Table of Contents
What is a small-cap stock?
Small-cap stocks are publicly traded companies with market capitalizations of less than Rs.1,000 crore but greater than Rs.1 crore. Due to the high volatility of these companies stock prices, some companies in the small-cap universe or small-cap indexes may have market capitalizations much greater than this range at any given time.
Small-cap refers to companies that are neither large nor mid-cap. Smallcaps have a market value of less than Rs.1,000 crore. This classification is subject to change in response to changes in a company’s market value. The term “market capitalization” refers to the market value of a company’s outstanding shares.
However, the classification is also contingent on a company’s position in leading indices like the Sensex and Nifty. For example, companies ranked 251–500 on the Nifty Index are considered small-cap companies. In India, the Nifty also features a benchmark small-cap index called the Nifty Smallcap 50, which includes the market’s top 50 most actively traded small-cap stocks.
Why Small-Cap companies?
Each large or mid-cap firm began as a small-cap company, and those who build their business and sustain their profits can only graduate and climb the ladder from small to mid-cap/large-cap companies. In comparison to larger organizations, the majority of small-cap enterprises have low sales and a tiny workforce.
However, while these businesses have a significant potential for growth, they also entail a larger risk. Generally, aggressive and risk-tolerant investors go toward small-cap companies in search of large returns.
How to pick an eligible small-cap company?
Market Size:
Small-cap companies are typically focused on a single product or service line. It is critical to understand the overall market size of the business in which a company operates, as well as the company’s presence in that market. This will provide you with a wide overview of the company’s position in relation to the market size of its business. A specialized market position or the creation of entry barriers can have a substantial impact on the company’s valuation.
Financial Capability:
This is a common criterion that investors should consider before investing in any business. While small-cap companies often do not generate as much revenue as large-cap or mid-cap companies, they can survive and perform better than their peers if their balance sheet is healthy with adequate cash flows and low debt. Therefore, regardless of the size of the firm, it is critical to invest in financially secure enterprises that have a strong potential for future growth.
Top & Bottom line:
It is critical to review the historical performance of small-cap companies. These businesses should have a solid track record for at least the last five years. For instance, examine the company’s five-year CAGR increase in sales and profit and compare it to that of its peers. This will provide insight into how that company has done in comparison to its peers. A business that regularly increases its sales and earnings eventually gives investors higher returns.
Last but not the least, the most important aspect!
Ethical Management:
Each company’s management is critical in determining the company’s destiny. Prior to investing in a small-cap firm, it is prudent to do a thorough examination of its management history and any possible lapses committed in the past. As we have seen, a large number of small businesses and even some larger ones fall victim to inadequate corporate governance and financial statement inflation. Additionally, avoid companies who are embroiled in legal/regulatory fights. Small-cap companies frequently succumb to such regulatory hurdles, and it is advisable to avoid such situations.
Pros of Investing in a Small-Cap company:
Potential:
As said earlier, Every large-cap company was once upon a time a small-cap company. Investing in a well-managed, futurist small-cap company is like investing in the future.
Small-cap companies exhibit much greater growth potential than larger companies. Most small-cap companies have more room for future growth than large-cap companies, which makes them more appealing to investors.
Unrecognized gem!
In comparison to large and mid-cap corporations, information concerning small-cap stocks is more difficult to come by. Due to the fact that analysts often pay minimal attention to these companies, there is a strong probability of small-cap stocks being mispriced. This condition presents enormous chances for investors to profit from market inefficiencies and earn a high rate of return on their investments.
Not easily tampered with:
Financial organizations, including mutual and hedge funds, must adhere to various restrictions that prohibit them from making significant investments in small-cap stocks. As a result, it is improbable that the stock price will be artificially inflated as a result of significant investments by major financial institutions. Obviously, we can’t completely deny the impact the operators hold on these Small-cap companies.
Cons of Investing in a Small-Cap company:
Risky bets!
Investing in small-cap stocks entails a greater degree of risk. To begin with, small-cap enterprises may be operating under an unreliable and flawed business strategy. In this instance, if management is unable to modify the business model, negative operational and financial performance will occur.
Additionally, small-cap enterprises typically have fewer access to new cash and finance sources. As a result, it is more probable that the company will be unable to close cash flow gaps or expand the business due to an inability to make critical investments.
