A study by ETMarkets shows that FY23 had at least 116 smallcap companies with EPS growth of more than 100%. Out of them, at least 11 companies reported an EPS explosion of more than 1,000%.
On top of the list is telecom player Vindhya Telelinks which saw its EPS or earnings per share exploding to 9,488% to Rs 156.37. Its profit also zoomed 3 times to Rs 142.27 crore in FY23. The stock has already more than doubled investor wealth in a year’s time.
Multibagger stock Ramky Infrastructure also saw EPS catapulting 4,729% to Rs 164.83 with multi-fold increase in profit in FY23.
Other top EPS gainers on the list are Taj GVK Hotels, Zen Technologies, Timex Group India, Speciality Restaurants, The Phoenix Mills, Butterfly Gandhimathi Appliances, Tasty Bite Eatables and Raymond.
Among these 116 companies, 32 have given multibagger returns in the last one year with Apar Industries stock going up 4 times, followed by Anant Raj (227%), Safari Industries (219%), Waaree Renewable (210%) and Neuland Laboratories (196%).A high EPS growth, however, doesn’t necessarily mean high returns as 11 such stocks like TeamLease Services, Sterlite Technologies and Bata India have given negative returns in the last one year.
What should investors do?
Smaller companies with rapid growth rates are more likely to become multibaggers as they have more headroom for growth and a favorable low base effect for stock returns.
A recent study done by a team of analysts at Goldman Sachs shows that multibaggers in India usually have high realized growth rates, high capital return ratios, mid/small-cap bias, inexpensive starting valuations, domestic sector orientation and high promoter holding.
“While market cap categorizations and thresholds vary over time, about 70% of the multibaggers belonged in the bottom 250 of the NSE 500 constituents in their initial year (typically smallcaps) and only 12% belonged in the top 100 NSE 500 constituents (largecaps), suggesting multibaggers historically have been dominated by small and midcap stocks,” Goldman said.
Investors note that with the broader market underperforming, a time correction has happened in many smallcap stocks making them more attractive than ever.
“Small and midcaps will be driving the Indian markets for the foreseeable future. If you see, the decadal story, it’s about consumption and manufacturing, and it’s in the small and midcap space where we have players poised to benefit. Pharma, textiles and chemicals are the players we are leaning toward in this space for the long term,” said Sreeram Ramdas, Vice President at Green Portfolio PMS.
Domestic brokerage firm Prabhudas Lilladher has picked Apar Industries, Astar DM Healthcare, Chalet Hotels, Nazara Technologies, Prince Pipes and Fittings, PVR Inox and VIP Industries among its top picks in the smallcap space.
“We continue to believe that Capital Goods, Defence, QSR, Retail, Travel and Hospitals are structural themes. Domestic demand-centric segments like FMCG, Auto, building materials etc will gain traction as cooling off inflation revives demand in rural India and bottom end of urban India,” it said.
Mutual fund data shows that the top 10 smallcap picks in May were Suzlon Energy, Mazagon Dock, Amara Raja Batteries, RBL Bank, Raymond, Birlasoft, Cochin Shipyard, Jubilant Ingrevia, Exide Industries and Kalyan Jewellers.
(Data inputs: Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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