Investing in low-priced stocks can be alluring, often appearing as hidden treasures ready to be unearthed. However, it’s crucial to recognize that not every affordable stock is a diamond in the rough. Many are undervalued for valid reasons, including struggling fundamentals or declining growth prospects. Yet, some may represent genuine investment opportunities with solid business models. Here, we spotlight two companies that demonstrate strong market positions and brand recognition while trading at attractive valuations.

Amara Raja Energy and Mobility: A Battery Leader

Founded in 1985, Amara Raja has established itself as India’s second-largest battery producer, trailing only Exide Industries. The company is well-known for its flagship brands, Amaron and PowerZone, and has an impressive production capacity of 50 million automotive batteries and 2.3 billion ampere-hours of industrial batteries.

• Strong Partnerships: Amara Raja has successfully collaborated with global battery leader Clarios for over two decades, enhancing its credibility in the market.
• Export Reach: The firm exports to more than 50 countries, with about 87% of its revenue derived from the domestic market and 13% from international sales.

Amara Raja has a diverse portfolio, manufacturing batteries for two-wheelers, three-wheelers, four-wheelers, and commercial vehicles. Notably, it is the largest exporter of four-wheeler batteries from India, with the automotive segment contributing 67% to its total revenue in FY24.

The company is actively venturing into the new energy sector, investing in lithium-ion cell production, electric vehicle (EV) charging solutions, and energy storage systems. In 2022, it announced a substantial capital expenditure plan of ₹95 billion over the next decade to establish the Giga Corridor in Telangana.

Financially, Amara Raja has shown robust performance, benefiting from volume increases, product innovation, and strong demand across all sectors. Revenue grew at a CAGR of 16% over the past three years, reaching ₹112.6 billion in FY24, marking an 8% rise from the previous year. The net profit saw a 24% increase, totaling ₹9 billion, driven by improved margins, which increased by 2.4 percentage points during the FY21-24 period.

Future Prospects:

• 9MFY25 Performance: Revenue rose by 11% to ₹97.9 billion, aided by the new energy division, while net profit also jumped by 11% to ₹7.8 billion.
• New Ventures: Amara Raja is also entering the lubricants market, utilizing its extensive distribution network to tap into new revenue streams.

With a projected demand surge for batteries reaching 100 gigawatt-hours by 2030, Amara Raja aims to secure a 16% market share with its upcoming 16-gigawatt-hour gigafactory. The company’s EV charger segment is gaining momentum, bolstered by a solid order backlog. Additionally, the acquisition of Mangal Industries’ plastic business and the establishment of a recycling facility further enhance its growth trajectory.

Currently trading at a price-to-earnings ratio of 20x, Amara Raja is valued at a 14.5% discount compared to its 10-year median. This discount provides an attractive entry point for investors despite the cyclical nature of the industry.

Indus Towers: The Backbone of Communication

Indus Towers plays a pivotal role in building and maintaining wireless communication towers, thereby supporting India’s digital infrastructure. As the second-largest tower company in the country by the number of towers, it boasts an impressive portfolio of 230,000 towers and 380,000 tenancies as of December 2024.

• Stable Revenue Model: The company’s business model is characterized by long-term Master Service Agreements (MSAs) with telecom operators, ensuring reliable revenue streams with annual escalations.

In FY24, Indus Towers recorded a 0.8% increase in revenue, amounting to ₹286 billion, thanks to growth in both tower operations and the rollout of 5G technology. Although growth was modest due to a high comparison base in FY23, the EBITDA surged by 50% to ₹146.9 billion, resulting in a margin expansion to 51.4%.

Strong Financials:

• The net profit tripled to ₹60.4 billion, reflecting a strong recovery and efficient capital allocation with a return on capital employed (RoCE) of 19.4%.
• In the first nine months of FY25, revenue climbed by 5% to ₹224 billion, while net profit skyrocketed by an impressive 95% to ₹81.5 billion.

Indus Towers is committed to expanding its market share and improving its financial standing by enhancing collections from overdue accounts and bolstering its tower portfolio. The company has earmarked ₹85 billion for capital expenditures in FY25, aiming to support the ongoing 5G expansion and network enhancement in rural regions.

The acquisition of 12,700 towers from Bharti Airtel for ₹21.7 billion is expected to contribute positively to revenue from FY26 onwards. However, the company faces challenges due to its reliance on mobile network operators with unstable credit ratings, which account for 30-35% of its revenue.

Indus Towers enjoys a robust cash position, with ₹59 billion in free cash flow during the first nine months of FY25, and projections of ₹80 billion in cash accruals for FY26. Its policy of returning 100% of free cash flow to shareholders could enhance future returns if operational momentum continues.

Currently, Indus trades at a P/E ratio of 11x, reflecting a 35% discount to its 10-year median of 17x.

Conclusion: Investment Opportunities Ahead

Amara Raja, despite operating in a sector dominated by Exide, has established a strong growth trajectory and margin profile. Its recent foray into lithium-ion technology and ongoing investments in the new energy sector position it favorably for future growth.

On the other hand, Indus Towers boasts a stable business model with predictable revenue generation. As the monetization of 5G services progresses, free cash flow is expected to rise, potentially leading to increased dividend payouts.

While both companies present attractive investment opportunities, they also come with their own set of risks. Investors should conduct thorough research and consider their specific financial goals before making investment decisions.