Patience & Commitment:
Investing in small-cap companies can be a lengthy process. Due to financial institutions and analysts under the coverage of small-cap equities, the amount of research accessible on small-cap businesses is typically restricted.
An investor considering investing in small-cap stocks should devote considerable effort to analyzing the firm in order to determine whether the investment is reasonable.
Liquidity Crunch:
Small-cap equities trade at a lower price point than their large-cap counterparts. Due to a lack of liquidity, the stock may be unavailable at a favorable price for purchase or it may be difficult to sell the stock at a fair price. Low liquidity also adds to the stock’s overall risk.
Best Small-Cap Stocks to Buy Now in India: (Dated August 2022)
| S.No. | Name | Mar Cap Rs.Cr. | ROCE 5Yr % | ROE 5Yr % | P/E | EV / EBITDA | PB X PE | PEG | Debt / Eq | Int Coverage | ROCE % | ROE % | ROIC % | ROA 12M % | EPS 12M Rs. |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | Add-Shop E-Retail Ltd | 293.14 | 30.74 | 29.23 | 17.75 | 13.48 | 182.83 | - | 0.26 | 17.53 | 45.27 | 46.66 | 28.6 | 19.68 | 8.56 |
| 2 | Ajanta Soya Ltd | 455.88 | 24.06 | 15.99 | 10.23 | 6.8 | 43.78 | 0.26 | 0.01 | 59.51 | 60.23 | 37.15 | 39.02 | 17.88 | 27.64 |
| 3 | Associated Alcohols & Breweries Ltd | 981.96 | 32.22 | 24.92 | 15.5 | 9 | 60.45 | 0.49 | 0.04 | 59.24 | 34.04 | 25.93 | 23.46 | 19.21 | 35.03 |
| 4 | Avantel Ltd | 300.84 | 28.25 | 22.04 | 17.47 | 10.79 | 73.55 | 0.19 | 0 | 15.1 | 33.94 | 26 | 25.86 | 19.96 | 42.5 |
| 5 | Axtel Industries Ltd | 502.33 | 31.18 | 24.4 | 30.97 | 19.49 | 218.03 | 0.91 | 0.01 | 37.82 | 42.6 | 32.67 | 55.36 | 19.53 | 10.9 |
| 6 | B & A Packaging India Ltd | 105.11 | 27.86 | 22.63 | 9.99 | 6.08 | 22.58 | 0.36 | 0.28 | 14.58 | 34.07 | 25.5 | 18.4 | 16.01 | 21.21 |
| 7 | Bajaj Steel Industries Ltd | 474.27 | 23.16 | 24.7 | 6.62 | 3.86 | 18.34 | 0.08 | 0.29 | 11.92 | 48.77 | 47.99 | 34.76 | 20.55 | 137.79 |
| 8 | CG-VAK Software & Exports Ltd | 152.47 | 21.92 | 15.94 | 20.77 | 12.11 | 88.48 | 0.53 | 0.07 | 37.5 | 30.38 | 24.31 | 25.9 | 19.76 | 14.53 |
| 9 | Cupid Ltd | 294.44 | 40.92 | 31.74 | 11.08 | 7.39 | 23.82 | 0.87 | 0.06 | 270.54 | 29.17 | 24.74 | 35.64 | 18.27 | 19.92 |
| 10 | D P Wires Ltd | 428.28 | 25.87 | 21.09 | 14.5 | 10.01 | 45.39 | 0.24 | 0.15 | 24.55 | 28.88 | 21.76 | 19.44 | 17.27 | 21.74 |
| 11 | Everest Organics Ltd | 242.36 | 27.85 | 29.02 | 19.75 | 11.94 | 102.7 | 0.26 | 0.49 | 5.73 | 33.78 | 33.94 | 22.48 | 10.72 | 15.34 |
| 12 | Gujarat Themis Biosyn Ltd | 722.15 | 65.46 | 57.56 | 19.24 | 12.95 | 198.75 | 0.42 | 0.07 | 55.39 | 66.9 | 53.81 | 43.95 | 39.61 | 25.83 |
| 13 | High Energy Batteries (India) Ltd | 343.59 | 24.25 | 27.46 | 16.29 | 11.04 | 133.74 | 0.51 | 0.83 | 6.66 | 43.83 | 55.82 | 27.62 | 21.7 | 117.64 |
| 14 | Jyoti Resins and Adhesives Ltd | 314.82 | 37.52 | 32.06 | 21.47 | 14.49 | 153.73 | 0.18 | 0.01 | 324.67 | 40.36 | 30.83 | 31.76 | 8.43 | 36.65 |
