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  • Aug 2, 2022 - 4 Multibagger Smallcap Stocks to Watch Out for in 2023

4 Multibagger Smallcap Stocks to Watch Out for in 2023

Aug 2, 2022

4 Multibagger Smallcap Stocks to Watch Out for in 2023

To have the best multibagger stocks in one's portfolio is every investor's dream. After all, who doesn't want their investments to double, triple or even quadruple over time?

Yet not everyone chances upon these multibaggers. And if they do, it's after the stock has already turned into one. At that point, there is little runway for growth.

So how do you spot a multibagger?

A multibagger stock usually starts out as a fundamentally strong smallcap. Since stocks of small companies are available at a lower price, they offer higher returns.

However, the key to making multibagger returns is to buy them when they are undervalued. A huge margin of safety allows you to mitigate some of your risks while also increasing your returns.

In this editorial, we have put together a list of top smallcap stocks that have delivered phenomenal returns in the last five years.

They are also undervalued and could zoom over the next year.

Check them out...

#1 Avantel Soft

First on the list of multibagger stocks is Avantel Soft.

The company's shares have given returns of over 380% in the last five years.

Avantel is in the business of designing, developing and maintaining various wireless products for the aerospace and defence sector.

The company has been witnessing steady growth year on year on the back of high value projects.

Its revenue has grown at CAGR (compound annual growth rate) of 26% in the last five years while net profit has grown at a CAGR of 86%.

For the financial year 2022, the company saw a 35% YoY increase in revenue at Rs 1.1 bn. It won projects from the Indian Navy, Indian Railways, and L&T. It also reported a 18% YoY increase in net profit.

In 2023, the company expects revenue of its HF vertical to grow in view of the growing demand for indigenous HF (high frequency) systems. It expects to offer various configurations of indigenous HF equipment to customers in India.

Due to the government's increased capital outlay on the defence sector and emphasis on domestic sourcing, the company stands to benefit.

The company has strong return ratios with a return on equity (RoE) of 25.6 and RoCE of 29.8. It also has a low debt to equity ratio of 0.19.

The stock is currently trading at a Price to Earnings (PE) ratio of 20.7.

To know more about the company, check out Avantel Soft's fact sheet and quarterly results.

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#2 Aarti Drugs

Second on the list is Aarti Drugs.

The company's shares have shot up by 209% in the last five years.

Aarti Drugs is a pharmaceutical company. It manufactures active pharmaceutical ingredients (API's), pharma intermediates, specialty chemicals, and formulations.

The company is one of the largest producers of over 50 molecules in the world. It has expertise in the antibiotic and antidiarrheal segments.

Over the last five years, the company's revenue and profit have grown at a CAGR of 16% and 21%, respectively.

This was on the back of its established position in the APIs business and sound operating efficiencies.

For the financial year 2022, the company reported a 26.9% decline in profit despite a 15.5% YoY increase in revenue. This was due to an increase in commodity costs.

In 2023, the company plans to spend Rs 6 bn on capex to scale its business. The capex will be towards brownfield expansion, de-bottlenecking and backward integration.

Backward integration will lead to cost synergies whereas brownfield expansion and debottlenecking of API facilities and formulations business will lead to growth.

Aarti Drugs' return ratios stand strong with RoE at 21.3 and RoCE at 20.7. The company's debt to equity ratio stands at 0.53.

The stock is currently trading at a Price to Earnings (PE) ratio of 22.5.

To know more about the company, check out Aarti Drugs fact sheet and quarterly results.

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#3 Polyplex Corporation

Third on the list is Polyplex Corporation.

The stock has zoomed over 440% in the last five years.

Polyplex manufactures films used in the flexible packaging industry. The company also manufactures films for industrial use.

Over the last five years, Polyplex's revenue has grown at a CAGR of 16% while net profit has grown at a CAGR of 21%.

This was on account of it established market position in the global PET film market. The company has a market share of 25% in Thailand and Turkey, and 10% in India, the US, and Indonesia.

For the financial year 2022, Polyplex reported a 35% YoY increase in revenue at Rs 66.1 bn due to higher realisations. Net profit grew 12% YoY to Rs 9.6 bn.

In 2023, the company's plant in the US is set to become operational. Post this investment, Polyplex will be the most cost competitive producer of Thin BO PET films in the United States.

The company has spent about US$ 121 m on this expansion. It expects this capex to pay off handsomely.

Polyplex Corporation has a RoE of 17.9% and a RoCE of 29.1%. Its debt to equity ratio stands at 0.29.

The stock is currently trading at a Price to Earnings (PE) ratio of 13.8.

To know more about the company, check out Polyplex's fact sheet and quarterly results.

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#4 Goldiam International

Fourth in the list is Goldiam International.

The stock has risen over a whopping 800% in the last five years.

Goldiam International is in the business of manufacturing and exporting gold and diamond jewellery.

The company derives its major revenue from its overseas operations in USA, UK, Russia, Dubai, China, Hong Kong, and Australia.

Goldiam's revenue has grown at a CAGR of 17% in the last five years while net profit has grown at a CAGR of 38%.

This was on the back of a shift from wholesale to retail. The company is also focusing on its online sales channel. Its share of online diamond jewellery sales is 20% compared to 5-10% in the industry.

Goldiam International ended the financial year 2022 on a strong note. Net revenue grew 69% YoY to Rs 6.9 bn.Net profit grew 72% YoY to Rs 1 bn.

This was due to the sale of lab grown diamonds which have a realisation 120% higher than natural diamonds.

The company via its subsidiary Eco-Diamond Friendly LLP (EDL) has invested Rs 100 m in enhancing its current in-house Lab-Grown Diamonds capacity by 40%.

The new capability will further strengthen the company's presence in the increasing demand for global lab-grown diamond jewellery.

Goldiam's RoE stands at 21.4% while RoCE stands at 29.5%. The company's debt to equity ratio is negligible at 0.01.

The stock is currently trading at a PE multiple of 15.8.

To know more about the company, check out Goldiam International's fact sheet and quarterly results.

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To conclude...

If you think every stock you invest in will be a multibagger, you will be unhappy with the outcome.

The idea should be to buy the shares of a good quality company. One that has a solid foundation, sound growth strategy, and an exceptional management team. Once these factors are in place, all you have to do is remain invested for the long haul.

If you follow this strategy, you will definitely make handsome returns. And once in a while you may end up with a multibagger.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Should You Invest in Smallcaps Now?

Before you make that decision, here’s something you should know...

Richa Agarwal, our top small cap analyst, has just published her report on smallcaps.

It's called Top 3 Stocks for 2023.

If you want to grab a copy of this report, all you need to do is join Richa’s upcoming mega event.

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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...

Ayesha Shetty

Ayesha Shetty is a financial writer with the StockSelect team at Equitymaster. An engineer by qualification, she uses her analytical skills to decode the latest developments in financial markets. This reflects in her well-researched and insightful articles. When she is not busy separating financial fact from fiction, she can be found reading about new trends in technology and international politics.

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2 Responses to "4 Multibagger Smallcap Stocks to Watch Out for in 2023"

salim tabbani

Aug 29, 2022

veyy good analsiscompare to otherresearch site .

Like 

deepak kumar Chaudhari

Aug 20, 2022

I excited

Like (1)
  
Equitymaster requests your view! Post a comment on "4 Multibagger Smallcap Stocks to Watch Out for in 2023". Click here!