Best small-cap stocks with high net profit margins

Best small-cap stocks with high net profit margins: Investing in the stock market can be quite a tricky business. The number of ratios to analyze and compare with your peers can be quite overwhelming. Isn’t it? So if you were asked to pick one metric to pick out a few bad apples from the good ones, what would it be?

our choice is Net profit margin. These margins give you an idea of ​​what percentage of profits the company takes home. Although this may not be the best indicator to use for stock picking, it is useful for screening and shortlisting companies.

So today we’ll take a look at the five best small-cap stocks with the highest net profit margins. We will understand what they do, with a particular focus on their revenue streams. Then we’ll look at the costs to understand what they’re spending and finally we’ll look at what the net profit is and what the margins are.

Tata Investment Corporation (TICL)

Tata Investment Corporation Limited (TICL), formerly known as The Investment Corp of India, is an NBFC arm of the Tata Group. TICL is promoted by Tata Sons Pvt. Ltd. was established in 1937. It was established as a venture capital fund to make long-term investments in small businesses and turn them into successful ventures.

TICL is owned by Ceat Ltd, National Rayon Corp and Associated Bearing Co. Ltd., has played a promotional role in setting up renowned companies. All these companies are currently listed on the stock exchange.

Tata Sons, along with other Tata companies, holds approximately 73.38% of the paid-up capital of TICL. The company is also a co-promoter (32% ownership) of Tata AMC and a sponsor of Tata Mutual Fund.

TICL currently manages a portfolio of 87 companies worth Rs. 3000Cr. Collectively referred to as book value. As of March 31, 2023, the approximate market valuation of these companies is Rs. 20,700 Cr.

TICL reported revenue growth of 9.34%, up from Rs. 254 Cr in FY22 to Rs. 278 Cr in FY 2023. Dividend income from investments accounted for 62.54% of the company’s profits. Net gains from investment sales accounted for approximately 23.65% of revenues, and interest income accounted for 13.6%.

The company has a very lean operating structure, and its largest operating expense is employee benefits, accounting for 5.02% of revenue. Because of this, the company is reporting a high net profit margin of 90.8%. The company’s net profit increased by 17.38% from Rs. 214 Cr in FY22 to Rs. 278 Cr in FY 2023.

summit securities

Summit Securities Limited, formerly known as RPG Itochu Finance Ltd, is an RBI registered NBFC. Our company was established as a public company on January 30, 1997.

The company underwent a merger to form Brabourne Enterprises Ltd, Octav Investments and CHI Investments. In 2009, all of the companies merged to form Summit Securities.

Summit Securities has an investment portfolio consisting of a variety of listed and unlisted securities holdings. As of March 31, 2023, it has assets worth Rs. 5612 Cr, an increase of 14.47% from Rs. 4903 Cr in FY23.

The company’s largest holding is KEC International, which is worth Rs. 2303 Cr followed by Ceat worth Rs. 1883 Cr and Zensar Technologies worth Rs. 1213Cr. These three companies collectively contribute approximately 96% of the total investment value held by Summit Securities.

The company earned a revenue of Rs. 50 Cr in FY22, down 32.74% from Rs. 75 Cr in FY22. The reason for the decrease is that dividend income, which contributes 91.67% of net sales, decreased by 23.68%.

Net profit decreased by 27.09% due to decreased sales. 51 Cr in FY22 to Rs. 37Cr in FY23. The negative growth rate in profits remained slower than revenue as the company was able to cut employee benefits and other costs.

The corporate structure as an investment company allows Summit Securities to maintain a high net profit margin of 73.3%. However, the company has terrible ROE and ROCE of 0.77% and 0.98% respectively.

Indian Energy Exchange (IEX)

Indian Energy Exchange is the only energy market in India to offer a nationwide automated trading platform. The platform allows physical delivery of electricity, renewable energy and certificates. In FY23, IEX recorded a trading volume of 96.8 billion units.

IEX has a strong ecosystem of over 7,500 participants across 28 states and 8 union territories. They consist of more than 60 distribution utilities, more than 600 conventional generators, and more than 1,800 RE generators and mandated agencies.

It also has a strong base of over 4600 commercial and industrial consumers representing industries such as metals, food processing, textiles, cement, ceramics, chemicals, automotive, information technology industries, institutions, residential, real estate and commercial organizations.