| 15 | Kanchi Karpooram Ltd | 389.91 | 55.7 | 45.41 | 6.03 | 3.78 | 15.08 | 0.04 | 0 | 314.33 | 66.26 | 50.4 | 40.29 | 45.59 | 148.3 |
| 16 | Mangalam Organics Ltd | 733.59 | 43.62 | 42.64 | 7.41 | 4.91 | 18.82 | 0.13 | 0.03 | 177.74 | 49.71 | 40.5 | 30.44 | 32.29 | 115.66 |
| 17 | Prakash Pipes Ltd | 384.46 | - | - | 9.08 | 4.71 | 16.34 | - | 0.03 | 33.99 | 31.65 | 22.11 | 21.51 | 17.04 | 18.39 |
| 18 | Refex Industries Ltd | 283.63 | 44.06 | 52.13 | 6.64 | 4.4 | 13.48 | 0.13 | 0.53 | 6.52 | 44.77 | 38.03 | 33.9 | 17.08 | 20.33 |
| 19 | Seacoast Shipping Services Ltd | 672.68 | 32.37 | 29.69 | 48.12 | 33.95 | 556.75 | 0.16 | 0.41 | 11.88 | 45.65 | 45.77 | 17.98 | 14.58 | 4.15 |
| 20 | Titan Biotech Ltd | 242.88 | 27.87 | 27.77 | 9.41 | 5.89 | 27.57 | 0.12 | 0.16 | 25.62 | 60.57 | 56.64 | 39.77 | 36.15 | 30.85 |
- ROCE % – Return on Capital Employed in percentage, per annum.
- ROE % – Return on Equity in percentage, per-annum.
- P/E – Price to Earnings ratio.
- EV/EBITDA – Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization expenses.
- PEG – Price to Earnings Growth ratio.
- ROCE 5 Years – Return on Capital Employed in percentage, 5 years average.
- ROE 5 Years – Return on Equity in percentage, 5 years average.
Add-Shop E-Retail Ltd
Add-shop was founded in 2015 with the mission of providing the best in global ayurvedic, personal care, and agricultural products. With a hallmark of unmatched product quality, Add-shop meets the emerging healthcare needs of millions of households and adds additional mileage to India’s developing animal feed supplement market.
Ajanta Soya Ltd
Mr. Sushil Kumar Goyal and his brothers founded Ajanta Soya Ltd. (ASL) on January 13th, 1992. As of March 31, 2021, the promoter group owns 46.85 percent of the firm, and the remaining 53.15 percent is publicly traded. In 1993, the firm was listed on the Bombay Stock Exchange.
The firm manufactures Vanaspati, a variety of refined oils, and shortening goods for bakeries such as biscuits, puffs, and pastries. The company sells its goods under the Dhruv, Anchal, and Parv brand names. They have one production facility in India, located in Bhiwadi, Rajasthan, with a capacity of 1,20,000 metric tonnes per annum (MTPA).
It is an ISO-certified organization.
Associated Alcohols & Breweries Ltd
AABL, headquartered in Indore, is a public limited company and the flagship entity of the late Mr. Bhagwati Prasad Kedia’s Kedia group. Mr. Anand Kedia and Mr. Prasann Kedia, along with their family members and associates, currently own and run the group.
AABL is one of the state’s largest distilleries, producing drinkable alcohols such as RS, ENA, CL, and IMFL.
With a capacity of 450 lakh liters per annum (LLPA), it is installed at Khargone, Madhya Pradesh. In 2009, the Kedia group established MEBL as a brewery unit inside the group. MEBL manufactures beer on a contract basis for United Breweries Limited (UBL). MEBL is equipped with a manufacturing facility in Memdi, MP. The company has a capacity of 10 lakh hectolitres (120 lakh cases) of beer per year.
