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  • Oct 1, 2023 - Top 5 Fundamentally Strong Smallcap Stocks to Watch Out for in 2024

Top 5 Fundamentally Strong Smallcap Stocks to Watch Out for in 2024

Oct 1, 2023

Top 5 Fundamentally Strong Smallcap Stocks to Watch Out in 2024

Small-cap stocks are attractive to investors because of the potential for high returns.

But to navigate this terrain successfully, it is important to seek out small-cap stocks with strong business fundamentals, so they can withstand the test of time.

Keeping that in mind, let's look at 5 fundamentally strong small-cap stocks that could thrive in 2024.


#1 Dhanuka Agritech

Dhanuka Agritech is one of India's leading agri-input (pesticides and chemicals) companies.

The company's portfolio spans a wide range of crop protection products such as herbicides (accounting for 39% of the total revenues in 2023), insecticides (29%), fungicides (20%), and plant growth regulators (12%).

The company also provides specialised fertilisers and seeds to cater to the diverse needs of farmers and maximise crop yields.

It enjoys a long-standing tie-up with global innovators such as Nissan Chemicals, FMC Corporation etc.

Recently, Dhanuka Agritech set up a technical manufacturing plant that will provide raw material security and the benefit of backward integration in the form of lower raw material costs.

Moreover, it will reduce the company's import dependence by 20-25%, helping it boost margins going forward.

The agro player has a long history of strong growth in sales and profits. Between 2019-23, the sales and net profits have grown at a CAGR of 12.3% and 13.1%, respectively.

Dhanuka Agritech Financial Snapshot (2019-23)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 4.94% 11.50% 24.10% 6.35% 15.46%
Operating Profit Margin (%) 16.64% 17.73% 20.15% 18.96% 17.99%
Net Profit Margin (%) 11.19% 12.62% 14.01% 13.32% 12.98%
Return on Capital Employed(%) 23.80% 26.41% 37.86% 31.83% 30.20%
Return on Equity (%) 17.65% 20.94% 28.00% 23.78% 23.10%
Data Source: Ace Equity

The returns have been robust. The 5-year average RoE and RoCE stand at 22% and 30%, respectively, backed by a debt-free, cash-rich balance sheet.

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

#2 Accelya Solutions

Next on our list is Accelya Solutions.

Accelya Solutions is a software solutions provider to the global airline and travel industry.

The company enjoys a large global footprint with operations spanning 11 countries. It accounts for and manages over 5 bn financial transactions and 75 m tons of cargo on an annual basis.

Most of the business comes from its 250 airline customers, travel agents and shippers worldwide.

With strategic partnerships and alliances with established associations, Accelya caters to a niche segment.

It derives a large chunk of its revenues from the airline vertical, which is expected to grow on a strong footing.

Additionally, the company's order accounting platform is likely to benefit from the system being adopted by the airlines, referred to as One Order.

One Order aims to replace the current booking (PNRs) and ticketing records and combine those multiple records into a single retail and customer-focused order.

The business has been erratic owing to the travel disruption caused by the pandemic. However, since then the business has been growing on a strong footing.

Accelya Solutions Financial Snapshot (2019-23)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 13.20% -4.85% -29.53% 26.87% 27.31%
Operating Profit Margin (%) 41.27% 38.43% 33.13% 38.57% 40.00%
Net Profit Margin (%) 24.57% 21.07% 14.53% 20.68% 24.90%
Return on Capital Employed(%) 85.90% 56.92% 25.75% 42.56% 56.10%
Return on Equity (%) 56.41% 39.25% 17.46% 30.40% 44.00%
Data Source: Ace Equity

Between 2021-2023, the sales and net profit have grown at a CAGR of 4.2% and 7.3%, respectively.

The returns for this travel tech company have been robust, with the RoE and RoCE averaging 37.5% and 53.7%, respectively.

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

#3 Navneet Education

Third on our list is Navneet Education.

Navneet Education is a leading manufacturer of Maharashtra and Gujarat state board publication books and stationery products. It enjoys a dominant market share of 65% in western India.

Apart from the domestic market, the company has a large export segment (about 25% of sales in financial year 2022). It exports stationery to over 30 countries across the globe.

Navneet has invested in K12 (22% stake in K12), an education service provider. The K12 education model provides elementary education to students from kindergarten to 12th grade through its brand 'Orchids, the international school'.

The group is expanding faster than peers and gaining prominence in the EdTech space by delivering high-quality education services that leverage the latest advancements in technology.

