This Smallcap Could Be to Tesla What Foxconn is to Apple

An Indian smallcap company saw its shares jump 66% in the month of June.

Urja Global, a renewable energy developer and operator, with return ratios less than 2% , caught investors' fancy on some very interesting news.

The company had a deal with Tesla Power India, which has its headquarters in the US. The buyers in the stock believed it was the US automaker Tesla.

Except that it wasn't. There was a correction in the stock price when the realisation dawned.

You can't entirely blame the traders and speculators who acted on the news. It would have been a huge deal had it been with Elon Musk's Tesla.

You can blame them for their lack of due diligence. In penny stocks and in a market where smallcaps are touching new highs, traders and speculators don't have the time for it.

But this entire episode made me think.

India is indeed undergoing a manufacturing revolution. PLI schemes, infrastructure creation, subsidies, Make in India, and impetus on localisation...it's a confluence of tailwinds.

India, if not a substitute to China, is a strong contender for second option to be a global manufacturing hub.

Apple is already here.

And Tesla's officials have reportedly visited India recently to set up operations here. They are indeed showing intent for a collaboration. After a courtship period, Musk might commit.

Now that would be really huge. Because it's likely to come with localisation of manufacturing.

As an analyst, I'm keen on finding potential smallcaps that could be to Tesla or to the EV megatrend, what Foxconn is to Apple.

And I believe my team and I have come across an interesting smallcap candidate in this regard.

We recommended this company yesterday under our smallcap recommendation service: Hidden Treasure.

I can't name the stock here, but if you are a subscriber, you can read the report here.

This company is the go-to player for almost all electric 2-wheeler and 3-wheeler OEMs in India.

Ola, Ampere, Hero Electric, TVS, Ather, Okinawa, Bajaj, Mahindra Electric or Kinetic Green...all of them are its clients. In fact, to some of these such as Ola, TVS, it's the sole supplier.

What's more, it enjoys 80% market share in the EV 2-wheeler segment for the niche product it manufactures. Already, its growth in EV segment is 300% in FY23.

In domestic passenger vehicles, its market share is 23% with clients such as Maruti Suzuki, Volkswagen, M&M, to name a few.

While entry of Tesla could potentially leas to a huge asymmetric payoff, I expect this company to do well in any case.

Rarely you find a company in the auto and auto ancillary space with the following traits...

• Market leadership in almost all the segments in which it operates
• Diversification to mitigate both client risk and segment risk
• Strong financials with net cash and best in class ROCE and ROE

The company is also debt free. It works on a lean working capital cycle, averaging less than 20 days. That's a rarity in an auto ancillary firm.

To be honest, I'm not sure if Tesla is indeed coming to India. Or how long they would take. And that's not why I'm recommending this company.

What I really like about it is its EV agnostic product portfolio. There is a potential for an asymmetric payoff if the EV megatrend continues, as well as a downside protection if it doesn't.

What I also like is that if battery chemistry undergoes a huge change, from Lithium to something else, its products would still be relevant and disruption free.

While I have my reservations about directly investing in EV OEMs, I'm quite bullish on the EV ecosystem in India. These are the pick and shovel plays in the EV goldrush.

Intel grew big by suppling processors to PC makers.

Broadcom made a fortune by supplying wireless chips to mobile phone makers.

Nvidia became a giant by suppling GPUs to AI and tech companies.

Foxconn has benefitted from global iPhone sales.

I believe my smallcap recommendation in Hidden Treasure is one such player in the EV ecosystem with very strong prospects.

Stay tuned for more such investing opportunities.

Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Equitymaster Agora Research Private Limited (Research Analyst)