Top 5 Undervalued Smallcap Stocks to Watch out for in 2025

As we approach 2025, the investment landscape is buzzing with potential, especially within the realm of small-cap stocks.

These companies are often overlooked by mainstream analysts, yet they can offer remarkable growth opportunities.

In fact, small-cap stocks have historically outperformed their larger counterparts during bull markets, driven by their agility and potential for rapid expansion.

According to recent market trends, the small-cap segment has seen a resurgence, with the Nifty Smallcap 250 Index delivering a staggering return of over 60% in the past year.

This renewed interest comes at a time when many small-cap stocks remain undervalued, presenting an enticing proposition for discerning investors.

With many companies poised for recovery and growth, now is the perfect time to explore hidden gems that could significantly enhance your portfolio.

In this article, we'll delve into five undervalued small-cap stocks that are well-positioned to capitalise on emerging market trends and demonstrate strong fundamentals.

These companies not only have solid financials but also operate in sectors ripe for growth.

#1 Control Print

First in our list is Control Print.

Control Print Ltd is involved in development, research, manufacturing, and marketing of printing machines, spare parts, consumables (fluids) and associated services.

Company's manufacturing facility for printers and consumables are located at Nalagarh (Himachal Pradesh) and Guwahati (Assam) respectively.

Control Print Financial Snapshot (2020-24)

	FY20	FY21	FY22	FY23	FY24
Revenue Growth (%)	12%	5%	26%	19%	18%
Gross Profit Margin (%)	63%	61%	60%	60%	59%
Operating Profit Margin (%)	24%	24%	23%	25%	24%
Net Profit Margin (%)	13%	14%	16%	17%	15%
Return on Capital Employed (%)	19%	17%	19%	23%	24%
Return on Equity (%)	13%	13%	16%	18%	16%

Data Source: Ace Equity

Coming to its financials, Control Print reported an increase in revenue by 17% YoY to Rs 978 m in Q1FY25, supported by growing share of consumable sales during the year.

In terms of revenue breakdown, consumables contributed to 66%, printers to 14%, spares to 7%, and service income to 13%. The company sold 622 printers during the quarter, which is similar to the previous year.

In the sugar, plywood, cement, and laminates sectors, there is ongoing consolidation of market share. The food, pipes, cement, FMCG, and beverages segments continue to drive good sales for the company's printers and consumables.

The gross profit increased by 21.2% year over year, with the gross profit margin expanding to 61.2% from 59.1% year over year.

Operating profit (EBITDA) came in at Rs. 205 m, down 1.3% YoY with margins at 20.9% versus 24.8% (YoY). Also, net profit was down 19.5% YoY coming in at Rs 117 m, with a margin of 11.9% versus 17.3% (YoY).

The company's profitability decreased due to cash burn from the acquisition of CP Italia.

However, the company has been experiencing growth in market share, especially in consumables and spares/services.

Control Print currently holds a 19-20% market share in India and serves over 2,600 pin codes across the country.

Looking ahead to FY25, the management aims to achieve strong sales growth and higher market share by focusing on larger accounts and key verticals.

They plan to achieve this through initiatives such as new product launches, targeted marketing plans, dedicated internal teams to generate new leads, and direct sales to small customers.

Additionally, the company aims to expand its global market access, particularly in the Middle East, Africa, and Asia, through organic and inorganic routes.

Furthermore, the company has acquired assets of V-Shapes S.r.l. to enter the packaging monodose market and expects this investment to yield meaningful results within 2 years.

The revenue target for FY25 stands at Rs 4 bn, as a strong pipeline of orders is expected to materialise this quarter. The management has also indicated that gross margins are expected to be maintained going forward.

To know more about the company, you can have look at its factsheet and quarterly results.

#2 EMS

Second in our list is EMS.

EMS Limited is a multi-disciplinary EPC company, headquartered in Delhi that specialises in providing turnkey services in water and wastewater collection, treatment, and disposal.

EMS provides complete, single-source services from engineering and design to construction and installation of water, wastewater and domestic waste treatment facilities.

The company provides Sewage solutions, Water Supply Systems, Water and Waste Treatment Plants, Electrical Transmission and Distribution, Road and Allied works, operation and maintenance of Wastewater Scheme Projects (WWSPs) and Water Supply Scheme Projects (WSSPs) for government authorities/bodies.

EMS Financial Snapshot (2020-24)

	FY20	FY21	FY22	FY23	FY24
Revenue Growth (%)	NA	2%	9%	50%	47%
Operating Profit Margin (%)	30%	30%	31%	28%	26%
Net Profit Margin (%)	22%	22%	22%	20%	19%
Return on Capital Employed (%)	NA	37%	33%	33%	29%
Return on Equity (%)	31%	24%	21%	22%	19%

Data Source: Ace Equity

Coming to its financials, In Q1 FY25, Revenue from operations surged by 49.5% to Rs 2 bn, up from Rs 1.4 bn YoY.

Operating profit also showed significant improvement, reaching Rs 525.3 m, reflecting a 57.1% increase from Rs 334.3 m in Q1 FY24.

