by In this article, we will discuss, 6 BEST SMALL CAP Stocks India which can be potential multi-bagger stocks, all 6 of them are growth stocks. This article is for you only if your risk appetite is high and if you believe in growth investing.
However, one caution, small-cap are generally high risk, high return stories with a huge risk factor hence proper portfolio allocation is very important.
These are the best stocks for long-term investment. Risk-averse investors can conveniently ignore them never invest in the stock market in one go. SIP is the best route for periodic investment.
Read the whole article peacefully till the end to understand the story of these 6 small caps stocks and you can comment on one of these 6 stocks of the stock market whose detailed fundamental analysis you want. All you have to do is mentioned the company name in the comments.
6 BEST SMALL CAP Stocks India
6 BEST SMALL CAP Stocks India which can become MULTI-BAGGER Stocks in upcoming years are as follows:
1. India Pesticides
- The first stock is an agrochemical small-cap share with a 4000 Cr Market Cap.
- This company is mainly into technicals, formulation, and a bit of API for pharma companies.
- 78% of the revenue of this company comes from technicals, which is the chemical composition of the end product.
- 22% of their revenues come from formulations which more or less represents the end product.
- This company has a strong R&D focus with 2 in-house laboratories.
- Hence they can focus on high-margin products.
- 56% of their revenues come from export to 25 countries.
- They have customers like UPL. Syngenta, Sharda Crop chem etc.
- They have 2 manufacturing facilities in Hardoi and Lucknow.
- In 5 years 19 technicals are going to go off patents, meaning their patents will expire.
- This represents a big market opportunity for them.
- They are going to increase manufacturing in the Hardoi plant from 21K MT to 30K MT.
Risk Factors
- There are a few industry risk like, Monsoon dependency, seasonality, counterfeit products, sourcing raw material from china.
- This company has specific risks too there is a rising trend of bio-pesticides in agro chemical industry because they are less harmful and less toxic however, they do not cater to this segment.
- Genetically modified crops are also a threat as they are more pest-resistant.
- They have customer concentration risk to with 19% revenue from one customer.
- These are the risk which one investor should be aware about.
Financials and Valuation
- They have strong financials with ROE & ROCE > 40%.
- OPM of 28% and 3 year PAT CAGR of 60%.
- Currently, it is trading around PE multiples of 30. When I compare to same to other Agrochemical companies,
- PI Industries trading around multiples of 65 and Sumitomo chemicals is trading around 64 PE multiples
2. JK Laxmi Cement
- Our Next company is 7000 Cr Cement Sector Small-cap stock.
- They have had a production capacity of 13.3 MTPA for years.
- However, they expanding same to 16.4 MTPA through one of its subsidiaries.
- This 1400 Cr CAPEX is an ambitious and bold statement for a 400 Cr turnover company with 101% Capacity utilization,
- there is a clear demand for cement in the market for this company.
- Hence capacity expansion is a necessary step.
- For any Cement Sector Stock, energy or power is a big cost head to control same they have captive power plants which are in-house.
- They use a Waste Heat recovery system to reuse heat energy for power generation.
- Additional capacity commissioning this year of WHRS will lead to additional cost savings for this company.
Financials & Valuation
- Their realizations have improved too from 4017/tonne to 4556/tonne.
- Their EBITDA/Tonne has also more or less doubled in the last few years from 431/tonne to 911/tonne.
- The cement sector is a clear beneficiary of govt initiatives like Housing for all and infrastructure push.
- In TTM this stock has shown 74% Profit and 8% sales growth which is a phenomenal number.
- Their ROE/ROCE is around 22% and OPM is around 20%.
- They are trading at a PE Multiple of 19 against Ambuja (28) and Ultratech (39).
Risk Factors
- There can be a risk of debt of books due to CAPEX which is, in turn, an overall risk.
- This can hamper the profitability too in the short run.
- PET coke raw material price fluctuation can be a risk too.
- Their long-term story is very promising.
3. MTAR Technologies
- Our next company will be a technology company that creates mission-critical components.
- This company works in the precision engineering space.
- They make components that require a lot of precision and accuracy.
- This is a super-specialized skill that cannot be easily replicated.
- This is the economic MOAT of the company.
- Economic is something that gives stock or a company advantage over the competition.
- Their deep expertise in precision engineering acts as an economic moat for them.
- They operate in Defence, clean energy, nuclear, and space projects.
