5 Multibagger Microcap Stocks of 2022. How are They Set Up for 2023?

A microcap stock is a publicly traded company that has a market capitalisation which is lower than small, mid, and large-cap stocks.

Investing in microcap stocks can be a daunting task for beginners because of their lack of popularity and the low liquidity.

However, they offer a huge opportunity for investors with some patience and risk tolerance.

We recently covered two editorials talking about the top performing penny stocks of 2022 and best smallcap stocks of 2022.

In today's article, we look at the top microcap stocks of 2022, which went on to deliver multibagger returns despite all the volatility.

These companies are part of Nifty Microcap 250 index, which distinguish smallcaps and microcaps.

#1 The Karnataka Bank

First on the list is Karnataka Bank.

A strong credit cycle, healthy margins and benign asset quality made this bank to be a prospective outperformer in 2022.

The Mangaluru-based bank was set up in 1924 and has a strong presence in South India.

The bank started the year 2022 at a share price of Rs 61.6. On 30 December 2022, i.e., the last trading day of 2022, the stock price closed at Rs 152.5.

In the second half of 2022, banking stocks started to rally as they put up a healthy performance in the quarter ending September 2022, reporting stellar profitability.

The government is employing capital expenditure programs to boost demand. The key is to stimulate growth via a long-term capex measure.

This large expenditure will help banking stocks boost their loan book in the coming years. In the latest quarterly results, banks are already talking about growth from these segments.

Karnataka Bank reported a growth of 12.4% in its loan book for December 2022 quarter.

The private bank has reported a rise in net profit for the first two quarters of 2023.

The growth is expected to pick pace in the third quarter on the back of continued business and benign credit costs.

Another plus point for Karnataka Bank is that it has received added interest from foreign investors for a long time now.

FIIs have added stake in Karnataka Bank for the past five quarters, taking their stake up from 11.2% to 18.2% at present.

To know more, check out the latest shareholding pattern of Karnataka Bank.

#2 Himadri Speciality Chemicals

Second on the list is Himadri Speciality Chemicals.

Himadri Speciality is primarily engaged in the manufacturing of carbon materials and chemicals. It is the only coal pitch manufacturer in India and the only one to manufacture advanced carbon materials.

The company started the year 2022 at a share price of Rs 45.2. On 30 December 2022, the stock price closed at Rs 100.7.

Despite reporting subdued profits for financial year 2022 due to margin pressure amid a surge in raw material costs, the company managed to deliver multibagger returns in 2022.

The gains in 2022 can be a result of the company's focus on the electric vehicle (EV) segment.

In its annual report for 2022, Himadri Speciality said it is focusing on strengthening capabilities to serve the EV battery raw material market.

That apart, the company's established position in the coal tar market has made sure demand is robust. The Indian government gave a major push to the infrastructure segment in 2022...rail projects were given more focus while affordable housing, among other segments added to demand.

All of this construction means more demand for steel, which means more demand for graphite electrodes. Graphite electrodes are made of coal tar pitch.

Himadri has the largest coal tar distillation plant in India and enjoys competitive advantage.

Coming to the company's quarterly performance, Himadri delivered record numbers for Q3FY23 as its growth trajectory in core business segment continued.

Quarterly Results of Himadri

Rs m, consolidated	Sep-22	Sep-21	Change (%)	Jun-22	Jun-21	Change (%)
Net Sales	10,589.1	6,452.9	64%	10,466.4	5,397.5	94%
Operating Profit	1,053.3	321.6	228%	731.6	372.5	96%
Profit After Tax	359.3	94.1	282%	386.0	145.1	166%

Data Source: Ace Equity

To know more, check out Himadri's financial factsheet and its latest quarterly results.

#3 West Coast Paper Mills

Third on the list is West Coast Paper Mills.

The company is one of the oldest and largest producers of paper for printing, writing, and packaging in India.

The company started the year 2022 at a share price of Rs 235. On 30 December 2022, the stock price closed at Rs 523.

Most paper stocks rose in 2022. Paper and companies manufacturing paper products were the big gainers as India decided to reduce the use of plastics to reduce plastic pollution.

The ban on plastic kicked in on 1 July. Paper stocks benefit from this as paper is an alternative to plastic.

Another reason behind the rally in West Coast Paper was the reopening theme playing out. Most states lifted lockdowns and announced re-opening of schools and offices.

A boring sector like paper, which saw its fair share of prolonged rough patches in initial days of 2022, found the mojo back towards the second half.