In addition to owning India’s only energy exchange, IEX also diversified with the establishment of the Indian Gas Exchange (IGX), creating India’s first automated exchange to facilitate trading and delivery of natural gas. As of FY23, IGX facilitated the trading of over 50 million British Thermal Units.

The company has also recently ventured into cross-border power trading to expand power markets beyond India, creating an integrated South Asian power market.

IEX reported operating revenue of Rs. 401 Cr in FY23, down 7% from Rs. 431 Cr in FY22. The decline in revenue was the result of a 5% decline in IEX’s overall trading volume. Net sales for FY23 were around ₹474 Cr, which includes other income of ₹73 Cr.

The company’s net profit declined by 0.92% at Rs. 309 Cr in FY22 to Rs. 306Cr in FY23. This placed the company in third place with a consolidated net profit margin of 64.52%.

Pilani Investment Industries Corporation

Pilani is an investment firm based in Kolkata, West Bengal. The company is also an NBFC registered with RBI. PICL holds majority of its investments in Aditya Birla Group.

The investment company holds assets worth 50 million won. 10,274 Cr as on March 31, 2023. Among these, the company holds the largest stakes in the following four sectors:

1. Grasim – Rs. 4035 Chrome (39.27%)
2. Ultratech Cement – ​​Rs. 2,660Cr (25.89%)
3. Century Textiles – 1387 Cr (12.52%)
4. Hindalco – Rs. 1210Cr (11.78%)

The market value of PICL’s stake in these companies and how it compares to the company’s total investment book is shown above.

PICL earned a profit of Rs. 280 Cr in FY23, an increase of 8.46% from Rs. 258Cr in FY22. 80.57% of revenue came from interest income, an increase of 8.98%. Dividend income brought in 18.37% of profits.

For the year, the company recorded a 22% increase in net profit to KRW 150 million. 201 Cr in FY22 to Rs. 246Cr in FY23. Financial costs were the largest cost, accounting for 23.24% of the company’s sales.

The company maintains an operating profit margin of 75.7% and a net profit margin of 58.13%. However, the return on equity is still low at 8.76%.

I’m not

NESCO is a diversified Indian conglomerate spanning across engineering, real estate, hospitality and events. The company began its journey in 1939 when its founder Shri JV Patel established Standard Engineering Company (SEC).

In 1956, Burjorji Pestonji & Son took over the company and it was renamed New Standard Engineering. The company later entered the real estate business. In 1992, he established the Bombay Exhibition Center (BEC), India’s largest private exhibition centre. In 2001, the company finally rebranded itself as Nesco, retaining the name today.

NESCO earned a profit of Rs. 609 Cr in FY23, an increase of 59.32% from Rs. 382 Cr in FY22. This is due to an eight-fold increase in BEC’s rental income. The company’s net profit increased at a similar rate of 53.63%, up from Rs. 189 Cr in FY22 to Rs. 290 Cr in FY23.

NESCO currently derives significant revenue from revenues from IT Park and BEC. Together, they contribute approximately 74% of the company’s net sales. The engineering segment accounts for only 7.64% of the company’s revenue.

The company can maintain an operating profit margin of 69.45% and a net profit margin of 47.7%. NESCO is able to maintain high margins as a result of its business model. The company cash cow, Invest a minimum amount to reap rewards from previous investments and promote growth.

List of small-cap stocks with high net profit margins

The list below contains 10 small-cap stocks with high net profit margins.

conclusion

As we conclude our article on the best small-cap stocks with high net profit margins, most of the companies featured on today’s list are core investments. They earn significant amounts of money in the form of dividends and interest income by holding shares in other companies for long periods of time. Most of their spending is for employees who are literally just pocket money compared to what the company earns.

If an investor is planning to invest in these companies, it is important to check how their portfolio and investments have performed historically. Investing in them is no different from investing in a mutual fund or a ready-made basket of stocks.

The last company on the list is similar to investing in an investment trust. The company has assets that can generate steady income in the form of rental yields. These assets also require less maintenance, allowing for higher margins.

So, we think this list of small-cap stocks is a good pick for passive investors, but you’ll have to keep an eye on earnings growth. As revenue increases, profits also increase proportionately. So what’s your favorite from this list of stocks? Want us to cover other small-cap stocks? Let us know in the comments below.

Written by Nasir Hussein

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