India Inc’s December quarter earnings showed weakening of profit momentum, driven primarily by fading margin tailwinds, coupled with still-recovering demand. However, there were at least 16 companies which reported over 100% growth in both sales and profit on a YoY (year-on-year) basis.

All of these tiny titans are from the smallcap universe and only 2 of them have not given multibagger returns in the last 1 year, shows a study by ETMarkets. For this analysis, we took companies with a market capitalisation of over Rs 500 crore and excluded banking and financial services firms.

Solar EPC player Waaree Renewable Technologies, whose shares have skyrocketed 844% in 1 year, reported 339% YoY rise in sales and 158% profit growth.

Advait Infratech, which migrated to BSE mainboard from SME platform last year, reported 182% growth in sales and 181% rise in profit. The stock is a six-bagger in the last 12 months.

Other little ninjas in the list include Ganesh Housing Corporation, Lloyds Engineering Works, Lloyds Enterprises, Ajmera Realty, EFC, Veritas, Swelect Energy Systems, Algoquant Fintech, Cressanda Railway Solutions, Nintec Systems, W.S. Industries, Vintage Coffee & Beverages and Swadeshi Polytex.

Cressanda Railway Solutions (which changed its name from Cressanda Solutions last year) is the only one in the list to have given negative returns in the last one year. Smallcap Vintage Coffee is the other non-multibagger stock in the list but has outperformed with 83% upside in 1 year.
The earnings of smallcaps and midcaps (SMID) outperformed those of largecaps in the first half of FY24 but the gap is expected to narrow from Q4 onwards and also in FY25 as input price tailwinds fade.

“Their toplines have now converged, but SMIDs’ profit outperformance is still sustaining. We think it’s at the fag end as SMIDs are more sensitive to input prices,” Nuvama Institutional Equities said.

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SMID profit growth outscored that of largecap peers in auto, cement, pharma, and industrials despite much slower/similar top line. IT, metals and PSU banks are the sectors wherein SMID is outpacing large caps even on the demand front, the brokerage said.

Is it just about earnings?

Earnings growth trajectory, no doubt, is important but valuations are equally important criteria while investing. Waaree Renewable, for example, is trading at PE multiple of 105. Valuations of Lloyds Engineering Works, Veritas (India), Advait Infratech, Cressanda and Vintage Coffee are also above 100x.

Many investors, including the legendary Warren Buffett, are waiting on the sidelines to buy wonderful businesses but only at fair prices.

While estimating whether the PE multiple of a particular stock is reasonable or expensive, one should not only compare the data with peers and historical valuations but also look at the runway for growth on a case-to-case basis.

Many Nifty stocks like Nestle and Titan, despite being consistent compounders, have a long history of expensive-looking valuations if you go by PE multiples.

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Kotak Institutional Equities finds most stocks, more so in the smallcap world, in the overvalued category. “The market seems happy to overpay for weak business models in a few cases and unsustainably high profitability in others, which highlights high levels of exuberance (only greed) and low concerns about potential risks (no fear),” said Kotak’s Sanjeev Prasad.

However, there are hardly any reasons to believe that the bull run is going to be hit by a matador anytime this year.

(Data: Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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