Top 5 Microcap Stocks Held by LIC. Are They Worth a Look?

Earlier this month, we wrote about the top penny stock picks of India's biggest insurer Life Insurance Corp (LIC).

The list included names like National Fertilizers, Bliss GVS Pharma, Vakrangee (surprise, surprise), GTL Infra and Bajaj Hindusthan Sugar.

You can check out the detailed editorial here.

Today, let's go over LIC's top microcap holdings, further broadening our search towards these smaller market players.

Microcap stocks, distinguished by their market capitalization falling below that of small, mid, and large-cap stocks, bring a unique dynamic to the investment landscape.

Think of them like chocolates. Very tasty and tempting yet they can be bad for health sometimes.

However, they offer a huge opportunity for investors with some patience and risk tolerance. Many microcaps are still in the early stages of development, which means that there is plenty of room to grow.

With that explainer out of the way, let's dig in...

#1 Care Ratings

First on the list we have one of the top rating agencies in India.

As of June 2023, LIC holds 9.65% stake in Care Ratings.

Care Ratings rates companies, helps them raise capital and helps investors make informed investing decisions.

When it comes to rating agencies in India and even abroad, they have been in the eye of the storm for inherent conflicts of interest, time and again - being paid by clients for rating them. This often leads to rating agencies giving overgenerous ratings to issuers, so they can raise debt at lower costs.

There have been instances in the past where credit rating agencies have come under scrutiny.

But the situation has improved over the years. Certain events have made it extremely important for the market regulator to step in and introduce tougher norms for ratings agencies.

And that could be one reason why LIC has put faith in the company over the years. Apart from the fact that Care Ratings is a debt-free company with a decent track record of financials and a strong track record of paying dividends since inception.

Let's look at some numbers...

Care Ratings Financial Snapshot

	FY19	FY20	FY21	FY22	FY23
Revenue	3,189.70	2,436.40	2,484.50	2,476.30	2,789.90
Growth (%)	-4%	-24%	2%	0%	13%
Operating Profit	2,050.60	1,127.90	1,270.70	1,068.00	1,372.80
OPM (%)	64%	46%	51%	43%	49%
Net Profit	1,374.70	823.7	895.2	751.1	835.3
NPM (%)	43%	34%	36%	30%	30%
Dividend Per Share (Rs)	30	19.5	17	17	25
Debt to Equity (x)	0	0	0	0	0

Data Source: Ace Equity

As can be seen from the table above, growth has remained stagnant.

For the first quarter ended June 2023, the company recorded a 22% growth in operating revenue.

Profit after tax grew by 30% to Rs 183.6 million (m) primarily due to continued traction in its ratings business.

In the past one year, shares of the company have gained 50%.

The company's performance going forward could improve as it's highly dependent on the overall health of the economy, corporates and financial systems.

For a detailed analysis, check out Rahul Shah's video on Crisil vs Care Ratings.

#2 MOIL

Next on the list is MOIL.

As of June 2023, LIC holds 7.5% in the industrial minerals company.

MOIL is primarily engaged in mining of manganese ore and is the largest manganese ore producer in the country. It is a miniratna state-owned company owned by the government of India.

FY23 was a good year for MOIL as the company registered the second highest production during the year since its inception.

That's not all. During the year, the company also incurred a record capital expenditure of Rs 2.5 bn along with carrying out the best ever exploratory core drilling of 41,762 metres.

Financial Snapshot of MOIL (2019-2023)

	FY19	FY20	FY21	FY22	FY23
Revenue	14,406.70	10,380.70	11,773.80	14,363.00	13,460.00
Growth (%)	9%	-28%	13%	22%	-6%
Operating Profit	7,865.80	4,366.50	3,892.90	6,207.30	3,690.00
OPM (%)	55%	42%	33%	43%	27%
Net Profit	4,738.90	2,482.20	1,766.30	3,769.90	3,340.00
NPM (%)	33%	24%	15%	26%	25%
Dividend Per Share (Rs)	6	6	7.4	6	3.7
Debt to Equity (x)	0	0	0	0	0

Data Source: Ace Equity

The company's management has guided for good growth in coming years with much higher levels of production as its action plan comes into play.

It is targeting a production of 1.6 million tons this year and to double its production in the next three years and triple in the next six to seven years.

The company is also debt-free, which gives space for funding growth projects going forward.

In the year gone by, shares of the company have gained 26%.

Shares of the company have been on a roll for the past few weeks after the company recently raised the price of manganese ore.

Its expansion plans and exploration of other minerals could contribute to the growth going forward.

#3 Aarti Pharmalabs

Third on the list is Aarti Pharmalabs.

As of June 2023, LIC holds a 6.8% stake in the pharma company.

Incorporated in 2019, Aarti Pharmalabs is a manufacturer of pharmaceuticals and nutraceuticals.

A wholly owned subsidiary of Aarti Industries, the company develops APIs, API intermediates, among other derivatives for use in clinical testing and commercial production.

After registering strong growth in FY23, the company's performance for the first quarter has remained subdued due to price corrections.

Revenue declined 6% to Rs 4.6 bn while PAT stood at Rs 480 m, a growth of 10% over the previous quarter.

