Top 5 blue chip companies with growth potential

In this article, we turn our attention to the top five Nifty 50 companies that are currently down more than 10% in 2024. Let’s see why they are down and what the future holds.

#1 UPL solutions for sustainable agriculture

The company is in the business of agrochemicals, industrial chemicals, chemical intermediates and specialty chemicals, as well as the production and sale of field crops and vegetable seeds.

UPL SAS is the first plant protection company in India with 13% market share. Through its agri-tech platform Nurture, it is connected to more than three million registered farmers, 85,000 retailers and 25,000 dealers.

Shares are down 23% in 2024 after the company reported a consolidated loss of ₹1,220 crores in the quarter of December 2023. Net profit stood at Rs ₹1,090 crores in the corresponding quarter of the previous financial year.

Declining inventories continued to weigh on the global agrochemicals market during the quarter. Overall, prices remained stable from the prior quarter in the crop protection business, but were down significantly from the prior year’s high base amid intense post-patent price competition.

Shares of the company also fell after it was announced that Shriram Finance will replace UPL on the Nifty. However, this is expected to be temporary. Management is optimistic of improved performance in Q4FY24 and Q1FY25. Business performance is expected to normalize from the second quarter of FY25. Her main priority is debt reduction.

UPL also has a product portfolio worth $8.5 billion in various stages of development and serving different regions and crop combinations.

Based on the plans, it is confident of increasing its innovation rate from 14% to 24% by FY27 and achieving 50% revenue contribution from differentiated and sustainable products within this timeframe.

#2 LTIMindtree

The company provides a wide range of IT services such as application development support, enterprise solutions, infrastructure management services, testing, analytics and artificial intelligence.

It is a result of the merger between LT Infotech and Mindtree. In May 2022, LTI announced that it would merge with Mindtree through a scheme of merger approved by the respective boards.

The stock has experienced weakness this year, falling 17% amid integration challenges, senior management departures and a short-term slowdown in demand.

The company also reported weaker-than-expected results for the December 2023 quarter. Revenue rose 4.6%, while net profit rose 17%. Operating margin increased to 15.4% year-on-year, but fell short of fiscal year-end expectations of 17-18%.

Growth was impacted by more furloughs than expected and a continued slowdown in discretionary spending. Management indicated that growth in the March 2024 quarter would mirror the December 2024 quarter due to continued pressure on customer spending.

The business environment for the IT industry continues to be challenging. Higher-than-expected US inflation and concerns about delayed interest rate cuts have already weighed on customer spending and are expected to continue. Therefore, the growth of the Indian IT sector is uncertain in the near future. However, the company has several headwinds.

Margin positives are reduced attrition, lower headcount, focus on improving utilization and continued hybrid model.

The company’s earnings from the deal were also strong at $1.5 billion, up 15% sequentially. The deal is stable and its financials are also strong.

LTIMindtree’s revenue grew at a compound annual growth rate (CAGR) of 45%, while net profit grew at a CAGR of 43%. Return on equity and return on capital employed were also strong at 28.6% and 37.7% respectively.

#3 Asian paints

Established in 1942, it is India’s largest paint company known for its wide range of products including lacquers, enamels and lacquers. It operates in 15 countries with 26 manufacturing sites worldwide, serving customers in 60 nations with brands as diverse as Apcolite and SCIB.

However, recent concerns over increased competition from Grasim Industries, which is entering the decorative paints segment with Birla Opus, led to a correction in the share price, which fell 17% in 2024.

With the launch of Birla Opus, Grasim aims to secure a second place in the decorative paints market, which Asian Paints currently dominates.

However, over the past decade, Asian Paints has strategically diversified into non-painting businesses and offers a complete home decor solution. Stocks will also benefit from demand for real estate, which is expected to be robust in 2024.

The company’s finances have stood the test of time. Asian Paints’ revenue has grown at a CAGR of 20% over the past three years, while net profit has grown at a CAGR of 15%. Its return on equity is strong at 27.7%, while return on capital employed is stable at 34.4%.

#4 HDFC Bank

HDFC Bank is India’s largest private sector bank with more than 8,000 branches. It has a large market share in most retail loan categories such as unsecured, vehicle and even mortgages after its merger with HDFC Ltd.

Shares are down 16% so far this year. The main reasons include a miss in net interest margins (NIM) due to increased funding costs, increased provisions and a decade-low earnings per share (EPS) growth in Q3.

Investors worry that the bank will have to play the deposit pricing game to raise a large volume of deposits, thereby squeezing its margins and reducing profitability. An expected cut in repo rates also added pessimism.

However, the long-term history of the big lender remains intact. From 2019 to 2023, the bank’s advances have doubled at a CAGR of 18.9%.

The bank’s non-performing assets (NPAs) also remained stable in the 0.3% to 0.4% range – the lowest in the industry – since 2018. This shows that the company has not taken unnecessary risks to expand its business. Its net interest margin (NIM) has also been rising every year since 2018. Its strong franchise, huge synergies from the merger and long growth path make it a good stock for your watchlist.

#5 THEM

Hindustan Unilever (HUL), part of the Unilever Group, is India’s leading FMCG company with a portfolio of over 44 brands spanning 14 categories such as fabric, home and hygiene solutions, skin care and food.

Despite its market dominance, the stock has been volatile over the past year and has fallen 15% in 2024. This lackluster performance is due to a poor quarterly performance.

On a quarterly basis, the company reported a 0.5% decline in sales and a 5.6% decline in net profits in the December 2023 quarter. HUL faced challenges with negative realizations in the home care and beauty and personal care segments, falling below expectations. Rising raw material costs also put pressure on stocks.

The rising price of palm oil and the robust performance of rival oils also hit the stock as palm oil is a key raw material for HUL’s body wash and several food products.

However, the company recently announced a collaboration with the Andhra Pradesh government to produce palm oil, with investments going beyond ₹300 crores. Localizing palm oil production can improve cost efficiency, reduce currency market volatility and ensure a more secure supply chain.

So, while stocks may come under pressure in the near term, the longer term is expected to see a recovery in both prices and volume growth.

In a competitive environment comprising multinational, national and regional FMCG firms, HUL holds either the first position or a strong second position in most of the categories in which it operates.

Its portfolio targets various market segments, including premium, mid-range and economy, which differentiates it from competitors that are solely focused on the premium or mass markets.

Conclusion

Amid the turmoil of the small-cap collapse, the resilience and potential of leading blue-chip companies is evident, and investors are turning to these stocks as safe havens. Their proven track record, strong fundamentals and strategic positioning make them great contenders for long-term investment strategies.

However, investors should proceed with caution.

While blue chips represent compelling opportunities, it is critical for investors to conduct due diligence by considering factors such as valuation, industry trends and macroeconomic indicators.

Also, past performance is not always indicative of future performance, and blue-chip companies are not immune to downturns or market corrections.

Investors should maintain a diversified portfolio to reduce risk and avoid overexposure to any single sector or company.

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