Navneet Education Financial Snapshot (2019-23)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 18.97% 4.96% -44.72% 33.59% 51.05%
Operating Profit Margin (%) 20.01% 22.34% 12.22% 16.38% 18.53%
Net Profit Margin (%) 10.19% 13.05% 6.36% 6.67% 12.01%
Return on Capital Employed(%) 24.15% 26.13% 9.40% 13.99% 25.03%
Return on Equity (%) 19.08% 23.86% 5.92% 7.92% 19.42%
Data Source: Ace Equity

Between 2019-23, the company's sales and net profit have registered a CAGR of 6.9% and 9.8%, respectively. It's returns have also been admirable, with a 5-year RoE and RoCE of 15.2% and 19.7%, respectively.

Going ahead, Navneet aims to transform in line with ever-evolving trends and build a strong presence in the EdTech domain by leveraging the core competence of existing businesses. The company envisions a growth rate of 15-16% for the fiscal year 2024.

Navneet Education recently announced that it's amalgamating it's step-down subsidiary and demerging the ed-tech business of Navneet Futuretech into Navneet Education.

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

#4 PSP Projects

Fourth on our list is PSP Projects.

PSP Projects is a construction company, with diverse construction and allied services. It offers a wide range of services across all kinds of construction projects in India.

The company caters to different segments like industrial, institutional, government and residential.

PSP Projects is known for its timely execution and ability to bid for high-value projects.

The company recently set up a manufacturing plant for concrete and allied elements with a total capital outlay of around Rs 1.1 bn.

In the past few months, PSP Projects has received multiple long term orders. This has helped the company build a healthy pipeline of orders amounting to approximately Rs 53 bn, a 15% growth from the same quarter in the last year.

PSP Projects Financial Snapshot (2019-23)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 39.30% 41.96% -17.45% 40.74% 10.91%
Operating Profit Margin (%) 16.31% 14.34% 12.22% 16.03% 13.16%
Net Profit Margin (%) 8.48% 8.55% 6.72% 9.51% 6.95%
Return on Capital Employed(%) 40.16% 40.30% 21.83% 35.28% 24.83%
Return on Equity (%) 26.57% 31.14% 16.84% 27.19% 18.10%
Data Source: Ace Equity

Between 2019-23, the sales have registered a 5-year CAGR of 20.5%. The net profit has grown by 15.3% over the same period.

This has led to strong returns with a 5-year average RoE and RoCE of 32.4% and 23.9% and helped the company maintain a pristine balance sheet with negligible debt.

The business prospects remain strong backed by execution capabilities, uptick in the infra and capex cycle and a strong balance sheet.

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

#5 Transpek Industry

Last on our list is Transpek Industry.

Transpek Industry is a chemical player in India. The company, a part of Excel group of companies, manufactures and exports a range of chemicals.

It caters to a diverse range of industries including textiles, pharmaceuticals, agrochemicals, and advanced polymers.

The company's niche is in making products using chlorinated chemistry. Over the years, it has developed an edge in making acid and alkyl chlorides and is now one of the largest players in the field.

Now the company is working on the pipeline of new products in chlorine and non-chlorine chemistry. It sees a strong opportunity in multi synthesis products.

Transpek has undertaken a capex of Rs 300 m to replace an old plant to accommodate new products for which the demand is expected to be higher. Along with the focus on new products, there is good visibility in growth.

Additionally, the company is expanding its global presence and collaborating with new clients in Japan, South America, and Turkey.

Transpek Financial Snapshot (2019-23)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 65.11% -4.79% -38.83% 76.00% 34.57%
Operating Profit Margin (%) 22.61% 23.90% 18.98% 20.76% 19.92%
Net Profit Margin (%) 11.06% 12.89% 6.87% 10.91% 10.08%
Return on Capital Employed(%) 26.57% 24.27% 7.81% 17.43% 20.66%
Return on Equity (%) 23.55% 22.45% 6.49% 15.14% 15.59%
Data Source: Ace Equity

Between 2019-23, the sales and net profit have registered a CAGR of 17.8% and 25.8%, respectively. The returns have been admirable, with a 5-year RoE and RoCE of 19.3% and 16.6%, respectively.

Going forward, the growth prospects remain strong as Transpek's products find applications in electric vehicles (EV) and defence applications.

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

Conclusion

Before you invest your hard earned money in smallcap stocks, it's important to do your own research and understand the risks involved.

Moreover, bear in mind that the upcoming year 2024, being an election year, introduces an element of uncertainty. These events usually add volatility to the stock markets.

Changes in government policies and regulations resulting from the elections tend to impact the business environment, potentially affecting the performance of companies.

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

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