Potential Multibaggers: 3 Small Caps With “Highest” Profit Margins!
When someone is looking for potential multi-baggers, their hunting ground is often the small cap space. These companies are relatively very small, which gives them the inherent advantage of growing exponentially compared to already large companies.
However, it is difficult to screen out these high-quality small cap stocks because they have relatively little experience in different market cycles, limited financial data, inexperienced management, etc. To make it easier for you, I’ve listed some of the highest quality small caps in their industry that are miles ahead of their peers.
The criteria for selecting these stocks is, firstly, to avoid any junk stock/penny stock or shell company, these stocks have been reduced from . The second check on the quality front is their FY22 profit margins. The three stocks discussed below recorded the highest PAT margins for fiscal year 22 of the 100 list.
Limited Central Depository Services
Central Depository Services India Ltd (NS:) is the first stock on the list. It is a registered custodian with a market capitalization of INR 12,567 crore and is one of only two such entities in India. This industry is a duopoly market which makes CDSL a no-brainer for investors who are optimistic about the growing participation of retail investors in the stock market over the next few years.
The company grew its net profit at an annual rate of 29.39% (last 5 years CAGR), which led to the highest ever net profit of INR 311.18 crore in FY22. It is one of the very few small cap stocks where FIIs have a stake as high as 15.76%. Net profit margin for FY22 was 51.36%, which is the highest of the 100 companies in the Smallcap 100 Index.
Limited Easy Trip Planners
Easy Trip Planners Ltd (NS:) is an India-based online travel agency that provides a full range of travel-related products and services for end-to-end travel solutions including air tickets, hotels and vacation packages. The company has a market capitalization of INR 8,499 crore and trades at a P/E of 80.26 which is a bit higher.
The higher valuations are also supported by strong earnings, with the company posting a net profit of INR 105.9 crore in FY22, which was just INR 4 lacs in FY18. Over the past 5 years, market share has also increased exponentially from 0.46% to 9.37% and profit margins for FY22 were recorded at 42.4%. As the Covid-19 pandemic appears to be over, increased travel would further help the company reach new heights.
UTI Asset Management Company Limited
UTI Asset Management Co Ltd (NS:) is a large INR 9,599 crore asset management company. It is also the holding company of UTI Venture Funds Management Company, which manages venture capital funds and UTIInternational Ltd, which markets offshore funds to overseas investors. The company also trades at a lucrative 2.78% dividend yield, which is rare to see in a small cap.
Speaking of financial performance, the company recorded a net revenue of INR 1,327.27 crore in FY22 out of which it managed to deliver a net profit of INR 534.29 crore, which gives him a profit margin of 40.25%. The FIIs hold a high stake of 29.28% in the company, which further boosts confidence in the company’s management and future prospects.