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  • Aug 18, 2022 - India's Most Profitable Small-cap Stocks. Here are the Top 5...

India's Most Profitable Small-cap Stocks. Here are the Top 5...

Aug 18, 2022

History has shown that smallcap stocks have delivered more than 100x returns to investors. Thus, allocating a small portion to small caps in your portfolio could offer significant upside. But identifying these stocks is a challenge.

So, which small-cap stocks should you invest in?

Well, there is no specific answer to it. It all depends on one's risk appetite and goals. However, the profitability of the underlying business can help you make a more reliable decision.

Here are the top 5 profitable smallcap stocks in India.

#1 Suven Pharmaceutical

The first company on our list is Suven Pharmaceuticals.

The company is in the business of manufacturing prescribed drugs and speciality chemicals.

Over the last three years, its revenue has grown at a CAGR (compound annual growth rate) of 51.7%. Net profit has grown by a CAGR of 55.7%.

The company, in the last 3 years, has delivered an average operating profit margin of 41.7% and an average net profit margin of 30%. This has been on the back of a constant rise in demand for APIs.

For the financial year 2022, the company saw a 37% YoY increase in revenue at Rs 14 bn. It also reported a 33% YoY growth in net profit.

The company delivered an operating margin of 45% while the net profit margin stood at 32% for the financial year 2022.

The company has recently acquired a 100% stake in Casper Pharma for Rs 1.6 bn. Casper is engaged in the formulation business.

To know more about the company, check out Suven Pharma's factsheet and quarterly results.

Suven Pharmaceuticals Financial Performance (2018-2022)

Particulars 2018-19 2019-20 2020-21 2021-22
Sales Revenue (Rs in m) 3,778 8,338 10,097 13,202
Growth (%) NA 120 21 30
Operating profit (Rs in m) 172 385 440 579
Operating profit margin (%) 45 46 44 45
Net profit (Rs in m) 1,093 2,688 3,086 4,127
Net profit margin (%) 29 32 31 32
Source: Equitymaster

#2 Tarsons Products

The second company on our list is Tarsons Products.

The company is in the business of producing and supplying laboratory plastic.

Over the last three years, its revenue has grown at a CAGR of 18.9%. At the same time, the net profit has grown by a CAGR of 37.2%. This was due to a rise in the demand for laboratory products.

The company, in three years, has delivered an average operating profit margin of 37.8%. Meanwhile, its 3-year-average net profit margins stand at 28%.

During the financial year 2022, the company witnessed a rise in domestic sales and exports. This led to a 32% YoY growth in revenue and 46% YoY growth in net profit.

The company delivered an operating margin of 50% while the net profit margin stood at 34% for the financial year 2022.

The company has still not passed on the cost pressure to the end user. During the earnings call, the company stated they are now looking forward to passing on the cost.

The company is currently setting up a new radiation plant. It is for expanding the production capacity of the firm.

To Know more about the company, Check out Tarson Product's factsheet and quarterly results.

Tarsons Product's Financial Performance (2018-2022)

Particulars 2018-19 2019-20 2020-21 2021-22
Sales Revenue (Rs in m)   1,759 2,289 3,008
Growth (%) NA -0.1 30 31
Operating profit (Rs in m) 77 69 103 153
Operating profit margin (%) 40 39 45 50
Net profit (Rs in m) 390 405 689 1,007
Net profit margin (%) 22 23 30 34
Source: Equitymaster

#3 Triveni Turbine

Third, on our list is Triveni Turbine.

The company is a leading steam turbine manufacturer. It has a market share of over 60%.

In the last three years, its revenue growth has remained flat while net profit has grown at a CAGR growth of 8%. This was due to the pandemic.

However, it has delivered an average operating profit margin of 17.3% and a net profit margin of 19.3% over the same period.

For the financial year 2022, the company saw a 21.3% YoY increase in revenue at Rs 8.5 bn. It also reported a 162% YoY growth in net profit.

The rise in the revenue was due to the robust overseas business and improving operational efficiency.

The company delivered an operating margin of 19% while the net profit margin stood at 32%. With a healthy sales mix and increasing output, the company was not affected by inflation.

