The Future is All About Deep Tech Stocks. Here's a List of Companies to Start Tracking Now...

The world faces unprecedented challenges - pandemics, climate change, food scarcity. These problems demand bold solutions, and that's where deep technology or deep tech comes in.

Deep tech companies aren't afraid to push boundaries.

Through years of dedicated research and development, they unlock the hidden potential of science, creating breakthrough technologies that generate unforeseen value from existing physical assets.

Think green hydrogen, battery storage, synthetic biology, or molecular diagnostics that are revolutionising respective sectors.

These innovations all started in a small lab, just like the US$ 50 billion (bn) lithium-ion battery market. Remember that entire industry was built upon foundational chemistry and intercalation electrodes studied in the 1980s and 90s.

Every deep tech company is a pioneer, developing the first-of-its-kind products. When these innovations hit the market, their value can be immense.

But here's the best part: India is now a hotbed for deep tech... that's right!

We've written about it in our editorials (check them out below if you haven't already):

• Top 8 Robotics Stocks to Watch Out in India's Deep Tech Revolution
• How AI Stocks are Shaping Deep Tech Language Processing in India
• India's Deep Tech Revolution: The Next Global Disruptors?
• Deep Tech Stocks to Leverage India's Economic Inflection Point

India boasts a highly skilled R&D workforce, with the government actively supporting early-stage deep tech startups through grants and initiatives that invest over US$ 1 bn in research.

This creates a perfect environment for Indian companies to develop world-class products.

Currently, there are four sectors that serve as pillars of India's deep science tech innovation - Artificial Intelligence (AI), biotechnology, advanced materials, and electronics & photonics.

Let's look at the success stories coming from India in the deep tech space.

#1 Computer Age Management Services

First on the list of deep tech stocks to track is Computer Age Management Services (CAMS).

CAMS is a financial infrastructure and services provider to mutual funds and other financial institutions in India.

It's the country's largest mutual fund registrar and transfer agent, with a share of around 70% of assets under management (AUM).

CAMS provides services through various channels, including a pan-India network of service centres, white-label call centres, online mobile apps, and chatbots.

The latest shareholding pattern for CAMS reveals a notable increase in mutual fund holding stake, rising from 3.8% in the September 2023 quarter to 11.3% in December 2023.

This stance could be backed by CAMS strong annual guidance. The fintech company is targeting revenue growth of 14-15% in the current financial year and a profit growth of around 15-16%.

The Chennai-based company aims to sustain its EBITDA (earnings before interest, tax, depreciation and amortisation) margin at around 43-44% for the year.

Further, the company plans to enhance margins by 0.5-1% annually. CAMS has projected a 40% margin in the non-mutual fund segment within the next 2-3 years.

Over the years, the company has translated its growing revenue into soaring profit.

Financial snapshot

Particulars (Rs m)	FY21	FY22	FY23
Total Revenue	7,564	9,346	9,986
Operating Profit Margin	39%	45.80%	43.30%
Net Profit	2,503	2,869	2,846
Net Profit Margin	29.1	31.5	29.3

Source: Equitymaster

CAMS reported a massive surge in activity, with transaction volume hitting a record high of 153.5 million (m) in December 2023. This is a significant jump from 140.9 m just three months ago.

This momentum isn't a fluke. The mutual fund industry is booming, and CAMS is ready to capitalise.

Structural tailwinds are expected to drive growth in AUM in the mutual fund industry. This could translate directly to a 15% boost in revenue for CAMS during 2024-2026.

The company is also a savvy investor, expanding its reach beyond mutual funds.

It's pouring resources into new joint ventures, which could add 20% more revenue from the non-MF businesses in the next five years.

This diversification will help the company drive growth from established businesses and new areas.

By streamlining operations, CAMS is expected to see even higher profit margin. The company expects a CAGR of 23% in overall profits during the next few years.

#2 Tata Elxsi

Tata Elxsi, founded in 1989 in Bengaluru, is a design and technology services company that works with clients across industries, including automotive, broadcast, communications, healthcare, and transportation.

