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  • Aug 19, 2022 - 5 Beaten Down Smallcap Stocks to Add to Your Watchlist

5 Beaten Down Smallcap Stocks to Add to Your Watchlist

Aug 19, 2022

5 Beaten Down Smallcap Stocks to Add to Your Watchlist

Have you ever fought with your best friend so much that both of you ended up not talking to each other for days? What happens after the fight?

The fight might happen for the right reasons. But after a while, when you both calm down, you talk to each other again. It's like the fight never happened.

The kind of bond you share with your best friend is similar to the fall seen in fundamentally strong stocks and their beaten down prices.

Stocks with strong growth prospects may fall because of external factors, but after a while they get back on track.

Just like how you can't keep a good player like Virat Kohli down for too long, you can't keep a fundamentally strong stock beaten down for too long.

In fact, beaten down prices might suggest that the stock has become undervalued now and is available at a bargain.

Keeping that in mind, we bring to you a list of five beaten down small-cap stocks that should be on your tracking list.

Let's get started...

#1 Dixon Technologies

Dixon Technologies is an electronics manufacturing services company, based in Noida.

It is a contract manufacturer of televisions, washing machines, smartphones, LED bulbs, battens, down lighters and CCTV security systems for companies such as Samsung, Xiaomi, Panasonic, and Philips.

It has 17 manufacturing units in India.

On a YTD basis, share price of Dixon Technologies is down by 29%.

The YTD performance of Dixon Technologies may be disappointing, but it has sound financials. Being the only handset manufacturing company in India has helped Dixon Technologies grow its business.

As the demand for mobile phones in India has increased, Dixon Technologies' revenue has also grown. On a CAGR basis, its revenue grew by 34% in the past five years.

Dixon Technologies has been able to maintain steady margins. It should be noted that increase in revenue has not increased the profit margins.

On a CAGR basis, in the past 5 years, Dixon Technologies' operating profit and net profit have grown by 33% and 32%, respectively.

Financial Snapshot of the company

Particulars (Rs in m) FY18 FY19 FY20 FY21 FY22
Total Income 28,458 29,901 44,053 64,498 107,009
Growth 16% 5% 47% 46% 66%
Operating profit 1,169 1,418 2,327 2,935 3,881
Operating profit margin 4% 5% 5% 5% 4%
Net profit 609 634 1,205 1,598 1,904
Net profit margin 2% 2% 3% 2% 2%
Data source: Equitymaster

In June 2022, Dixon Technologies share price was rising after it posted stellar quarterly results.

Dixon Technologies is also among the top semiconductor stocks in India which is somehow involved in the evolving semiconductor industry.

To know more, check out Dixon Technologies 2021-22 annual report analysis.

#2 Hikal

Established in 1988, Hikal is the partner of choice for active pharmaceutical ingredients (APIs), custom manufacturing, intermediates and advanced intermediates.

Hikal has five manufacturing facilities in India at Maharashtra (Taloja and Mahad), Gujarat (Panoli) and Karnataka (Jigani) and a research & technology centre at Maharashtra (Pune).

Hikal is the first Indian life sciences company to receive the 'Responsible Care' certification granted by the International Council of Chemical Associations (ICCA).

On a YTD basis Hikal's share price is down by 44%.

Hikal's revenues took a hit in the Covid-19 period. However, from the end of financial year 2021, a sharp recovery was seen in revenues. On a CAGR basis, its revenue grew by 14% in the past five years.

Hikal has high profit margins. The lowest operating profit margin reported is 16%, which is quite high in itself.

In the past two years its net profit margins have also increased. On a CAGR basis, its net profits have grown by 19% in the past 5 years.

Financial Snapshot of the company

Particulars (Rs in m) FY18 FY19 FY20 FY21 FY22
Total Income 13,006 15,919 15,110 17,254 19,476
Growth 28% 22% -5% 14% 13%
Operating profit 2,462 3,004 2,769 3,279 3,142
Operating profit margin 19% 19% 18% 19% 16%
Net profit 772 1,031 844 1,331 1,605
Net profit margin 6% 6% 6% 8% 8%
Data source: Equitymaster

To know more, check out Hikal's financial factsheet and its latest quarterly results.

#3 L&T Technology Services

L&T Technology Services (LTTS) is an engineering services company based in Vadodara, Gujarat. It operates as a subsidiary of the conglomerate Larsen & Toubro (L&T).

The company also has offices in Edison, New Jersey, and Munich, and a subsidiary company Esencia, based in San Jose, California.

LTTS has expertise in engineering design, product development, smart manufacturing, and digitalisation.

With 89 Innovation and R&D design centres globally, LTTS specialises in disruptive technology spaces such as 5G, Artificial Intelligence, Collaborative Robots, Digital Factory, and Autonomous Transport.

On a YTD basis LTTS' share price is down 34%.

The revenues of LTTS were majorly shaken in the Covid-19 effected years. However, in financial year 2022 a sharp jump of 20% in revenues can be seen.

On a CAGR basis, revenues have grown by 15% in the past five years.

It is noteworthy that even in the Covid-19 era, net profit and operating margins were not severely affected.

The operating profit margin and net profit margin have grown by 19% and 18% respectively in the past five years.