Avantel Ltd
Avantel Limited was formed as a private limited company on May 30th, 1990 under the name Dialog Communications Private Limited. It was afterward transformed into a public corporation in December 1994 and renamed Avantel Limited in September 2008. Since January 2001, the firm has been listed on the BSE. The company’s registered office, production, and research and development facilities are located in Visakhapatnam, Andhra Pradesh.
The company’s primary clients are in the aerospace and defence sectors. It designs, develops, and maintains wireless and satellite communication devices, defence electronics, radar systems, and network management software applications. Avantel conducts research and development in order to provide creative solutions in connected fields.
Axtel Industries Ltd
Axtel Industries Ltd. (AIL) was founded in 1991 as Advanced Extrafoil Technology and Exports Limited with the objective of manufacturing food processing equipment for solid handling, size reduction, mixing and blending, storage and discharge, and cleaning and grading.
Mr. Ajay Parikh and Mr. Ajay Desai, promoter directors, lead the company’s experienced board of directors. AIL operates out of a single production site in Halol (Gujarat).
AIL offers whole process plants as well as individual pieces of equipment that address requirements throughout the food processing value chain, from raw material receipt to final processing stages. Its products are used in a variety of food processing industries, including confectionery, malted beverages, aquafeed, ready-to-eat meals, bakery and biscuits, dairy products, beverages, instant mixes, and snack foods, spices, sauces, and seasonings.
B & A Packaging India Ltd
The company was founded in 1986 as B&A Sacks Ltd and renamed B&A Multiwall Packaging Ltd in February 1997. In July 2010, the company adopted its current name. BAPIL produces paper bags that are used to package tea, carbon black, and chemicals. Additionally, in April 2012, it established a flexible laminates packaging business in Odisha.
B & A Packaging is a provider of next-generation packaging solutions and is a subsidiary of the B&A Group.
The company has expanded its operations over the years and is now manufacturing a variety of paper bags under the brand name ‘Baggage’ to suit the demands of tea producers, carbon black manufacturers, and other industrial producers. Recently, the company expanded into the flexible laminate market. Its production facility is in Balasore, Odisha, while its corporate headquarters are in Kolkata.
Bajaj Steel Industries Ltd
BSI was founded in 1961 and specializes in the manufacturing of cotton ginning automation and bale pressing technology, as well as spare parts and plastic masterbatches. The company is one of the few players with operations across the whole value chain of the ginning process. Additionally, it sells prefabricated structures and electrical panels. It is headquartered in Nagpur, Maharashtra, and operates four production facilities. In fiscal 2020, the steel and plastics divisions generated approximately 86 percent and 14 percent of revenue, respectively.
In 2012, BSI established Bajaj Coneagle LLC in the United States as a wholly-owned subsidiary. In Uganda, the company owns another wholly-owned subsidiary, Bajaj Steel Industries (U) Ltd, which sells cotton ginning machinery to the country’s cotton development organizations.
Profit after tax (PAT) was Rs 5.9 crore on revenue of Rs 81.9 crore in the first quarter of fiscal 2021, up from Rs 2.9 crore and Rs 96.7 crore in the equivalent period of the previous fiscal.
CG-VAK Software & Exports Ltd
CG-VAK Software and Exports Limited is primarily a software development company. Outsourced software product development services offered by the firm include product life cycle management, product maintenance, product migration, product testing, and technical writing and documentation.
Cupid Ltd
Cupid Limited (a leading manufacturer and supplier of high-quality male condoms, female condoms, and water-based lubricant jelly) was incorporated as a public limited company in 1993 with the Maharashtra Registrar of Companies and was listed on the BSE (Bombay Stock Exchange) in 1995 and the NSE (National Stock Exchange) in 2016.
Cupid’s sophisticated factory currently has an annual capacity of over 480 million male condoms, 52 million female condoms, and 210 million sachets of lubricant jelly. Sinnar, in Nashik, roughly 200 kilometers east of Mumbai, is where the company’s manufacturing site is located.
Cupid Ltd. maintains an active research and development center in addition to its primary manufacturing location. Cupid Ltd collaborates with healthcare professionals, governments, and organizations to promote sexual health and the critical role of condom use in preventing HIV and other STDs. Cupid plays a critical function.