For the financial year 2023, the company has received an order of Rs 11.8 bn. It is working on developing new technology for using carbon dioxide as a substitute for steam in turbines.

To Know more about the company, check out Triveni Turbine's factsheet and quarterly results.

Triveni Turbine's Financial Performance (2018-2022)

Particulars 2018-19 2019-20 2020-21 2021-22
Sales Revenue (Rs in m) 8,400 8,179 7,026 8,522
Growth (%) 12 -0.02 -14 21
Operating profit (Rs in m) 1,517 1,557 1,476 1,626
Operating profit margin (%) 17 17.7 20.1 17.8
Net profit (Rs in m) 971 1,127 972 2,744
Net profit margin (%) 11.6 13.8 13.8 32.2
Source: Equitymaster

#4 Computer Age Management Services (CAMS)

Fourth on the list is Computer Age Management Services.

The company is a mutual fund transfer agency serving Indian asset management companies.

Over the last three years, its revenue has grown at a CAGR of 9.5% while its net profit has grown at a CAGR of 28.5%.

The company's 3-yr average operating margin stands at 41.3% and net profit margin stands at 28.6%.

With the 70% market share in India, it has seen a constant rise in AUMs (Assets Under the Management) for mutual funds. It has led to the constant rise in the revenue of the firm.

For the financial year 2022, the company saw a 24% YoY increase in revenue at Rs 9.3 bn. It also reported a 39% YoY growth in net profit.

The company also delivered an operating margin of 45% and a net profit margin of 32%. High transaction volumes and new SIP registrations were a driver of profit.

The employee retention cost of the company saw a rise due to the inflation in the country.

In 2022, the company launched its first cloud-based platform. It has increased its client base by 15% for the year.

To Know more about the company, check out CAM's factsheet and quarterly results.

Computer Age Management's Financial Performance (2018-2022)

Particulars 2018-19 2019-20 2020-21 2021-22
Sales Revenue (Rs in m) 6,936 6,996 7,055 9,097
Growth (%) 8.1 0.01 0.01 29
Operating profit (Rs in m) 243 286 296 424
Operating profit margin (%) 30 39 40 45
Net profit (Rs in m) 1,352 1,719 2,053 2,869
Net profit margin (%) 20 25 29 32
Source: Equitymaster

#5 Sasken Technologies

Fifth on the list is Sasken Technologies.

It is a software development company in India. It specializes in product engineering and digital transformation.

Over three years, its revenue has seen degrowth of 5.5% (CAGR) while net profit has seen a growth of 12% (CAGR).

The three years average operating margin stands at 27.4%. Whereas, the net profit margin stands at 23.8%.

The degrowth was due to the pandemic. The sales were also substantially low.

For 2022, the company saw a 10% YoY decline in revenue to Rs 4 bn. Net profit increased 10% year on year.

The company has delivered an operating margin of 30%. At the time, the net profit margin stands at 25%.

The company faced multiple headwinds of high attrition and a decline in the demand for the software.

Due to the wage inflation in the market, the company over the last year has reported high employee costs.

The company, 2023, is planning to increase its service scale.

To Know more about the company, check out Sasken Technologies factsheet and quarterly results.

Sasken Technologies Financial Performance (2018-2022)

Particulars 2018-19 2019-20 2020-21 2021-22
Sales Revenue (Rs in m) 5,043 4,922 4,448 4,339
Growth (%) 0 -0.1 -9.6 -0.1
Operating profit (Rs in m) 711 881 1,301 1,291
Operating profit margin (%) 16.5 20.9 31.2 30.24
Net profit (Rs in m) 904 788 1,145 1,282
Net profit margin (%) 17.9 16 25.8 29.6
Source: Equitymaster

To conclude

With the increased volatility, most of these small-cap stocks have seen a correction this year.

Small-cap stocks are the first to get hit in a economic slowdown. They see higher price declines than mid-cap and large-cap stocks during a slowdown.

But some of these small-cap stocks have given multibagger returns.

If you plan to invest in such stocks, assess the company's fundamentals and allocate wisely in fundamentally strong smallcap stocks.

Also, keep in mind the overall factors impacting the company and the industry.

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

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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