EMS reported a consolidated net profit after tax of Rs 371.6 m, marking a 63.1% increase compared to Rs 227.8 m in Q1 FY24.

EMS secured three significant projects despite ongoing elections in Q4 FY24, including a project in Vikas Nagar valued at over Rs 5,300 m, a project in Dehradun worth Rs 1,410 m, and another in Uttar Pradesh valued at approximately Rs 1.2 bn.

The current unexecuted order book exceeds Rs 18 bn, and the bid pipeline exceeds Rs 40 bn, with expectations of converting 10-15% into orders within one to two months.

Although participation in tenders slowed due to elections, recent successes indicate a recovery. The company plans to venture into the real estate sector as an EPC contractor by collaborating with real estate developers.

Looking ahead, the management is optimistic about significant growth in the water sector, driven by government initiatives and budgetary allocations.

The management is confident in maintaining operating margins of 24-26% by selectively choosing projects, particularly in the HAM model, while ensuring strong margins in road EPC and maintaining a focus on the water sector.

The projected revenue growth for FY25 is around 25-30%, targeting approximately Rs 10 bn. The company will continue to focus on maintaining high margins while expanding the order book and exploring new project opportunities.

To know more about the company, you can have look at its factsheet and quarterly results.

#3 Flair Writing Industries

Incorporated in 1976, Flair Writing Industries (Flair) is engaged in developing and manufacturing writing instruments

It's among the top 3 players in the overall writing instruments industry with a 9% market share in India and a 7% export market share as of FY23.

Flair Writing Industries Financial Snapshot (2020-24)

	FY20	FY21	FY22	FY23	FY24
Revenue Growth (%)	-5%	-50%	92%	63%	2%
Gross Profit Margin (%)	48%	44%	46%	45%	49%
Operating Profit Margin (%)	16%	8%	17%	19%	19%
Net Profit Margin (%)	7%	NA	10%	12%	13%
Return on Capital Employed (%)	18%	3%	20%	34%	23%
Return on Equity (%)	15%	NA	17%	26%	13%

Data Source: Ace Equity

In Q1 FY25, the company reported a marginal 0.2% YoY increase in revenue from operations, reaching Rs 2.4 bn.

In the pen segment, revenue was Rs 1.9 bn, contributing 81% to the total revenue. The segment was impacted by phased elections and school closures due to heat waves, but demand started to pick up in the latter half of the quarter.

Revenue in the creative segment grew by 21.4% YoY to Rs 370 m, driven by 16 new product launches. Own brands in this segment grew by 7% YoY.

The steel bottle segment saw a significant revenue surge of 116% YoY to Rs 80 m, supported by aggressive scaling and a growing order book.

The gross profit for the quarter was Rs 1.2 bn, with a gross profit margin of 49.7%. Operating profit stood at Rs 420 m, resulting in an operating margin of 17%.

The profit after tax reached Rs 262 m, with a profit after tax margin of 10.6%.

The company is strategically enhancing its in-house manufacturing capabilities to improve margins and expand its distribution network.

Collaboration products with Disney are expected to further enhance growth in Q2 FY25. Additionally, seven new variants were launched, enhancing product offerings and driving design innovation.

The company anticipates significant contribution from this segment in FY25, with promising month-on-month revenue growth trends.

The management remains optimistic about achieving a 19.5% EBITDA margin in the upcoming quarters, supported by strong demand in the pen segment and high growth potential in both the creative and steel bottle segments.

Plans are underway to enhance distribution and market presence, particularly in modern trade and e-commerce for steel bottles.

Management expects to achieve better realisation per piece through the successful execution of premiumisation strategies, maintaining or increasing ASPs despite competitive pressures.

To know more about the company, you can have look at its factsheet and quarterly results.

#4 Maharashtra Seamless

Incorporated in 1988, Maharashtra Seamless Ltd (MSL) manufactures seamless pipes & tubes, ERW pipes. It is also in the business of renewable power generation and rig operations. MSL is a part of the D P Jindal Group.

Company manufactures MS Black ERW pipes and Galvanized ERW pipes in various sizes, grades and specifications. ERW pipes have various applications like fencing, line pipe, scaffolding etc. It has also developed a renewable power portfolio.

Maharashtra Seamless Financial Snapshot (2020-24)

	FY20	FY21	FY22	FY23	FY24
Revenue Growth (%)	-13%	-13%	82%	36%	-5%
Gross Profit Margin (%)	39%	40%	32%	35%	39%
Operating Profit Margin (%)	19%	19%	14%	18%	22%
Net Profit Margin (%)	4%	5%	16%	13%	18%
Return on Capital Employed (%)	11%	9%	12%	20%	23%
Return on Equity (%)	4%	4%	17%	16%	17%

Data Source: Ace Equity

In the June 2024 quarter, Maharashtra Seamless Ltd experienced a 5.9% YoY decline in revenue, amounting to Rs 11.5 bn.

Although production volumes remained steady in Q1FY25, sales were impacted by disruptions and strong competition from Chinese imports.