D P Wires Ltd
Founded in February 1998 as a private limited business, DPWL manufactures steel wire and plastic goods such as LRPC strands, steel wires, geomembrane sheets, PE coated and greased strands, and plastic film sheets. The corporation was then transformed into a public limited company in 2017.
The production plant of DPWL is located in Ratlam (Madhya Pradesh) and has an installed capacity of 50000 tonnes per year. DPWL also generates electricity with two wind farms in District Jamnagar, each with a capacity of 0.80 MW. Mr. Praveen Kataria and his family are the promoters of DPWL.
Everest Organics Ltd
Dr. Srihari Raju founded Everest Organics Limited (EOL) in 1993. It began as a private limited business before going public and being listed on the BSE in 1995.
Everest Organics Ltd is a pharmaceutical firm that has been manufacturing Active Pharmaceutical Ingredients (APIs) and Intermediates for the better part of two decades.
Omeprazole, Esomeprazole, Pantoprazole, Chloro compound, and Benzimadizole are among the company’s APIs and intermediates. Its production facility, which has an installed capacity of 720 MTPA, is located in Aroor Village in Telangana’s Medak district. The company is certified to ISO 9001-2008, and the plant is WHO-GMP approved. Additionally, the manufacturing facility was approved by the US Food and Drug Administration in June 2017.
Gujarat Themis Biosyn Ltd
Gujarat Themis Biosyn’s primary business is pharmaceutical and medical chemical manufacturing.
Gujarat Themis Biosyn Limited was founded in 1981 as a joint venture between GIIC Limited and Chemosyn (P) Limited. It began manufacturing in August 1985. In June 1991, it was acquired by the Yuhan Group of South Korea and Pharmaceutical Business Group (India) Ltd. (PBG), a unique partnership of five rival pharmaceutical businesses – Themis Medicare Ltd, Kopran Ltd, Anant & Co, Cadila Health Care Ltd. (Zydus), and Lyka Labs Ltd. Since 2007, it has been actively administered by Themis Medicare Ltd. (a joint venture between Gedeon Richter Ltd. and Gedeon Richter Ltd, Hungary).
The company entered into a technical and financial collaboration with South Korea’s Yuhan Corporation. With Yuhan’s expertise, GTBL became India’s first company to begin commercial production of the anti-tuberculosis medication Rifampicin.
The company did contract work for other pharmaceutical companies for a set fee. This model was modified in 2019. This appears to have altered the margin profile from 18% to 30%.
High Energy Batteries (India) Ltd
HEB was founded in 1979 and is a subsidiary of the Esvin company. It manufactures advanced batteries for the army, navy, air force, and satellite launch vehicles, as well as commercial batteries for auto and standby valve regulated lead acid battery applications. Additionally, the company exports its products to a number of nations, including Sri Lanka, Malaysia, Algeria, and Italy.
The company offers silver-zinc batteries to a variety of defence organizations, including naval defence, the air force, and space research. With little competition in the product it sells, HEB obtains approximately 75% of its revenue from naval defence and holds a market share of 65–70%. HEB is the sole provider of silver-zinc batteries to the Indian navy defence. NSTL generates 51% of FY21 revenue (compared to 24% in FY20), and Advanced System Laboratory generates 10% (24%) of FY21 revenue, Dte. General of Naval Armament generates 7% (18%) of revenue, Brahmos Aerospace Pvt. Ltd. generates 7% (7%) of revenue, and Bharat Dynamics Ltd. generates 6% (7%) of revenue.
Jyoti Resins and Adhesives Ltd
Jyoti Resins and Adhesives is a synthetic resin and adhesive company. The company manufactures a variety of woodworking adhesives under the “EURO 7000” brand name.
In 2006, Jyoti Resins and Adhesives Limited, an ISO 9001:2015 certified company, launched its brand Euro 7000. The company has established a massive plant with a capacity of 1000 tonnes per month in Santej, Ahmedabad. EURO 7000 is India’s leading adhesive brand.
A Research and Development (R & D) team is dedicated solely to improving, innovating, and developing new products. The R & D Division has a completely integrated product development environment that assists the company from conceptual design to final product manufacturing.
