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  • Aug 3, 2022 - India's Fast Growing Small-cap Stocks with Zero Debt. Time to Take a Look...

India's Fast Growing Small-cap Stocks with Zero Debt. Time to Take a Look...

Aug 3, 2022

Indias Fast Growing Small-cap Stocks with Zero Debt. Time to Take a Look

In 2022 so far, the BSE Smallcap index is down 9%, against a fall of 2% in the benchmark BSE Sensex.

For investors looking for long-term stocks to buy in India, it's perhaps a good time to have a glance at smallcaps.

Smallcaps that are fundamentally strong stocks, with a decent balance sheet, low or zero debt, and stable cash flows for operations can outperform their peers over the long term.

Such companies merit inclusion in your stock watchlist.

Debt is critical to any company's current performance and future growth.

Companies with little or no debt and no interest liability have a better chance of survival than those with a lot of debt.

Here are the fastest growing smallcap debt free companies in India.

These companies have seen a steady growth in their revenues and profits for the past four consecutive quarters.

#1 Kitex Garments

Kitex Garments Ltd is a subsidiary of the well-known Anna-Kitex Group. It's headquartered in Kochi, Kerela.

With easy access to the sea and air ports, this company serves prominent companies in the United States and Europe.

The company is currently the world's second-largest producer of children's apparel.

In 2021, after a few conflicts with Kerala's government, the company shifted base and looked at Telangana for business expansion. The company invested Rs 1.6 bn in a project in Warangal, Telangana.

This cluster will be spread over 200 acres and aims to employ around 15,000 people.

The project will be completed in 2023.

For the past four quarters, the company has been consistent in delivering good results.

Financial Snapshot - Quarterly Performance

  Mar-22 Dec-21 Sep-21 Jun-21 Mar-21
Revenue (Rs m) 253.6 202.9 178.1 153.8 111.7
Revenue Growth(%) 25.0 13.9 15.8 37.7  
Net Profit(Rs m) 44.3 34.7 27.3 22.0 9.7
Profit Growth 27.7 27.3 24.1 125.8  
NPM % 17.5 17.1 15.3 14.3 8.7
Source: Equitymaster

Kitex is a fundamentally strong stock delivering growth despite the global disruptions.

In the past 3 years, the company has compounded its profits at an annual growth rate (CAGR) of 16%.

Let's look at a few financial metrics to get a better picture of the company's performance.

5 Year Performance

  FY 18 FY 19 FY 20 FY 21 FY 22
Return on equity (%) 14.0 14.4 16.1 7.8 17.1
Return on capital (%) 22.7 23.8 22.6 11.7 24.1
Long term debt (Rs m) 6.0 0.0 0.0 0.0 0.0
Avg P/E ratio 34.9 13.9 7.8 12.8 12.7
Source: Equitymaster

The company has not had any long term debt on its book for the last four financial years.

For more details, see the KITEX GARMENTS company fact sheet and Kitex Garments News and Analysis.

#2 EClerx Services

Incorporated in 2000, eClerx Services is an Indian IT consulting and outsourcing company.

With its data-driven insights and advanced analytics, the company provides business solutions to Fortune 500 companies.

From a small office in Mumbai, the company now employs over 11,000 people worldwide.

In the last 3 years, the company has grown profits at a CAGR of 22%. Its stock price has gone up at a CAGR of 55%.

2022 has been a harsh on IT sector. The stock price plunged over 20%.

Growing concerns of recession in the US among other reasons have sent the Indian IT sector tumbling.

Despite this, the company's revenue has been consistently increasing, and profits are also progressing with a few setbacks.

Financial Snapshot - Quarterly Performance

  Mar-22 Dec-21 Sep-21 Jun-21 Mar-21
Revenue (Rs m) 428.1 405.6 373.9 343.7 329.5
Revenue Growth(%) 5.5 8.5 8.8 4.3  
Net Profit(Rs m) 95.5 159.8 85.7 82.2 78.4
Profit Growth -40.2 86.5 4.2 4.9  
NPM % 22.3 39.4 22.9 23.9 23.8
Source: Equitymaster

eClerx has a strategic approach for inorganic growth.

The company believes in the method of acquisitions, as is the case for many good IT companies. In 2020 it announced the acquisition of Personiv an outsourcing solution company with offices in the US, India, and Philippines worth US$ 34 m.

It had previously purchased CLX in Europe in 2015, as well as Agilyst in 2012.

To get a better picture of the company's performance, let's look at a few financial parameters.

5 Year Performance

  FY 18 FY 19 FY 20 FY 21 FY 22
Return on equity (%) 24.5 16.8 16.2 19.0 26.3
Return on capital (%) 32.1 23.0 23.3 27.0 37.1
Long term debt (Rs m) 6.0 8.0 3.0 2.0 0.5
Avg P/E ratio 18.1 19.4 12.8 8.9 17.6
Source: Equitymaster

For more details, see the ECLERX SERVICES company fact sheet and Eclerx Services News and Analysis.