The company helps customers reimagine their products and services through design thinking and the application of digital technologies such as IoT (Internet of Things), Cloud, Mobility, Virtual Reality, and Artificial Intelligence.

Nearly 97.5% of its revenue is from software and development services, showcasing its expertise in crafting innovative solutions.

The company's strategic partnership with Accuknox unlocks a powerful combination: Tata Elxsi's innovative NEURON platform will be integrated with Accuknox's cutting-edge NIMBUS solution.

This powerful duo will seamlessly empower telecom operators to roll out secure 5G networks with inline mitigation. It also has future-proof capabilities to transition to 6G networks.

Tata Elxsi is also redefining the telecom landscape with the Telefonica partnership.

Together, they have successfully implemented true cloud-native infrastructure management powered by ETSI Open Source MANO (OSM).

This integration of OSM with NEURON is a significant multi-domain transformation towards autonomous network systems.

Coming to its financials, in the financial year 2023, there was a considerable rise in net sales by 28%, accompanied by significant growth in net profit.

However, ongoing worries regarding the future demand for IT have led investors to voice their concerns about the near-term headwinds.

This has led to the stock price correction despite remarkable growth in business.

The company's stellar financial performance has surpassed all growth expectations.

The revenue and profit has more than doubled in the past five years. They have grown at a 5-year CAGR of 17% and 25%, respectively.

Financial snapshot

Particulars (Rs m)	FY21	FY22	FY23
Total Revenue	18,659	25,154	32,208
Operating Profit Margin	28.70%	31%	30.50%
Net Profit	3,681	5,497	7,552
Net Profit Margin	20.20%	22.20%	24%

Source: Equitymaster

The products designed by the company have become an integral part of the numerous devices we use daily.

These include home appliances, mobile phones, cars and vehicles (especially electric vehicles), medical equipment, and more.

Going forward, the company's venture into the Internet of Things or IoT space is expected to provide the X factor to the Tata group company.

#3 Happiest Minds Technologies

Happiest Minds Technologies is an IT services company that provides digital transformation services for enterprises and technology providers.

In its latest quarterly results, the company posted a marginal growth in its net profit while revenues surged 12% YoY, hitting a robust Rs 4.1 bn, signalling a Rs 400 m increase compared to last year.

The company achieved this growth despite increasing employee salaries and continuously investing in cutting-edge technologies.

Financial snapshot

Particulars (Rs m)	FY21	FY22	FY23
Total Revenue	7,977	11,308	14,647
Operating Profit Margin	24.70%	23%	23.70%
Net Profit	1,625	1,812	2,310
Net Profit Margin	21%	16.60%	16.20%

Source: Equitymaster

Happiest Minds has maintained a healthy 12% profit growth over the past nine months.

The company is building lasting relationships with its clients. A staggering 92% of their business is repeat business.

It collaborates with some of the biggest names, boasting a prestigious clientele with a combined value of US$ 59 bn.

The company's RoE is an impressive 16.7%, and the RoCE is even higher at 22.9%.

The recent organizational restructuring is expected to accelerate growth by an additional 2-3% in the medium term.

While it adjusted its 2023 growth guidance due to market conditions, its core business remains strong.

The new Gen-AI business unit has strengthened sales and is expected to add another 20% revenue in the next 5 years.

#4 Persistent Systems

Persistent Systems is a trusted digital engineering and enterprise modernisation company which was incorporated in 1990.

The company has been in focus post its Q3 results as the management guided for healthy order bookings in Q3 and going forward as well due to focus on account mining and large deals.

In its December 2023 quarterly results, Persistent Systems posted a marginal 3.6% growth in its revenue while its net profit surged by 8.7% sequentially, reaching Rs 2.9 bn.

Here's a table showing Persistent's financials over the years.

Financial snapshot

Particulars (Rs m)	FY21	FY22	FY23
Total Revenue	42,957	58,652	84,345
Operating Profit Margin	16.30%	16.60%	17.70%
Net Profit	4,507	6,904	9,211
Net Profit Margin	10.80%	12.10%	11%

Source: Equitymaster

The company's constant strong order book has driven growth over the years and its currently expecting more deals in the coming quarter.

