Best small-cap IT stocks in India to add to your watchlist in 2024

Best Small Cap IT Stocks: Artificial intelligence, machine learning and cloud platforms. These three words are used aggressively in one key sector: A field that has supported the world with intangible infrastructure. What if you haven’t guessed yet? Then we are talking about Information technology sector.

Today we will look for some of the undiscovered gems that may have monetary value worth adding to the market. We’ll take a look at some of the best small-cap IT stocks with great returns and stable double-digit margins.

Best small cap IT stocks in India

Let’s take a look at what they do and what industries they operate in. Since many of these companies bring in foreign currency to fill India’s reserves, we will also look at the distribution of foreign currency earnings of these companies. Watch until the end to learn more about this gem.

Best Small Cap IT Stock #1 – Computer Age Management Services (CAMS)

All of us who are interested in mutual funds have indirectly benefited from this company.

CAMS has been providing financial infrastructure and services to mutual funds and other financial institutions for more than 25 years.

It is the leading registration and transfer agency (RTA) for the Indian mutual fund industry, accounting for ~69% of average assets under management (AUM) as of June 2023.

The company operates its data centers on a fully virtualized hyper-converged infrastructure (HCI), building and hosting hundreds of applications and APIs. BI platform supports mutual fund industry analysis.

In addition to providing RTA services to the mutual fund industry, CAMS also provides various other services through its subsidiaries.

1. CAMS Investor Services: Maintain investors’ KYC records in a central database, reducing the need for repeat KYC.
2. CAMS Insurance Store: Provides storage services for the insurance industry.
3. Campaign: It provides technology and infrastructure to facilitate payments to mutual funds, insurance providers and other NBFCs.
4. CAMS pin serve: This is an RBI-licensed account aggregator that simplifies online asset information sharing between Financial Information Users (FIUs) and Financial Information Providers (FIPs).
5. pintuple: It is a new generation startup providing technology services such as digital client onboarding, eKYC, fund reports and other digital solutions to AIF & PMS.
6. Consider Analytics India: A full-stack data science and AI-focused company focused on creative and innovative solutions using AI/ML and mobile cloud computing.

The company recorded an 8% increase in net sales at Rs. 927 Cr in FY22 to Rs. 999 Cr in FY23. However, due to sharp rise in costs, net profit declined by 1% to Rs 287 Cr in FY22 to Rs. FY23 has 285 Cr. Staff costs and other operating expenses account for 35.86% and 11.24% of revenue, respectively.

Best Small Cap IT Stock #2 – Cigniti Technologies

Cigniti Technologies is a global IT company providing end-to-end digital transformation services. The company offers four main services: Quality Engineering, Digital Assurance and Engineering, adviceand conversion.

Digital Transformation – Companies focused on IP and platform approaches blue swan & Jastra. BlueSwan is a digital assurance platform and Zastra focuses on providing an enterprise-grade annotation and collaboration platform for computer vision projects.

This company was founded in 1998 by Mr. Founded by CV Subramanyam. At that time, it was initially called Chakkilam Infotech. It was listed on the Indian Exchange in 2004, and its name was changed to Cigniti in 2012.

The company has served more than 4,200 customers, including more than 60 Fortune 500 companies. These customers come from industries such as aviation, banking, telecommunications, logistics, etc.

Cigniti has several strong partnerships with other IT companies such as Microsoft, AWS, Oracle, Broadcom, Microfocus, UiPath, etc. These partnerships allow Cigniti to obtain industry-specific data from other platforms.

Cigniti reported revenue of Rs. 1662 Cr in FY23, up 32% from Rs. 1255Cr. During the same period, net profit increased by 83% (83%). 92 Cr in FY22 to Rs. FY23 has 168Cr.

Costs decreased slightly compared to sales growth, resulting in high profit growth. The company continued to lower employee costs from 68% of revenue in FY18 to 59% in FY23.

Best Small Cap IT Stock #3 – Happiest Hearts

Happiest Minds Technologies is another digital innovation company on our list. The company leverages artificial intelligence, blockchain, cloud, digital process automation, and the Internet of Things to create advanced platforms and other technologies for its customers.