In terms of segments, the seamless pipes segment contributed to two-thirds of the operating profit, while 10.3% came from ERW pipes, 13.5% from renewable energy, and the remaining 9.5% from rig.

Export percentages decreased from 25-30% to below 10% due to increased competition. The company holds a 55% market share in the seamless pipes segment and an 18% market share in the high frequency ERW pipes segment.

The operating profit was reported at Rs. 1.9 bn, reflecting a 31.7% YoY decrease, with margins at 10.8% compared to 19.9% in the previous year.

The lower operating profit margins were attributed to factors such as operating deleverage, higher costs of raw materials, and stiff competition from Chinese imports.

Net profit also declined by 37.6% YoY, totalling Rs. 1.3 bn, with a margin of 11.7% versus 17.6% in the previous year.

As of 25 July 2024, the company's order book stood at Rs 18.1 bn, with 50% of the orders coming from only two clients, ONGC and Oil India, indicating a high revenue concentration.

The company has allocated approximately Rs 8.5 bn in capital expenditure over three years from FY24 to FY26 to meet the growing order book.

Looking ahead, the management reiterates that there is strong demand for capital goods and infrastructure in general, specifically in the oil and gas sector, which directly impacts the seamless pipes market.

The management also anticipates that margins are expected to remain above Rs 15,000 per tonne for seamless pipes and in the range of Rs 6,000-7,000 per tonne for the ERW business.

To know more about the company, you can have look at its factsheet and quarterly results.

#5 Mayur Uniquoters

Mayur Uniquoters Ltd (MUL) is primarily engaged in the business of manufacturing of Coated Textile Fabrics, artificial leather and PVC Vinyl which are widely used in different segments such as footwear, furnishings, automotive OEM, and the automotive replacement market.

MUL has a diversified clientele across various industries and caters to the synthetic leather requirements of reputed players like Maruti Suzuki, Tata Motors, Mahindra & Mahindra, MG Motors, Honda Motorcycles, Bata, Relaxo, VKC, Paragon, Baggit, etc.

Generally, MUL sells its products to approved vendors of the OEMs, which in turn, supply the products to OEMs. MUL is one of the few approved vendors in Asia by global automotive OEMs, i.e., Ford (the US), Chrysler (the US), and Mercedes Benz (South Africa).

Mayur Uniquoters Financial Snapshot (2020-24)

	FY20	FY21	FY22	FY23	FY24
Revenue Growth (%)	-10%	-3%	26%	21%	0%
Gross Profit Margin (%)	41%	44%	37%	38%	40%
Operating Profit Margin (%)	21%	24%	18%	19%	20%
Net Profit Margin (%)	16%	18%	13%	14%	16%
Return on Capital Employed (%)	18%	18%	16%	18%	19%
Return on Equity (%)	14%	14%	12%	14%	14%

Data Source: Ace Equity

Mayur Uniquoters reported a revenue of Rs 2.1 bn, up 6.1% YoY for 1QFY25. The volume for the quarter was 71.31 m meters compared to 70.4 m meters YoY.

The export share in the revenue was 35%, with export OEMs contributing 21% and domestic OEMs contributing 39% to the revenue.

The EBITDA came in at Rs 482 m, up 22.2% YoY, with margins at 22.6% versus 19.6% YoY. The increase in margins was due to the product mix with a higher share of domestic OEM business and export business, along with cost control measures.

Higher other income was offset by increased tax expense YoY, resulting in a net profit of Rs 374 m, up 22.4% YoY, and a net profit margin at 17.5% versus 15.2% YoY.

Mayur is acquiring industrial land in Mexico for warehouse and manufacturing facilities to cater to US OEM customers. This will entail an investment of Rs 2 bn for a 6 m meters capacity.

The PU facility utilisation remains low at 20% due to competition from cheaper Chinese products and manipulation (under invoicing amid 10-12% import duty), resulting in losses.

The company is exploring tie-ups with foreign brands in footwear and leather goods to boost utilisation without compromising margins, and the management is hopeful of gains from this in a year.

Its footwear segment has seen short-term disruption due to the adoption of Bureau of Indian Standards (BIS) standards, leading to low inventory keeping.

Going forward, high growth is expected in export OEMs bodes well for margin supplies for this largest synthetic leather making company in India.

To know more about the company, you can have look at its factsheet and quarterly results.

Conclusion

As we navigate through 2025, the potential of undervalued small-cap stocks is undeniable, with many positioned to thrive in a recovering market. While the recent performance of the Nifty Smallcap 250 Index is encouraging, it's essential to remain cautious.

The small-cap segment can be highly volatile, and not all companies will emerge as winners; some may struggle to capitalise on the opportunities ahead or face challenges that could hinder their growth.

In the quest for growth, it's imperative to evaluate each opportunity judiciously. Stay conscious of market trends, financial health, and broader economic indicators.

By balancing optimism with careful analysis, investors can position themselves to make informed decisions that align with their financial goals.

Remember, in the world of investing, knowledge and prudence are your best allies.

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...