Investing for the Long Term? 5 Growth Stocks to Consider...

Investing in growth stocks in India has gained traction over the past few years as the country's economy has expanded rapidly.

Growth stocks can allow investors to participate in the country's economic progress while reaping benefits from innovative companies.

So what exactly are growth stocks?

Growth stocks are stocks of companies that have expanded faster than their counterparts in terms of sales and or profits. They usually enjoy an attractive feature, such as a strong brand value or an economic moat, that helps them achieve such a feat.

And so, with this in mind, we highlight and study five growth stocks with great potential for long-term gains.

#1 Varun Beverages

First on our list is soft-drink giant Varun Beverages.

Varun Beverages manufactures, sells and distributes soft drink products under trademarks and brands owned by PepsiCo. These include both; carbonated and non-carbonated beverages.

The company works on a franchisee model with a license for 17 states and two union territories in India. This is in addition to certain international markets.

Varun Beverages offers end-to-end execution capabilities from manufacturing, distribution and warehousing, customer management, and in-market execution, whereas PepsiCo offers brands, concentrates, and marketing support.

The business has enjoyed a great run over the past five years. While the revenue is up 17.4%, the profit is up by 74.8% on a 5-Yr CAGR (compounded annual growth rate) basis. This has expanded the return on equity (RoE) which stands at a 5-Yr average of 17.5%.

Varun Beverages Financial Snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue Growth (%)	27.66%	39.89%	-9.55%	37.06%	48.59%
Operating Profit Margin (%)	19.87%	17.44%	16.34%	18.74%	20.66%
Net Profit Margin (%)	5.74%	5.47%	4.66%	8.01%	11.26%
Return on Equity(%)	15.92%	17.73%	10.43%	19.62%	33.77%

Data source: Equitymaster

The company's net debt-to-equity ratio has fallen precipitously from 1.5x to 0.82x in the past five years and the current interest coverage ratio stands at 3.2x.

This stellar performance comes from market share gains and an improvement in the contribution of non-carbonated drinks. It is likely to continue in the long-term.

Despite being in the industry for more than three decades, the company is constantly expanding its capacities to meet higher demand expectations. This includes greenfield expansion in the states of Rajasthan and Madhya Pradesh, as well as brownfield expansion at six plants in India.

The company plans to drive growth by expanding its market share across categories through various customer push strategies in licensed territories.

The promoter holding stands high at 63.9%.

To know more about the company, check out its financial factsheet and latest financial results.

#2 Bajaj Finance

Next on our list is Bajaj Finance.

Bajaj Finance is the largest NBFC (non-banking financial company) in India. The lender boasts an AUM (assets under management) of over Rs 2 tn. Its portfolio is geared towards retail and consumer/mortgage finance, accounting for over 80% of the AUM.

Bajaj Finance competes with banks and NBFCs for traditional retail (mainly personal /consumer loans and mortgages) and certain non-retail lending products.

In personal financial services, the company focuses on a relatively lower income group as compared to retail banks that focus on the high networth individuals.

The business has been growing well.

The private lender's advances have grown over 2.4x in the last five years. The net non-performing assets (NPAs) have remained steady, in the range of 0.30-0.4% from the financial year 2018, the lowest in the industry.

This is admirable as it indicates the company has kept risks at bay while expanding the business.

Bajaj Finance Financial Snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Net Profit Growth (%)	35.90%	60.00%	31.100%	-16.00%	59.00%
Operating Profit Margin (%)	67.60%	70.60%	65.30%	59.30%	62.30%
Net Profit Margin (%)	19.50%	21.60%	20.00%	16.60%	22.20%
Return on Equity(%)	19.70%	22.60%	20.40%	12.90%	17.60%

Data source: Equitymaster

The company has also increased its profitability. The 5-year CAGR net profit stood at 20.1%. The 5-Yr average return on equity (RoE) stood at 18.6%.

Bajaj Finance's forte has been the use of data analytics . The company uses artificial intelligence in its financing scheme. This has allowed the business to expand while retaining its credit quality.

However, the stock has underperformed the markets in the past few months, simply because investors and analysts expected a better quarterly update from the company.

But this doesn't take away from the fact that the business is intact and well-poised to grow over the long term.

Bajaj Finance's long-term target is to continue growing its AUM at 25% while maintaining sturdy return ratios. The growth will come from existing verticals in tandem with new ones, such as microfinance, commercial vehicle loans and tractor loans.

The promoters hold a large part of the business, around 55%.

To know more about the company, check out its financial factsheet and latest financial results.

#3 Affle India

Third on our list is Affle India.

Affle is a leading mobile marketing and advertising technology company that offers a range of digital solutions to businesses. While 70% of the total revenue stems from international business, the balance 30% comes from domestic.

In the digital advertising segment, the company competes with InMobi, a global mobile advertising and discovery platform and other giants in this field, such as Google Ads and Facebook Ads.

The business has done well, led by several acquisitions and enhancing mobile penetration in the country.