Financial Snapshot of the company

Particulars (Rs in m) FY18 FY19 FY20 FY21 FY22
Total Income 39,532 53,012 58,303 56,413 67,526
Growth 19% 34% 10% -3% 20%
Operating profit 7,690 11,375 13,196 11,611 15,673
Operating profit margin 19% 21% 23% 21% 23%
Net profit 5,066 7,684 8,224 6,665 9,606
Net profit margin 13% 14% 14% 12% 14%
Data source: Equitymaster

LTTS has bright growth prospects. The company is in the process of identifying strategic areas where it would invest money in the coming years. Some of these areas are electric, automated, and connected vehicles (EACV), 5G, Medical Electronics, AI & ML driven smart solutions, etc.

The company had invested in some of these areas well before they announced their plans. These investments bore fruition in the financial year 2021.

For example, they inaugurated an electric vehicle testing lab in Bengaluru, Karnataka to enable clients to verify the performance of the vehicle.

Engineers at LTTS created digital clones of their physical labs to cater their clients remotely and give them an enriching and immersive experience of their innovations hosted at the company's labs.

To know more, check out L&T Technology's 2021-22 annual report analysis.

#4 Metropolis Healthcare

Metropolis Healthcare is an Indian multinational chain of diagnostic companies, with its central laboratory in Mumbai, Maharashtra. It has a chain of 124 clinical laboratories, and 2400 collection centres across 7 countries including India.

The healthcare company was founded in 1980. The company went public in April 2019.

Metropolis Healthcare has a team of 200 senior pathologists and over 2000 technicians delivering diagnostic solutions in the areas of routine, semi specialty and super specialty domains like Oncology, Neurology, Gynaecology, Nephrology, and many more.

It offers a comprehensive range of 4,000+ clinical laboratory tests and profiles, which are used for prediction, early detection, diagnostic screening, confirmation and/or monitoring of the disease.

On a YTD basis, Metropolis Healthcare share price is down by 58%.

Slow and steady wins the race. This seems to be the case for Metropolis Healthcare too.

Metropolis Healthcare's revenues are slowly increasing because of which even in Covid-19 period its revenues didn't go through a major break down.

On a CAGR basis, its revenues have grown by 17% in the past five years.

Its net profit margins and operating profit margins are quite high. On a CAGR basis, the operating profit margin and net profit margin have grown by 15% each in the past five years.

Financial Snapshot of the company

Particulars (Rs in m) FY18 FY19 FY20 FY21 FY22
Total Income 6,549 7,694 8,650 10,100 12,460
Growth 15% 17% 12% 17% 23%
Operating profit 1,862 2,122 2,457 3,018 3,657
Operating profit margin 28% 28% 28% 30% 29%
Net profit 1,118 1,250 1,281 1,833 2,147
Net profit margin 17% 16% 15% 18% 17%
Data source: Equitymaster

To know more, check out Metropolis Healthcare 2021-22 annual report analysis.

#5 Tanla Platforms

Tanla Platforms previously known as Tanla Solutions, is a cloud communications company based in Hyderabad, India. The company provides value-added services in the cloud communications space.

Tanla has offices in ten locations including Singapore, London, Colombo, Dubai, etc. The company operates with a team of more than 500.

The company is India's largest Communications Platform as a Service (CPaaS) company.

Tanla Platforms initially started as a Bulk SMS provider in Hyderabad catering to SME. As the team grew, the company evolved into a cloud communication provider with services and products with aggregators and telecoms across the globe.

It has virtual monopoly in the OTP business.

On a YTD basis, Tanla Platform share price is down by 60%.

Tanla Platform's revenues have seen a sharp increase in the past 3 years. On a CAGR basis, its revenues have surged 41%.

Operating profit margins and net profit margins have also remained quite high.

On a CAGR basis, the operating profit margin and net profit margin have seen a sharp growth of 65% and 67% respectively in the past five years.

Tanla Platforms is a zero debt company having no debt on its books.

Financial Snapshot of the company

Particulars (Rs in m) FY18 FY19 FY20 FY21 FY22
Total Income 7,964 10,146 19,552 23,634 32,221
Growth 37% 27% 93% 21% 36%
Operating profit 703 1,075 1,985 4,566 7,181
Operating profit margin 9% 11% 10% 19% 22%
Net profit 191 301 -2095 3,561 5,393
Net profit margin 2% 3% -11% 15% 17%
Data source: Equitymaster

The reason why Tanla Platforms is battered down in recent months is because it reported poor financials for the quarter ended June 2022.

The weak performance left investors disappointed which led to Tanla share price falling.

With a strong outlook for the CPaaS industry, the long-term view for Tanla seems bright.

To know more, check out Tanla Platforms 2021-22 annual report analysis.

Also check out the detailed comparison piece between Tanla Platforms vs Route Mobile.

Investment Takeaway...

High risk gives high returns, this saying is true for small-cap stocks.

The above five companies are running on good business with bright growth prospects. But one cannot simply ignore that these companies have had their fair share of volatile periods.

Investors who have a low-risk appetite should definitely go for fundamentally strong smallcap stocks.

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

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

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...

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