects.

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The stock currently trades at ₹398. It touched a 52-week high of ₹739 on 12 January 2024 and is down about 45% since then. Over the past year, the stock is down 44%.

The primary reason for this decline could be its deteriorating financials.

Prince Pipes has posted a massive year-on-year drop in profit and margins in the first two quarters of FY25. According to industry experts, volumes in the pipes sector were hit by the extendedmonsoon and a sharp fall in PVC prices, which led to dealer destocking. In the September 2024 quarter, the company faced a competitive pricing environment that increased the pressure on it.

Nevertheless, according to the management commentary of several companies in this space, PVC prices are stabilising, which could likely result in normalised channel inventory.

Prince Pipes is confident of a recovery in demand, driven by strong real estate cycles and favourable government policies in the second half of FY25. It aims to boost its market share through strategic pricing and enhanced supply-chain efficiencies following its enterprise resource planning (ERP) implementation. This shift is expected to drive strong double-digit volume growth from FY25 onwards.

The company is expanding beyond its traditional markets in north and west India, with recent capacity additions in Jaipur, Telangana and Bihar. De-bottlenecking across various locations is also expected to fuel future growth. The bathware division is expected to break even in the next four to five quarters, with the launch of Aquel brand in North and West India.

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Roughly 25% of Prince Pipes's sales come from projects involving PVC, CPVC and DWC pipes, with expansion efforts in Ahmedabad, Pune and Hyderabad aimed at leveraging scale for operational efficiencies.

The company projects 15% volume growth in FY25, supported by favourable market conditions, with margins expected to be between 12% and 14% with potential upside from further PVC price increases.

#3 Arman Financial Services

The company is an RBI-registered, category A non-banking financial company (NBFC) that provides loans to the unorganised sector in rural and semi-rural areas.

Headquartered in Ahmedabad, Arman and its subsidiary provide financial services under three segments – two-wheeler finance, group-based microfinance, and micro-enterprise (MSME) loans.

The stock currently trades at ₹1,287. It touched a 52-week high of ₹2,550 on 20 January 2024 and is down 49% since then. Over the past year, the stock is down 45%.

A major reason for this decline could be the slowdown in microfinance.

The industry is seeing an increase in impairment costs due to overleveraging in the unsecured rural lending segment and pressures related to erratic weather, elections and economic uncertainties involving both microfinance institutions (MFIs) and non-MFIs. This has led to potential deterioration in repayment capacities and defaults. The industry is also seeing high attrition rates in ground staff, which is affecting collections.

Amid this, Arman’s assets under management (AUM) for the first half of FY25 was down 7% year-on-year to ₹250 crore, while disbursements were down 22.1% year-on-year at ₹830 crore as management remained cautious, prioritising collections and portfolio health over aggressive growth. Net profit was down 42% at ₹47 crore, with high provisions at ₹99 crore and cumulative provisions at ₹110 crore at the end of September 2024.

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Arman's asset and liability management (ALM) remains positive, and it continues to enjoy healthy capital adequacy ratios and liquidity.

The microfinance industry has cyclical elements and faces such challenges every few years. Focus on risk management is what differentiates winners from losers in the long run. Arman has successfully managed and navigated these crises over its existence.

Sales and net profit have increased at a compound annual growth rate (CAGR) of 37% and 46%, respectively, over the past five years. Management has indicated that the current down-cycle may persist but that it is focused on maintaining a strong financial position and managing risks effectively.

#4 Valiant Organics

Valiant Organics is promoted by the Gogri, Chheda and Gala families and is based out of Mumbai. It claims to be among the world's most competitive producers of chlorination, ammonolysis, acetylation, and hydrogenation-based specialty products.

The promoters have been in the industry for decades and have a healthy relationship with buyers and suppliers. Chandrakant Gogri, managing director of Aarti Industries, is one of the promoters and well-known in the Indian chemicals industry.

The company manufactures and supplies specialty chemicals used in several industries such as agro-chemical, pharmaceutical, rubber, dyes and pigments, and specialty chemicals.

The stock currently trades at ₹311. It touched a 52-week high of ₹515 on 15 January 2024 and is down about 39% since then. Over the past year, the stock is down 35%.

This decline could be attributed to weak demand across the industry, which has resulted in Valiant Organics posting weak numbers.

Compared to a profit of ₹5 crore in the September 2023 quarter, Valiant Organics reported a net loss of ₹12 crore in the September 2024 quarter. Margins declined to multi-year lows and sectoral outlook has also turned bleak. The company incurred a small loss in FY24. However, it has done well in previous years, earning a profit of ₹120 crore on a consistent basis. Its balance sheet is strong, with overall debt being much lower than equity.

As highlighted by the company's MD in a conference call a few months ago, there has been significant pressure across the board due to various factors related to the global slowdown, mainly in Europe. There is also the problem of Chinese dumping.

Hence, it expected FY24 to be a stabilising year. However, things should start looking better from FY25 onwards as the market rationalises and new products come on stream.

Over the years, Valiant Organics has grown by acquiring smaller companies, such as Abhilasha Tex Chem in 2017 and Amarjyot Chemical in March 2019.

#5 Tanla Platforms

Tanla is a cloud communications provider that helps businesses communicate with their customers. It’s headquartered in Hyderabad, India.

It has a near-monopoly in the one-time password (OTP) business. It is also one of the world's largest communications platform-as-a-service (CPaaS) companies.

Its clients include Airtel, Google, Facebook, LinkedIn, HDFC Bank, Kotak Bank, Axis Bank, Department of Telecommunications and Truecaller.

The stock currently trades at ₹675. It touched a 52-week high of ₹1,248 on 12 January 2024 and is down about 45% since then. Over the past year, the stock is down 37%.

One reason for this could be the slowdown in its international business. During the September 2024 quarter, Tanla’s revenue growth was flat because of this. The company experienced a drop in international long distance messaging volumes, which previously contributed about 25% of enterprise revenue. This decline could be attributed to a shift towards over-the-top (OTT) channels and direct contact with telcos by some enterprises.

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Nevertheless, Tanla has decent growth levers to improve margins in the coming quarters. The company remains Google's largest global rich communication services (RCS) platform partner and has been recognised as Meta's growth partner of the year for the second consecutive year. It is currently focused on expanding its international presence and expects upcoming developments in OTT channels to drive future growth.

Earlier this month, the company said its board would meet on 21 January to approve its Q3 results and announce an interim dividend.

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Conclusion

The five stocks we explored above could stage a rebound in 2025. Despite their recent declines, these companies have strong fundamentals, efficient operations and good growth prospects.

Fundamentally strong stocks can experience fluctuations, but history shows they often reward shareholders in the long run. Nevertheless, you should always evaluate a company’s fundamentals, corporate governance and stock valuation before making an investment.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

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