5 Stocks With High ROCE and Low EV/EBITDA to Add to Your Watchlist

Synopsis: A combination of low EV/EBITDA and high ROCE can indicate companies trading at reasonable valuations while generating strong returns on capital. These stocks stand out based on these key valuation and profitability metrics. 

The FMCG, information technology, automobile, pharmaceutical, and digital engineering sectors are home to several companies that have consistently generated strong returns on capital while trading at relatively reasonable valuations. These businesses often benefit from established market positions, operational efficiency, and stable cash flows.

One way investors assess such opportunities is by combining EV/EBITDA, a valuation metric, with Return on Capital Employed (ROCE), which measures how efficiently a company generates profits from the capital it uses. Companies that score well on both metrics are often considered fundamentally strong.

ITC Ltd

ITC is one of India’s largest diversified conglomerates with businesses spanning FMCG, cigarettes, hotels, paperboards, packaging, and agri-business. The company has been expanding its non-cigarette FMCG portfolio while maintaining strong cash flows from its core tobacco business.

With a market capitalisation of Rs. 3.59,220 cr, the shares of ITC Ltd were trading at Rs. 286 per share, down from its previous close of Rs. 288.8 per share. The company trades at an EV/EBITDA multiple of 12.0 times while delivering an impressive ROCE of 38.9%, reflecting strong capital efficiency at a reasonable valuation.

Hexaware Technologies Ltd

Hexaware Technologies is a global IT services and digital transformation company offering cloud, AI, automation, data analytics, and application services. It caters to clients across banking, healthcare, travel, manufacturing, and other industries.

With a market capitalisation of Rs. 33,628 cr, the shares of Hexaware Technologies were trading at Rs. 550 per share, up from its previous close of Rs. 535.4 per share. The company trades at an EV/EBITDA multiple of 13.6 times while delivering a healthy ROCE of 30.1%, reflecting strong capital efficiency.

Hero MotoCorp Ltd

Hero MotoCorp is the world’s largest manufacturer of motorcycles and scooters by volume. The company has a strong presence in the commuter two-wheeler segment and is expanding its premium motorcycle and electric vehicle portfolio.

With a market capitalisation of Rs. 99,190 cr, the shares of Hero MotoCorp were trading at Rs. 4956 per share, up from its previous close of Rs. 4,945 per share. The company trades at an EV/EBITDA multiple of 11.6 times while delivering a robust ROCE of 35.8%, highlighting strong capital efficiency.

Lupin Ltd

Lupin is a leading pharmaceutical company engaged in the development, manufacturing, and marketing of generic medicines, branded formulations, complex generics, and active pharmaceutical ingredients (APIs). It has a significant presence in India, the U.S., and several international markets.

With a market capitalisation of Rs. 1,14,399 cr, the shares of Lupin Ltd

 were trading at Rs. 2,502 per share, up from its previous close of Rs. 2,492 per share. The company trades at an EV/EBITDA multiple of 12.4x while delivering a healthy ROCE of 30.3%, reflecting strong capital efficiency.

LTM Ltd 

LTM Ltd (formerly LTIMindtree) is a leading global technology consulting and digital solutions company and a subsidiary of Larsen & Toubro Ltd. It provides services in cloud computing, artificial intelligence (AI), data analytics, cybersecurity, enterprise applications, and digital engineering to clients across industries such as banking, manufacturing, healthcare, retail, and telecommunications.

With a market capitalisation of Rs. 1,13,310 cr, the shares of LTM Ltd were trading at Rs. 3,820 per share, up from its previous close of Rs. 3,728 per share. The company trades at an EV/EBITDA multiple of 12.8 times while delivering a strong ROCE of 29.6%.

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