Top 5 Microcap Stocks to Add to Your Watchlist

A microcap stock is a company whose market capitalization ranges from Rs 5 bn to Rs 30 bn.

You may be thinking that there aren't many microcap stocks available in India, but there are quite a few.

In fact, investing in some of these promising small and medium sized companies is a great way to invest your money and make a healthy return.

Microcaps don't have as much news flow and aren't as popular as large cap stocks but if you want to find out where the next big thing is, you need to look for it in all corners of the market.

Keeping that in mind, here are top 5 microcap stocks to watch out for.

#1 Ward wizard Innovations & Mobility

First on our list is Ward wizard innovations & Mobility.

The company focuses on providing clean and greener alternatives through two of its brands - Joy E-Bikes and Vyom Innovations.

Under its flagship brand, Joy e-bikes, the company sells more than 10 varieties of electric bicycles to suit different categories of customers. Some of its brands are Glob, Beast, and Thunderbolt, etc.

It also manufactures consumer appliances from LED TVs to Alkaline water purifiers and air purifiers to hydrogen water bottles under the brand 'Vyom'.

Wardwizard Mobility listed on the exchanges in 2015 and was the first EV manufacturer to do so.

The company is on an expansion mode across India. It recently inaugurated a state-of-the-art plant at Vadodara, Gujarat in January 2021 capable of producing about 4 lac electric two-wheelers per annum.

It has acquired 4 m sq. ft. of land to develop India's first-ever EV ancillary cluster in Vadodara, Gujarat. About 20 major EV parts/ components will be manufactured in the Wardwizard EV ancillary cluster.

Besides this, the company is planning to expand its dealer network to 1500 by the financial year 2023 from the current 550. It is targeting to launch three-wheeler passenger vehicles and 1 high-speed electric scooter category, and 1 in a high-speed electric bike in this financial year.

Wardwizard Mobility turned profitable in the financial year 2021 and has since reported strong numbers. For the financial year 2022, the company reported revenue growth of 370% YoY and profit growth of 300% YoY.

It has healthy return ratios with RoE (return on equity) at 19.1% and RoCE (return on capital employed) at 27.4%.

It also has no debt on its books.

To know more about the company, check out the company factsheet and latest quarterly results.

#2 Ador Fontech

Second, on our list is Ador Fontech (AFL).

The company provides products, services, and solutions for industrial components.

It initially started out with providing repair welding services but later diversified into other segments such as value-added reclamation, fusion, surfacing, and spraying.

It also sells products such as low-heat input alloys, solid and flux-cored wires, high alumina wear-resistant tiles and components, welding and cutting equipment etc.

AFL has two manufacturing plants in Bengaluru and one reclamation centre in Nagpur.

It also has a subsidiary called 3D Future Technologies (referred to as '3DFT') that explores business opportunities in three-dimensional printing for the dental health care industry.

Ador Fontech recently received approval for its robotic welding system from the Indian Railways.

The company is the first to be accorded such approval in India under the broad gamut of 'Make in India' project. At present it is at the nascent stage where the product has been developed and approved.

Going forward, it plans to develop a specialised team and infrastructure to ensure sustenance and development.

Ador Fontech's profit has grown at a CAGR of 24% in the last five years. For the financial year 2022, the company reported a 40.2% YoY growth in revenue while its profit more than doubled on account of a low base.

The company's return ratios stand strong with RoE at 18.4% and RoCE at 25.6%. It is also almost debt free.

To know more, check out Ador Fontech's fact sheet.

#3 Sigachi Industries

Third on our list is Sigachi Industries.

The company is one of the largest manufacturers of microcrystalline cellulose (MC) in the world. MC has varied applications in the pharmaceutical, food, nutraceuticals and cosmetic industries.

It initially started its journey manufacturing chlorinated paraffin and hydrochloric acid in its manufacturing unit situated at Hyderabad.

It later went on to diversify its product portfolio to manufacture microcrystalline cellulose (MCC)

Sigachi Industries revenue has grown at a CAGR of 25% in the last five years while profit has grown at a CAGR of 68%.

For the financial year 2022, the company reported a revenue growth of 30% YoY and a profit growth of 33.3% YoY. This was primarily due to the demand for micro crystalline cellulose (MCC) that stayed strong across end-user industries all-round the year.

