Value Stocks: Rare Gems With High Returns

Finding stocks that offer both value for money and high returns on capital is rare. Bombay Burmah Trading Corporation, a 163-year-old Wadia Group entity, is a prime example. It holds a majority stake in Britannia Industries, valued at over Rs 59,000 crore, significantly exceeding Bombay Burmah's own market capitalization. This significant holding, however, is not directly accessible to shareholders, leading to a valuation discount.

DDev Plastiks Industries, incorporated in 2020, is another company with strong fundamentals. As India's largest maker of polymer compounds essential for wires and cables, it benefits from the nation's infrastructure growth. Its clients include major cable manufacturers like KEI Industries and Havells. The company has demonstrated robust profit growth and a high ROCE of 31% in FY26, despite recent increases in working capital.

Both Bombay Burmah and DDev Plastiks exhibit a return on capital employed (ROCE) above 30% and trade at price-to-earnings (PE) ratios well below their industry medians. Bombay Burmah trades at approximately 7x earnings, compared to the industry median of 44x. DDev Plastiks trades at about 12x earnings, against an industry median of 29x. Investors are watching to see if these undervalued companies can close the gap with market expectations, with potential triggers including structural simplification for Bombay Burmah and successful expansion for DDev Plastiks.

Bombay Burmah faced challenges due to its association with the collapsed Go First airline, leading to provisions and a consolidated loss in FY23. However, its balance sheet has since improved, with borrowings significantly reduced. DDev Plastiks is also venturing into battery energy storage systems, a move that carries potential but also introduces margin uncertainty. The upcoming quarterly results are expected to provide further clarity on the trajectory of both companies.