Headquartered in India, the company has offices in the US, UK, Canada, Australia and the Middle East. This is a relatively small company, founded in 2012. We currently have 237 active customers, 55 of whom are Fortune 2000 members.

The company derives most of its revenue from: Building cloud infrastructure (46.9%) next SaaS development or software as a service. An additional 20.1% is added. security, AI, IoTetc. contribute another 33% of revenue.

Here is a breakdown of Happiest Mind’s revenue streams:

Although the company operates in a variety of industries, its top customers alone bring in 13% of its revenue. The top 10 clients bring in approximately 42% of the revenue. This increases the risk of revenue contribution. The company needs to expand its business and acquire new customers to reduce its exposure.

Happiest Minds reported net revenue of Rs. 1450 Cr, up 28% from Rs. 1,131 Cr in FY 2022. The company’s net profit remained at the same rate of 27%, increasing from Rs. 181 Cr in FY22 to Rs. 231Cr in FY231.

Best Small Cap IT Stock #4 – Zensar Technologies

Zensar Technologies Ltd, an RPG group company led by billionaire Harsh Goenka. Headquartered in Pune, the company has a customer workforce of over 10,500 people serving over 145 global clients.

The company, which has more than 37 offices globally, generates approximately 71% of its sales from North America, with the UK and Europe bringing in an additional 18.1% of its sales, and South Africa bringing in 11.2%.

Unlike other companies on the list, Zensar focuses on three industries: these are High-tech and manufacturing, banking, financial services insuranceand consumer service.

The services provided by the company are as follows.

The company’s business can be divided into two specific segments:

1. Digital and application services: This includes services such as custom application management, maintenance support, modernization, and testing services. This is the core business, accounting for 83.36% of the company’s sales.
2. Digital-based services: This includes infrastructure management services, building digital workplaces, and building platforms for automation and machine learning. This segment accounts for the remaining 18.64% of revenue.

Zensar earned a revenue of Rs. 4951 Cr in FY23, up 13% from Rs. 4382 Cr in FY22. During this period, the company’s net profit decreased by 22% to 20 billion won. 422 Cr in FY22 to Rs. 328Cr in FY23.

The decrease in net profit was due to a decrease in operating profit margin, which fell 400 Bps compared to the previous year. A closer look at the financials shows that employee profits have increased from 61% to 64%.

Best Small Cap IT Stock #5 – Affl (India)

Affl is a global technology company building a platform that converts ads into recommendations. These platforms help businesses identify, engage, and acquire customers, making these platforms effective tools for expanding revenue.

Affle (India)’s parent company was founded in Singapore in 2005. The company started by launching a mobile media platform that offered browser-style functionality via SMS. This was followed by Pinch, a cross-messaging platform built in 2010.

Over the years, the company has evolved its technology to build multiple platforms to help businesses better address the market. The company has built a platform that: Appendix, Zamp, mas, FaaS, Media Smart, Emtraction Enterprises, RevX, Bizzuriand You.APPI.

The company has a presence in Southeast Asia (SEA), Middle East and Africa (MEA), North America, Jakarta, Japan, Korea and Australia. Affl earned 32.9% of its FY23 revenue from India, with the remainder collectively earned from its entire International Business Combined.

Affle (India) reported a 29% increase in sales this year from Rs. 1153 Cr in FY22 to Rs. 1488Cr in FY23. During the same period, net profit increased by 14% to 30 billion won. 215 Cr in FY22 to Rs. 245Cr in FY23.

However, the stock currently trades at a P/E ratio of 60x, which is quite high for a company with earnings growth of just 14%.

List of Best Small Cap IT Stocks in India

The list below is a compilation of the 10 best small-cap IT stocks.

conclusion

The IT sector will continue to remain the backbone of the global economy, and India will continue to extend its decade-long dominance in this sector with its vast expertise and talent. However, giants like TCS and Infosys have already realized value and can continue their slow and steady growth trajectory. However, it is these small-cap stocks that, with the right management, can scale to capture a significant portion of the IT pie. That’s why we thought of helping you discover these stocks at an early stage.

So which stocks do you think have the most potential? Want to add another stock to our list? Let us know in the comments below.

Written by Nasir Hussein

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