West Coast Paper mills saw a revenue growth of 50% in 2022 and continued the momentum in the first two quartersmicro of 2023.

The momentum is expected to continue as realization levels are healthy and due to the acquisition of Andhra Paper.

The prospect for backward integrated paper companies like West Coast looks healthy at the moment as the company is also expanding capacity.

Although it might not be able to repeat the feat of delivering such stellar Q3 results as demand for paper is fluctuating.

Quarterly Results of West Coast

Rs m, consolidated	Sep-22	Sep-21	Change (%)	Jun-22	Jun-21	Change (%)
Net Sales	12,099.7	9,004.9	34%	11,141.5	5,376.1	107%
Operating Profit	3,843.4	1,535.6	150%	3,323.9	1,141.5	191%
Profit After Tax	2,146.7	724.9	196%	1,853.4	319.4	480%

Data Source: Ace Equity

#4 Rajratan Global Wires

Next on the list of multibagger microcaps is Rajratan Global Wires.

The company is into tyre bead manufacturing - a very niche segment. The company is the only bead wire manufacturer in Thailand (via a wholly owned subsidiary). It has a market share of over 50% in India.

The company started the year 2022 at a share price of Rs 403. On 30 December 2022, the stock price closed at Rs 893.

In financial year 2022, the company reported strong growth in revenue and profit on the back of healthy demand from tyre original equipment manufacturers (OEMs) across markets.

However, as you can see from the chart above, the company started to face some pressure towards the second half as exports were hit badly.

The company's Thailand unit suffered badly as it is more dependent on exports.

In the September 2022 quarter, the company saw its profits fall around 29% year-on-year (YoY).

Going forward, the company face some pressure owing to demand being hit in Europe and US. Lower capacity utilization has resulted in substantially lower demand from customers.

However, demand for tyres is expected to grow in the next three years which bodes well for Rajratan Global Wires.

The company might take on some debt in the coming months to fund its capex of Rs 3 bn, so debt-to-equity should be closely monitored.

Rajratan is increasing the capacity of its Thailand facility to 60,000 tonne per annum (TPA).

Interestingly, Rajratan Global because of its niche in the segment, has seen a crash in smallcaps, a deadly pandemic, supply chain shortages, inflation, and even slowdown in the auto sector which is the prime industry the company caters to.

Still, it has managed to deliver mindboggling returns...

#5 Garden Reach Shipbuilders

Last on the list is shipbuilding and engineering company Garden Reach Shipbuilders.

The shipbuilding company, under the administrative control of the Ministry of Defence, primarily caters to the shipbuilding requirements of the Indian Navy and the Indian Coast Guard.

It's a diversified, profit making and the first shipyard in India to export warships and deliver more than 100 warships to the Indian Navy and Indian Coast Guard.

The company started the year 2022 at a share price of Rs 223. On 30 December 2022, the stock price closed at Rs 484.

The rally started when the company reported highest ever turnover in financial year 2022. The PSU reported turnover of Rs 17.5 bn, registering a 53% growth over the previous year.

What added fuel to the fire was the rally in most of the defence stocks. Many defence companies saw their order-book grow and witnessed noticeable pick-up in execution. This resulted in higher profitability.

The government pushing for local defence manufacturing added to tailwinds for Garden Reach.

In the first quarter of 2023, the company more than doubled its net profit while its Q2 results were muted.

The company is set to deliver stellar set of numbers in the coming two quarters on the back of strong order book. The company is sitting on a record order book worth Rs 229 bn.

According to the company, the order book is for seven shipbuilding projects, two of which are expected to be completed in the current year. The other five will be executed in 2024-25.

Which other microcap stocks rallied in 2022?

Apart from the above, here are some other microcap companies which registered healthy gains in 2022.

Company	CMP (Rs)	Gains in 2022 (%)
The South Indian Bank Ltd.	19.2	112%
Chennai Petroleum Corporation Ltd.	225.7	101%
DB Realty Ltd.	96.3	100%
GMDC	157.5	99%
Elecon Engineering Company Ltd.	392.4	98%
Usha Martin Ltd.	184.2	91%
Safari Industries (India) Ltd.	1825.9	89%
Jindal Worldwide Ltd.	420.2	84%
Fineotex Chemical Ltd.	241.6	82%
Welspun Enterprises Ltd.	147.5	75%

Data Source: Ace Equity

Also check out the below video where Richa Agarwal talks about three microcaps that have witnessed growth in profitability.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...