- Their projects are of national importance.
- They are a clear beneficiary of govt initiatives like atmanirbahar Bharat and make in India.
Financials and Valuation
- Financially, their ROE is 13%, ROCE is 19% ROCE, and OPM of 33%.
- 100% 3 year PAT CAGR.
So far we have covered 3 small-cap shares don’t forget to comment for the company whose fundamental analysis you would like to know.
Disclaimer: This video is for educational purposes only and not a recommendation in any form. Please consult your financial advisor before any investment decisions.
4. AARTI Drugs
- The next Stock is a 6000 Cr Market Cap company in the Pharma API space.
- API or Active Pharma Ingredient which is the main component in medicine constitutes 80% of their revenues.
- Formulation represents more or less end product which contributes 11% of revenue.
- 34% of their business comes from export.
- Increasing healthcare focus by many countries after the pandemic is going to benefit pharma companies a lot.
- They have 12 manufacturing facilities, export to 100 countries, 50 API molecules, and 8- finished products.
- This is a good scale for a small-cap company.
- They have a good customer list too like Cipla, Sun Pharma, Abbot, etc.
- If these pharma stocks do well, then this will be a clear beneficiary of their growth.
- They have expanded their capacities by 3x in the last 6 years from 15K MTPA in 2015 to 47 MTPA in 2021.
- Expansion in API requires a high gestation period and expertise.
- This creates an entry barrier for the competition.
- This acts as an economic moat for this company.
Financials and Valuation
- They have 34% ROCE and ROE in their financials is very good.
- PEG ratio of 0.72 and OPM of 20% are very good.
- They generate 10% Free cash flow from invested capital.
- Their 3 year Sales CAGR is 20%.
- 3 year PAT CAGR is 50%.
Risk Factors
- They have de-growth in sales and profit from last 3 quarters.
- This can be a cause of concern hence keep a close watch on upcoming Quarters’ results.
- However, Pharma sector growth will mean growth of aarti drugs share long term growth.
- Comment below if you think the Pharma sector will perform well in the coming years.
5. Kei Industries
- Our next company is 6000 Cr Small Cap Share in Cables and Wires.
- They also operate in EPC solutions in India and Abroad.
- EPC solutions basically focus on rural electrification, power transmission for their B2B client.
- 18% of their revenues come from export which is a positive thing.
- This company is a leading high voltage cable manufacturer.
- Their products growth is directly related to an economy facing sector growth like oil and gas, railways, power, and cement.
- They have 5 manufacturing plants, 1500+ B2B customers, and 1600+ Dealer & distributor networks.
- 23% revenue contribution from top 10 customers show low concentration which is a positive sign.
- Overall this is a well-diversified company.
- In the coming years, they will focus on the business of FMEG goods.
- Something similar to Polycab.
Financials and Valuation
- Their 3 years PAT CAGR is 24%.
- Their last 12 months show a dip in sales which we can attribute to Covid.
- Their financial parameters are strong too with 16% ROE, 21% ROCE.
- P/E ratio of 0.16 and 9% Free cash flow generation.
- This was Kei industries analysis and Kei Industries future growth prospects.
6. Orient Electric
- The last company is 7000 Cr small consumer electrical goods company.
- They deal in fans, lighting, home appliances, and switch gears.
- One factor that differentiates them is their focus on smart and innovative products.
- Example: Fans with inverter technology, energy-saving products,
- LED lights with less flicker which is less harmful to eyes, IoT enabled water heaters to focus on smart products like these.
- They have a 50% premium fans market share and 65% of revenues come from fans.
- They focus a lot on brand-building exercises too with 2.9% of revenue spend on advertising.
Financials and Valuation
- Financially they have a ROCE of 35%, ROE is 29%, and P/E of 0.13.
- Currently, it is trading at a P/E multiple of 61 which matches fairly with the competition.
- Their profit increase from 12 Cr in Mar17 to 120 Cr in Mar’21 is phenomenal.
If you want to see orient electric share review or orient electric stock analysis don’t forget to comment for orient electric stock.
If you have liked this 6 BEST SMALL CAP Stocks India article don’t forget to check 7 Midcap Multi-bagger Stocks or Top 3 AI Stocks in India. You will like both of them. I hope you found this insight to be useful and meaningful. One should follow the Risk Management, Money Management, and Fear and Greed concept of the market to avoid big losses.
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