Affle India Financial Snapshot (2018-2022)

	2019-2020	2020-2021	2021-2022
Revenue Growth (%)	36.57%	63.69%	106.81%
Operating Profit Margin (%)	28.16%	33.13%	26.33%
Net Profit Margin (%)	19.63%	26.13%	19.85%
Return on Equity(%)	43.45%	45.94%	28.00%

Data source: Ace Equity

The revenue and net profit has multiplied significantly in the past 5 years.

The company does not distribute dividends to its shareholders. The cash generated is used for acquiring tech companies and investments in subsidiaries, a common practice amongst IT firms.

The business is expected to generate shareholder value over the long-term as well.

The next leg of growth is to stem from an expansion in the customer base. The company's customer base has expanded to include some of the big names in India and the world over, such as McDonald's, Apollo, Byjus, Swiggy, Zee5, etc.

They have also expanded into AI and machine learning solutions, confident of the increased adoption of artificial intelligence in the digital advertising space.

Apart from this, the company has patented a lot of its technology and built a patent portfolio with 20 patents across India, the US and Singapore, hoping to benefit from it in the long term.

The promoters are well-invested in the business, holding 59.9% of it.

To know more about the company, check out its financial factsheet and latest financial results.

#4 Dixon Technologies

Fourth on our list is Dixon Technologies.

Dixon is a multinational electronics manufacturing and services company. Its core competence lies in manufacturing consumer electronics used daily like televisions, washing machines, smartphones, LED bulbs, battens, downlighters, and CCTV security systems.

While the company hasn't developed a brand of its own, its long-term contracts with some of the most well-recognised brands like; Samsung, Xiaomi, Panasonic, OnePlus, and Philips, give them an enviable edge.

The business has performed admirably in the last five years. While the revenue has multiplies 3.5 times, the profit is up three times.

Dixon Technologies Financial Snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue Growth (%)	15.76%	5.07%	47.33%	46.41%	65.91%
Operating Profit Margin (%)	4.10%	4.75%	5.29%	4.54%	3.62%
Net Profit Margin (%)	2.13%	2.12%	2.74%	2.47%	1.78%
Return on Equity(%)	23.79%	18.35%	26.41%	25.25%	22.21%

Data source: Equitymaster

This has allowed the business to yield strong returns, with the 5-Yr average RoE at 23.2%.

Despite expanding aggressively in a highly capital-intensive industry, Dixon Technologies has refrained from piling debt on its books. The debt-to-equity ratio in the financial year 2022 is 0.3 times.

While the business has suffered in the past year led by slower progress in the mobile market and a lacklustre performance in the consumer electronics and lighting industries, it is well-poised to expand in the long term.

The company is adding new customers from the Middle East, marking the next leg of growth in business. Moreover, it can drive significant long-term growth from a ramp-up in production-linked incentives (PLI) from new segments such as refrigerators, wearables, IT, etc.

The promoters only hold a 34.1% stake in the business. However, a large part of the balance belongs to institutional investors, whose share has been increasing over past two years.

To know more about the company, check out its financial factsheet and latest financial results.

#5 Sona BLW Precision

Last on our list is Sona BLW Precision Forgings.

Sona BLW is among India's leading automotive technology companies. It designs, manufactures and supplies highly-engineered, mission-critical automotive systems and components.

The company is among the top ten players globally in the differential bevel gear market based on overall volumes supplied to PVs, CVs and tractors.

The business has done well in the past five years, with sales and net profit multiplying 4 and 5 times, respectively. This has bolstered returns, which stood at 18% in the financial year 2022.

Sona BLW Financial Snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue Growth (%)		30.24%	28.03%	50.29%	37.10%
Operating Profit Margin (%)	31.00%	38.92%	23.90%	28.31%	27.18%
Net Profit Margin (%)	12.27%	21.30%	34.72%	13.74%	16.97%
Return on Equity(%)	0.00%	201.81%	53.34%	16.88%	21.49%

Data source: Equitymaster

This phenomenal growth comes from market share gains in the starter motor business and secured long-term orders with customers, especially in electric vehicles.

The prospects of the business look healthy.

The company boasts a strong order book on the back of its research and development team that leaves no doubt that the company can continue to develop new products and service a large order book.

The PLI incentive augurs well for the business and will lead to margin expansion over the long term. Moreover, the lack of competitive intensity, in India and abroad, that manufactures differential assemblies, will further stimulate growth.

The promoters hold a large part of the business, around 53.5% of it as the per the latest shareholding pattern.

To know more about the company, check out its financial factsheet and latest financial results.

In conclusion

Investing in growth stocks is a popular strategy for achieving long-term wealth creation. While growth stocks can be volatile in the short term, they frequently have strong fundamentals and high future growth potential.

For investors willing to hold on to their investments for the long haul, growth stocks can offer an opportunity for significant returns.

But before you go all in, you must consider a variety of factors, such as the company's financial health, industry trends, and competitive landscape.

Despite positive odds, fundamental research must not be ignored.

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...