The launch of its AI-powered SASVA platform is also a contributing factor to a revenue boost.

Persistent Systems' share price has rallied over 80% in the past year, significantly outperforming the Nifty50's 30% rise.

The upcoming 2:1 stock split on 1 April 2024, are expected to make the company's shares more accessible to a wider range of investors, potentially leading to increased liquidity.

The company is gearing up for growth with strong execution, proactive deal pursuits, new growth avenues like private equity business, presence in high-growth areas, and limited exposure to legacy business.

The company also aims to maintain its growth momentum with a US$ 2 bn revenue target by 2027 at a CAGR of 18% from 2023-2027.

#5 Clean Science & Technology

Clean Science & Technology, established in 2003, is a chemical manufacturer that produces speciality chemicals for the food, cosmetic, agricultural, and aroma industries.

The company currently has 3 manufacturing facilities and leads with sustainable solutions for the chemical industry.

In FY23, the specialty chemical company witnessed a phenomenal 37% surge in revenue, reaching Rs 9.3 bn, the highest in its history.

Profits mirrored this growth, climbing 33% YoY to Rs 3 bn.

The company even crossed a revenue milestone of US$ 100 m in 2022-2023.

Financial snapshot

Particulars (Rs m)	FY21	FY22	FY23
Total Revenue	5,381	7,149	9,656
Operating Profit Margin
Net Profit	1,984	2,285	2,952
Net Profit Margin	38.70%	33.40%	31.50%

Source: Equitymaster

Clean Science prioritizes sustainability with a commitment to renewable energy. It now relies on 50% renewable energy, boasting a total installed solar capacity of 17.4 MW.

This eco-conscious approach reduces its environmental footprint.

Its Zero Liquid Discharge (ZLD) manufacturing facilities ensure minimal environmental impact.

It has also championed the 3R process (Reduce, Recycle, Reuse) to minimise waste and maximise efficiency.Over 72% of its revenue comes from exports, showcasing its strong global presence with over 500 customers worldwide.

CSTL is now India's first and only company to manufacture and develop the HALS series, a global market with a size of US$ 1 bn and a CAGR of 10%.

It is well-positioned to benefit from the Aatmanirbhar Bharat Abhiyaan initiative, promoting domestic manufacturing.

The PLI scheme and India's emergence as a reliable alternative supplier (due to the China+1 de-risking strategy) create strong tailwinds for its exports.

The company continues to expand its value-added product portfolio, backed by a robust R&D infrastructure.

It also plans to commercialise more plants to manufacture high-margin HALS series products through its subsidiary plant that will be operational in the next two years.

Snapshot of Deep Tech Stocks on Equitymaster Stock Screener

Here's a table showing the above companies on various important parameters -

Please note that these parameters can be changed according to your needs and preferences.

Equitymaster's powerful BSE/NSE Stock Screener allows you to screen Indian stocks based on both pre-set and your own criteria.

In Conclusion

The deep tech ecosystem in India is still nascent.

However, deep tech investments are doubling every three years, exceeding US$ 1 bn in the 2021-2023 period.

This surge in funding is fuelling a wave of innovation.

Seed-stage funding is readily available, helping startups with crucial technological de-risking.

India boasts a remarkable pool of scientific and technological talent.

This provides a strong human resource base for top deep tech companies to thrive.

However, startups struggle to acquire and retain top talent. The Indian government is actively working to create a progressive regulatory environment. This fosters a more supportive ecosystem for deep tech ventures.

While strategic corporate investments in startups are less common compared to the US, this presents an opportunity for future partnerships.

Growth will be exponential when established players join forces with startups to drive groundbreaking advancements.

All in all, deep tech companies are proving their resilience by confronting these challenges head-on.

Stay tuned to this space as we discuss all the deep tech stocks in detail in the coming days.

Happy investing!

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.