#3 Ami Organics

Ami Organics, founded in 2004, is a leading research and development-driven manufacturer of specialty chemicals.

The company produces various advanced pharmaceutical intermediates and active pharmaceutical ingredients (API) for new chemical entities (NCEs), as well as materials for agrochemicals and fine chemicals.

The specialty chemicals manufacturer has a presence in several Indian states.

In addition to the domestic market, the company supplies pharma intermediates used in the production of APIs and NCEs to various multinational pharmaceutical companies.

The company has clientele worldwide including Europe, China, Japan, Israel, the United Kingdom, Latin America, and the United States.

To serve such customer base, the company is expanding its horizons.

In April 2022, the company's board approved a capex plan of Rs 1.9 bn to build a brownfield plant in Ankleshwar Gujarat. The new plant will have 90 reactors with total capacity of 436 Kilo Litre (KL)

Ami Organics has always been driven by research and development on specialty chemicals with major focus of advanced pharmaceutical intermediates.

The company has been delivering decent results since it got listed in September 2021.

Financial Snapshot - Quarterly Performance

  Mar-22 Dec-21 Sep-21
Revenue (Rs m) 143.5 141.2 122.3
Revenue Growth(%) 1.7 15.4  
Net Profit(Rs m) 21.3 19.5 17.5
Profit Growth 9.3 11.4  
NPM % 14.8 13.8 14.3
Source: Equitymaster

In the past 3 years, the company marked a profit CAGR of 46% and sales CAGR of 30%.

The company's share price has plunged by over 14% since its listing in September 2021.

Let's look at a few financial parameters to get a clearer view of the company's performance.

5 Year Performance

  FY 18 FY 19 FY 20 FY 21 FY 22
Return on equity (%) 28.3 24.6 32.3 13.8 26.3
Return on capital (%) 38.2 30.6 32.3 18.7 24.1
Long term debt (Rs m) 221.0 199.0 726.0 6.0 8.0
Avg P/E ratio 0.0 0.0 0.0 55.8 50.6
Source: Equitymaster

As is evident from the table below, the company hasan approach to make itself a debt free company.

For more details, see the AMI ORGANICS company fact sheet and Ami Organics News and Analysis.

#4 Fine Organics

Incorporated back in 1973, Fine Organics operates throughout the value chain, from manufacturing to distribution and export.

The company has a portfolio of over 400 products that are used in a variety of industries, including plastics, cosmetics, coatings, and food.

Coca-Cola, Berger Paints, Asian Paints, Britannia, and Parle are among Fine Organics' diverse and prestigious customers.

The company got listed in 2008, and since then its share price has zoomed 571%.

The company is consistently making efforts to expand the business.

It has begun developing of a new polymer additives manufacturing facility in Maharashtra.

The company then opened a new office in Belgium to meet the growing demand for Polymer additives in the European Union.

Fine Organics and Zeelandia have formed a partnership in India. Fine Zeelandia will supply dry and liquid baking ingredients to India and neighbouring markets.

All of these have resulted in better balance sheet for the company.

Financial Snapshot - Quarterly Performance

  Mar-22 Dec-21 Sep-21 Jun-21 Mar-21
Revenue (Rs m) 600.7 468.2 429.6 359.9 321.7
Revenue Growth(%) 28.3 9.0 19.4 11.9  
Net Profit(Rs m) 110.1 55.7 50.0 34.9 28.9
Profit Growth 97.5 11.5 43.0 21.0  
NPM % 18.3 11.9 11.6 9.7 9.0
Source: Equitymaster

In the past 3 years, the company has reported a profit CAGR of 24% and a stock price CAGR of 56%.

To get a clear image of the company's performance, let's have a look at its financial numbers.

5 Year Performance

  FY 18 FY 19 FY 20 FY 21 FY 22
Return on equity (%) 27.9 27.4 16.6 27.2 25.1
Return on capital (%) 40.5 32.3 21.5 36.3 38.9
Long term debt (Rs m) 0.0 928.0 915.0 567.0 251.0
Avg P/E ratio 22.6 34.2 64.1 39.6 47.1
Source: Equitymaster

As we can observe, the company is putting effort to minimise its debt and is using its resource in a direction that can give good returns.

For more details, see the FINE ORGANIC INDUSTRIES company fact sheet and Fine Organic Industries News and Analysis.

Investment Takeaway

Investors who have a low-risk appetite should definitely go for fundamentally strong smallcap stocks with no debt.

In fact, such companies are a gold mine for any investor, regardless of risk tolerance.

However one should not blindly bet on a company owing to its almost zero debt. An investment strategy should be holistic considering capital allocation, growth prospects, and valuations.

A zero-debt company with no growth or one facing business contraction probably won't provide investors with high returns.

If a company is able to manage its debt effectively and use it for growth, it is a better investment option than one with no debt but limited growth.

As small-cap stocks interest you, here's a proven approach on investing in small-cap stocks.

Should You Invest in Smallcaps Now?

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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...

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