These 5 Smallcaps have Rallied More than 300% in 2023. Will their Dream Run End in 2024?

Recently, we wrote to you about the biggest gainers of 2023 in the stock market.

That list of stocks were from the BSE 100 index. In other words, we focused on well-known stocks in that article.

In this article, we will look at the top gainers from the smallcap space.

Many smallcap stocks were able to deliver multibagger gains in 2023. But there were a few which have rallied over 300% so far this year.

Let's take a look at these top performing small-cap stocks of 2023 and how they are set up for 2024.

#1 Jai Balaji Industries Ltd (1,031%)

Jai Balaji Industries is a manufacturing company part of the Jai Balaji group. It's engaged in the business of value added steel products. It's based in Kolkata, India.

The company has eight integrated steel manufacturing units spread across India with a combined capacity of 27,40,000+ tonnes per annum.

It's major products are DRI (sponge iron), pig iron, ferro alloys, alloy and mild steel billets, reinforcement steel TMT bars, wire rods, ductile iron pipes, and alloy and mild steel heavy rounds.

It's sales have doubled over the last four years. The company returned to profitability in FY22 after a few difficult years. In FY23, the net profit increased 20%. The business is low margin in nature.

The company does not pay any dividends. It's debt is on the higher side with a debt to equity ratio of 1.2 in FY23.

The stock is the only 10+ bagger on this list. It's the clear winner among smallcaps when it comes to returns in 2023.

The stock was trading around Rs 55 per share at the start 2023. It had a relentless rally from the end of June when it was trading at about Rs 75 per share to over Rs 600 per share, in less than four months.

In early 2023, the company's marketcap was under Rs billion (bn) 1. It's now just under Rs 10 bn. The stock is trading at a PE ratio of almost 25 and a PB ratio of almost 10.

#2 Lloyds Enterprises Ltd (498%)

Lloyds Enterprises (Shree Global Tradefin) is in the business of metal trading, mainly iron and steel.

The company is engaged in importing, exporting and dealing in iron and steel, alloy steel scrap, steel tubes, pipes and wires.

It also to carry on the investment in companies and to acquire and hold and otherwise deal in shares, stock, debentures and other securities.

The company seems to be in the middle of a turnaround with sales and profits recovering over the last two years. However the company is yet to find its feet.

On the plus side, its debt levels are negligible and has a good dividend payout ratio (28.3% in FY23).

#3 Aurionpro Solutions Ltd (327%)

Founded in 1997, Aurionpro Solutions is an IT company based in Navi Mumbai, India.

It's major verticals of operations are banking, mobility, payments, and government. It's a key player in the Indian government's Smart Mobility initiative.

The company has over 2,000 employees, with a presence in 14 countries, serving over 100 clients. It's among the few listed Indian IT firms that derive most of its revenue (67%) from India. As per it's June 2023 quarter presentation, it has a 12 month executable order book of more than Rs 8 bn.

The management has worked on developing in-house intellectual property (IP) to remain globally competitive in their chosen verticals.

The company's revenue and profit growth over the last few years have been steady but not very impressive. The financials took a big hit during covid but has since recovered strongly.

It's margins and return ratios have risen above the pre-covid financials. The company has minimal debt and pays a small dividend.

#4 Avantel (314%)

Avantel has been one of the most popular multibaggers in recent times. It's also among the best defence stocks in India.

Avantel is engaged in the business of designing, developing and maintaining wireless and satellite communication products, defence electronics, radar systems and development of network management software applications.

It has an established track record of over two decades in the electronics and telecom equipment business. This enables the company to offer a unique combination of embedded systems and related software used in the defence sector, as well as RF systems used in the civilian telecom segment.

In fact, a majority of its customers are from the aerospace and defence sectors.

The stock has been in the news recently for a 2:1 bonus issue, i.e., shareholders will get 2 bonus shares for every 1 share held.

It's September quarter results were good. It reported net sales of Rs 540 million (m) compared to Rs 360 m in same quarter a year ago while net profit rose to Rs 170 m compared with Rs 70 m in September 2022.

Operating margins also shot up to 47% compared with 29% in September 2022 and 22% in June 2023.

Apart from positives of defence budget allocations, Avantel continues to thrive from the positive developments in the space sector.

The company's management has said the Indian National Space Promotion and Authorization Center and Indian Space Association (ISpA) have received great interest in non-government entities participation in the Indian Space technology domain.

#5 Magellanic Cloud Ltd (305%)

Magellanic Cloud based in Hyderabad India, is a holding company that was formerly known as South Indian Projects Ltd. It's listed on the BSE but not on the NSE.

The company has invested in various companies that are operating in cloud computing, digital services, surveillance systems, as well as drone manufacturing and allied services.

The company was in the news earlier this year for a major funding raising exercise via preferential issue to increase the authorised share capital from Rs 0.55 bn to Rs 1.75 bn.

The company seems to be in investment mode and pays very little dividend. It's debt to equity ratio of 0.5% isn't high but isn't comfortable either. On the other hand, its return ratios, well above 20%, offers some comfort.

Revenues have doubled over the last two years and profits have jumped multiple times. However, this is on a low base. The company hasn't established itself yet. Looking at the financials, it doesn't seem like the company's investment phase is going to end soon.

Conclusion

Smallcaps have been on a roll in 2023. These stocks have delivered returns higher than midcaps and largecaps. However that has come with higher levels of volatility.

The entire smallcap space has boomed and retail investors have jumped on the bandwagon. However, there are ample signs of caution on the horizon.

We leave you with what Richa Agrawal, our smallcap editor, wrote in the Profit Hunter recently...

• I'm very bullish on the Indian economy and the long term wealth generation potential in stock markets. But the journey to the next peak is not going to be straight.
  
  The stock markets have only one constant - It moves in cycles. And this rally would not be an exception.
  
  Currently, the Smallcap to Sensex ratio is at 0.58 times. This is the level at which smallcaps peaked in January 2018. That peak was followed by over 40% crash in the smallcap index.
  
  hould you ignore smallcaps and wait for a correction?
  
  Well, I have never believed in timing the markets. In one of the previous peaks for smallcaps in last two decades, the smallcap to Sensex ratio was at over 0.7x.
  
  If smallcap rally sustains until that ratio, there could be 20% more room for smallcap index to rise from current levels, before a reversal.
  
  Keeping the noise aside, when I'm looking at smallcap space, I would like to be invested in the companies that I can see bigger and stronger 10 years from now.

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...