Financial Snapshot

	FY22	FY23
Revenue	9,410.21	19,450.00
Growth (%)	-	107%
Operating Profit	1,823.00	3,420.00
OPM (%)	19%	18%
Net Profit	1,067.30	1,930.00
NPM (%)	11%	10%
Dividend Per Share (Rs)	0	0
Debt to Equity (x)	0.3	0.1

Data Source: Ace Equity

The demerged entity of Aarti Industries made its stock market debut in January this year, listing at Rs 377 per share.

Since then, the company has corrected to Rs 300 levels, and the promoters have loaded up on shares in the correction.

Going forward, Aarti Pharmalabs plans to add more than 50 new products in the pharma division. The company has announced a heavy capex of Rs 3.5-5 bn in the next three years.

Due to its backward integration into manufacturing of intermediates for APIs, Aarti Pharmalabs enjoys strong operating margins.

What further helps is its strong R&D team. In its latest concall, the company said R&D expenses for FY24 are expected to be around Rs 350-400 m per quarter.

#4 PTC India

Next on the list is PTC India.

As of June 2023, LIC holds 5.96% stake in the company.

What does PTC India do?

The company is regarded as a pioneer in developing power trading in India.

Over the years, the company has diversified its service offerings. It has recently forayed into the wind energy business by setting up a new company - PTC Energy Limited.

It is also exploring opportunities in green hydrogen, and battery energy storage systems.

While declaring its results for FY23, the company in a statement said that its subsidiaries have shown a turnaround in business operations.

For FY23, the company's net profit was down 8% at Rs 5.1 bn.

Financial Snapshot

	FY19	FY20	FY21	FY22	FY23
Revenue	151,550.80	181,008.10	183,455.00	168,563.90	159,710.00
Growth (%)	-23%	19%	1%	-8%	-5%
Operating Profit	20,837.90	18,485.20	17,250.00	16,042.00	13,500.00
OPM (%)	14%	10%	9%	10%	8%
Net Profit	4,252.80	3,675.50	4,486.60	5,061.60	6,800.00
NPM (%)	3%	2%	2%	3%	4%
Dividend Per Share (Rs)	4	5.5	7.5	7.8	7.8
Debt to Equity (x)	3.4	2.7	2.6	2.1	1.3

Data Source: Ace Equity

The company has been consistently paying dividends since 2002. The consistency is on the back of its healthy cash & cash equivalents.

In the past one year, shares of the company have gained 47%.

Going forward, the company is planning to provide round-the-clock (RTC) power offerings by blending green energy with thermal.

#5 Paradeep Phosphates

Last on the list is Paradeep Phosphates.

As of June 2023, LIC holds 4.3% stake in the company.

The company is a manufacturer of non-urea fertilizers. It's India's second largest private sector phosphatic company, engaged in manufacturing, trading, distribution, and sales of a variety of complex fertilizers.

A month ago, reports were circulating saying the company is looking at a big bang acquisition of Zuari Agro Chemicals, parent of Mangalore Chemicals.

The acquisition is now finalized, and once Paradeep acquires Zuari's assets, the company will have around 2.6 MMTPA of annual manufacturing capacity of phosphatic fertilisers, making it the third-largest P&K manufacturer in the country.

After a strong performance in FY24, the company has started Q1 by reporting a loss of Rs 1.2 bn. This, despite the company reporting record production and sales volumes for FY24.

In an exchange filing, the management confirmed expansion of its phosphoric acid capacity to 5 lakh metric tons effective 1 August 23 and the benefits of this backward integration are expected to accrue from the coming quarter onwards.

Financial Snapshot

	FY19	FY20	FY21	FY22	FY23
Revenue	43,579.10	41,928.70	51,647.30	78,587.20	133,410.00
Growth (%)	15%	-4%	23%	52%	70%
Operating Profit	4,808.40	4,946.60	5,614.50	7,103.80	8,010.00
OPM (%)	11%	12%	11%	9%	6%
Net Profit	1,589.60	1,932.20	2,232.70	3,984.50	3,040.00
NPM (%)	4%	5%	4%	5%	2%
Dividend Per Share (Rs)	1	1.2	0	0	0
Debt to Equity (x)	2.1	1.4	0.7	1.3	1.3

Data Source: Ace Equity

With the acquisition of Zuari Agro's assets, Paradeep is planning to broaden its market reach to the southern and western markets as well.

In the past one year, shares of the company have gained around 30%.

Which other microcap stocks has LIC invested in?

Apart from the above, below are other microcap stocks where LIC holds significant stake -

Company	LIC holding (%)
Kaveri Seed Company Ltd.	4.9
The Karnataka Bank Ltd.	4.66
Paradeep Phosphates Ltd.	4.28
Strides Pharma Science Ltd.	4.22
Heidelberg Cement India Ltd.	3.57
GTL Infrastructure Ltd.	3.33
Bajaj Hindusthan Sugar Ltd.	3.21
Reliance Power Ltd.	2.75
The South Indian Bank Ltd.	2.69
Procter & Gamble Health Ltd.	2.66

Data Source: Ace Equity

Conclusion

While these were just the top microcap stocks held by LIC, it has a huge portfolio spread across sectors with index heavyweights forming the biggest part. This helps it tide over market volatility.

It has more than 240 stocks with ownership above 1% in them while the total number of companies in its portfolio goes to over 350. The portfolio is largely concentrated on select largecaps.

According to some reports, LIC's total holdings comprise almost 3.6% of India's market capitalisation.

It remains to be seen how LIC's holding fare in the remainder of 2023. Stay tuned.

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...