Kanchi Karpooram Ltd
KKL was founded in 1991 and specialises in the production of camphor and its byproducts, dipentene, sodium acetate trihydrate, and pine tar. Kanchipuram is home to the company’s production facility. Mr. Suresh Shah and his family are the promoters of the company. On the Bombay Stock Exchange, the company is listed.
Kanchi Karpooram is the first and largest producer of terpenes and paper chemicals in South India. KKL product line includes turpentine-based compounds such as camphor, dipentine, isobornyl acetate, and sodium acetate trihydrate, as well as gum rosin and its derivatives such as Fortified Rosin, Ester Gum, and Phenolic/Maleic Resins. The company is committed to growing and diversifying its customer base in order to provide industries with a stable and consistent supply of inputs from a completely new source. KKL is committed to ensuring the quality of its products, continual innovation, and being a dependable supplier to its customers requirements.
Mangalam Organics Ltd
MOL (previously Allied Collides Pvt Ltd) is a Mumbai-based company that makes and trades specialized specialty chemicals such as camphor, resins, and dipentene. Mr. Kamal Kumar Dujodwala is in charge of operations.
Mangalam Organics Limited (Formerly Dujodwala Products Limited) is a BSE-listed firm (stock code 514418) that specializes in the manufacture of camphor, resin, and sodium acetate. The company has a strong presence in the pine chemicals industry due to its management, which has over 50 years of experience in the field. Mangalam Organics Limited is a government-licensed exporter with clients in Europe, the United States of America, Africa, and the Middle East.
Prakash Pipes Ltd
Prakash Pipes is a manufacturer of PVC pipes and fittings as well as packaging items. It was formed in June 2017 as a result of a reorganization of Prakash Industries Limited.
The Company is being spun off from Prakash Industries. Prakash Industries Limited was dissolved in April 2018 and reorganized as Prakash Pipes Limited. The PVC Pipes business was handed to Prakash Pipes, the demerged corporation. The company issued 2.04 crore equity shares of ten rupees each to PIL’s existing shareholders in an 8:1 ratio.
Refex Industries Ltd
Refex Industries is a company that specializes in the refilling of environmentally friendly refrigerant gases. The company’s portfolio includes refrigerant gas trading and re-filling. Additionally, the company sells electrical energy generated by solar panels, as well as solar accessories and job-related labor.
RIL utilizes sophisticated and unique computer technology to ensure excellent quality control and efficiency. Refex is dedicated to being an industry leader in terms of safety, health and environmental protection, and sustainable development.
The group’s policy is guided by a set of core values that are shared throughout the organization: an entrepreneurial spirit, a commitment to advancement, professionalism, unity, openness, and debate. Refex has been committed to continual improvement for several years, with three primary objectives.
Seacoast Shipping Services Ltd
Seacoast Shipping Services Limited provides exporters and importers with single-window logistical services. Seacoast began in 2005 as a freight forwarder and shipping agent. Today, the company has evolved to become one of Gujarat’s leading freight forwarders.
Specializing in the export of agricultural commodities via containers from Mundra port, SSS Ltd is one of the top three freight forwarders in India.
Titan Biotech Ltd
Titan Biotech Ltd. is a significant manufacturer and supplier of biological products that are used in the pharmaceutical, nutraceutical, food and beverage, biotechnology and fermentation, cosmetic, veterinary, and animal feed industries, among others.
Final Thoughts:
Small-cap stocks should not be seen as dubious or of low quality. On the contrary, small-cap stocks may offer investors a significant rate of return on their investments. However, caution should be exercised while investing in small-cap stocks, as they are frequently hazardous and volatile.
Small-cap investors should always choose an investment strategy that fits their needs and financial situation. Additionally, investors should consider their risk tolerance before investing and arrange their funds appropriately. Individuals who are not well-versed in their market expertise, on the other hand, always have the choice of seeking professional aid.
Small-cap companies and small-cap fund schemes have a favorable risk-reward ratio. Understand what a small-cap fund is and the company’s or scheme’s behavioral characteristics. Investors may diversify their portfolios using small-cap funds but should invest only if their investment objectives correspond with the scheme’s characteristics. Before investing, compare companies and small-cap funds to their peers. Additionally, when it comes to small-cap enterprises, always invest for the long run.
Disclaimer: All the information on this website is published in good faith and for general information purposes only.