Its RoE and RoCE stand strong at 23.6% and 26.5%, respectively. The company also has a low debt to equity ratio of 0.15x.

The company listed on the bourses in November 2021. The purpose of the IPO was to fund capital expenditure for expansion of production capacity for MCC at its Dahej and Jhagadia plants and to manufacture Croscarmellose Sodium at the Kurnool plant.

To know more about the company, check out the company factsheet and latest quarterly results.

#4 DHP

Fourth on the list is DHP.

The company manufactures engineering goods like LPG Regulators & accessories and related brass items from its certified factory in West Bengal.

It sells its products in the domestic as well as export markets. In fact, exports account for 86% of its total revenue.

In the last five years, DHP's revenue has grown at a CAGR of 21% while net profit has grown at a CAGR of 31%. The company's revenue also grew 70% YoY during the financial year 2022 while net profit grew 56% YoY.

DHP has a healthy RoE at 27.5% and RoCE at 35.7%. The company is also debt free.

To know more about the company, check out the company factsheet and latest quarterly results.

#5 Diamines

Last on our list is Diamines.

The company has been the sole manufacturer of ethylene amines in the Indian subcontinent for more than two decades. The company has also invested in wind turbines.

Ethylene amine is a building block of many related industries such as paints and adhesives, chemical syntheses, lube oil additives. Its geographical position also offers added advantage

Diamines has seen its revenue grown at a CAGR of 14% in the last five years and its profit grow at a CAGR of 28%.

For the financial year 2022, the company reported a 5% YoY increase in revenue on the back of subdued demand while its net profit fell due to higher operating expenses.

However, Diamines has strong return ratios of RoE at 18% and RoCE at 23.9%. The company has reduced its debt and is almost debt free.

To know more about the company, check out the company factsheet and latest quarterly results.

Things to keep in mind while investing in microcap stocks...

When you are looking to invest your money in microcap stocks, it is crucial that you understand a little about the market. Microcap stocks offer many opportunities for investment since they often provide returns that dwarf most large caps.

However, since they have a small market cap they are extremely volatile and hence require investors to have a higher tolerance for risk.

Before investing in any stock, one must check whether the company has a strong balance sheet.

Next, check for future growth opportunities. Favourable government policies or good order book status are some indicators you can look at.

Finally, check for feasibility of business. The more viable the business, the longer it will last.

Investing in microcap stocks is not rocket science. However, it requires you to practice caution.

To know more, check out the video below by Richa Agarwal, Editor of the smallcap recommendation service, Hidden Treasure, where she reveals her pick of top microcap stocks in this market.

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...

FAQs

1) Are microcap stocks a good investment?

If you're looking for a way to diversify your portfolio and have an appetite for slightly more risk, then microcap stocks may be a good choice for you.

Microcap stocks offer many opportunities for investment since they often provide returns that dwarf most large caps.

However, since they have a low market capitalization, they are extremely volatile and hence require investors to have a higher tolerance for risk.

Microcap stocks can be good investments if you're willing to take on more risk in exchange for potentially higher returns. However, if you prefer lower risk investments then this may not be the right option for you.

For more, check out Equitymaster's asset allocation guide which explains how to allocate your equity investments so as to achieve optimum returns from them.

2) What are microcap stocks?

A microcap stock is a publicly traded company that has a market capitalisation which is lower than small, mid, and large-cap stocks.

While the stocks which rank below 250 on marketcap are all considered smallcap, there is an index which distinguishes small-caps and microcaps.

It's the Nifty Microcap 250 index.

This index has the top 250 companies beyond the NSE Nifty 500 index.

It's made up of microcap companies ranked from 501 to 750, based on of their average full market capitalisation.

3) How much should you invest in microcap stocks?

That depends on an investor's risk appetite.

Investors must be aware that microcap stocks can be extremely volatile and may be subject to fraud or manipulation by insiders. While they offer many opportunities for investment since they often provide returns that dwarf most large caps, they also require high tolerance for risk.

It's very typical for a good microcap stock to turn a multibagger in a matter of months. But before investing in any stock, one must check whether the company has a strong balance sheet.

Investing in microcap stocks is not rocket science. However, it requires you to practice caution.

Invest only that amount of money in microcap stocks that you are prepared to lose.