Click here For The Full List of Fastest Growing Small Companies 2011
Every investor dreams to have a future Infosys or Titan Industries in her portfolio. But choosing the right gems out of over 5,000 listed companies is no mean task. Take heart, ET Intelligence Group has done the job for you. Here's a list of 100 Fastest Growing Small Companies that could be future giants.
The phrase "nothing succeeds like success" might be a cliché, but when it comes to demonstrating the success nothing quite succeeds like growth. It is the growth in revenues and profitability that validates the correctness of a business strategy or a robust business model. Better still, if this is achieved consistently over a period of time. Both large corporates and the smaller ones have their own set of growth stories. Still the limelight is never the same. Bigger companies are always the ones that are talked of more and corner the bigger share of attention. After all, their growth into biggies has already confirmed their success. However, as they say, 'the great thing in the world is not so much where we stand, as in what direction we are moving.' Going by this logic, we feel it is important to celebrate the growth stories even of smaller companies. They may be standing low on the ladder, if size were a criteria, but their consistent growth indicates that they are moving in the right direction. They hold the potential to become India Inc's poster boys in years to come.
While the ubiquitous disclaimer about future's uncertainties is definitely in order here, we recommend investors cherry pick companies from our list based on their individual research. Such investments could prove immensely fruitful over next the few years.
THE STREET SHOW
Last one year has been bad for the stock market and in times like this small and mid-cap companies tend to suffer the most. However, that was not the case with our last year's list of 100 Fastest Growing Small Companies. Between last and this October BSE Small Cap lost 36%, BSE MidCap fell 27% and BSE Sensex slipped over 15%. However, three in every four companies from the 2010 list of Fastest Growing Small Companies have outperformed the BSE Midcap Index in this period, while 52 companies have performed better than the BSE Sensex itself. One in every three companies gave a positive return during this period. It is worth noting that this performance is calculated based on monthly average prices and not point-to-point comparison.
THE STAR CAST OF 2011
The list of Fastest Growing Small Companies remains, as usual, a representation of varied sectors from auto ancillaries, pharma & FMCG, chemicals to packaging and mining. Only about half the contenders of last year could make it to the list this time. In a few cases this was on account of the company's inability to continue to perform well. However, quite a few had to lose their rankings due to the raised bar. The list this year is topped by Ester Industries, maker of polyester film, which made a dashing entry into the list, thanks to the runaway prices of its final product. Zydus Wellness, our last year's topper maintained its momentum to secure the second place. While National Peroxide and Mayur Uniquoters improved their last year's rankings to take third and fourth places, respectively. A brief analysis of our 10 toppers follows the main story for readers' easy reference.
ACTION & DIRECTION
One of the key challenges in compiling this list was to weed out unsound and potentially dubious candidates. This is important because one can't worship growth just for the sake of it.
We tried to achieve this by putting strict parameters for companies vying to enter the list. Only companies qualifying on all these accounts were considered for ranking. As such, making it to the ranking is itself quite an achievement.
The first thing considered was the debt-equity ratio ? the gauge of leverage. Any company with a reading of above 1.5 in last three years was dropped for being too leveraged. Similarly, interest coverage ratio, indicating the ability to service the debt, had to be above 5 for three consecutive years for the companies to make it to the list.
The next criterion considered was the return on capital employed (RoCE). RoCE is a measure to figure out how efficiently a company utilises its capital invested in the business. Too low a return and the company could end up in a debt-trap. Hence, companies that could get RoCE of above 15% for the past three years were only considered. Additionally, companies unable to generate positive cashflows from operations for at least two of the past three years were removed. Finally, the revenue benchmark to qualify as a small company was raised to 1,200 crore or below for the current financial year to accommodate the overall growth and inflation against 1,000 crore or below in the previous year. At the lower end, companies with a market capitalisation below 100 crore were excluded.
Top 10 Companies
FY11 saw the demand for polyester film ? also known as BOPET film ? move up strongly on products such as mobile touch screens, LED televisions and solar panels. The prices soared as supply failed to keep pace, enabling companies to make a killing. However, as supplies grew, BOPET prices came down substantially. Ester Industries' June 2011 quarter net profit tumbled 81% y-o-y. This means the company is unlikely to maintain its feat next year. However, with its capacities more than doubling last year there will be a substantial volume growth.
Zydus Wellness, the 350-crore FMCG arm of Zydus Cadila group, has a strong product portfolio with an underlying health plank. The company has invested heavily on building its brands such as Sugar Free, Nutralite and EverYuth. Despite a subdued performance in the June quarter, the company's business continues to hold the promise of strong growth. Sugar Free is India's largest-selling low-calorie sweetener with an 86% market share. EverYuth range of skin-care products enjoy their leadership position in the scrubs and peel-offs category despite competition from MNCs and other Indian players. However, the company is facing intense competition in the face-wash category. Growing at over 20%, the company is poised to achieve its target of 500-crore revenue by 2013-14
Improvement in the prices of chemical hydrogen peroxide helped the industry leader National Peroxide in FY11. The company achieved 49% jump in revenues and 255% in net profits, while its production improved 11.4% to 71,826 tonne. The company expanded its hydrogen peroxide capacity by 24%, for which it had to shut down its plant in the April-June quarter for 70 days. Even after commissioning the plant, the commercial production could begin only from September 2011 onwards. This is set to affect its numbers in the first half of FY12. However, the second half of FY12 onwards it will enjoy the full benefits of expanded capacity.
Mayur Uniquoters is India's leading manufacturer of artificial leather and supplies to domestic automakers such as Maruti, Tata Motors, Hero MotoCorp, M&M, etc, and footwear makers such as Bata, Liberty, Action, etc. It has continued to grow well over last few years without leveraging its balance sheet and is one of the few companies giving quarterly dividends. The company has started supplying to overseas automakers such as Ford and Chrysler and is trying to enlist with GM, Toyota, BMW and Mercedes Benz. The company has maintained its position in the 100 Fastest Growing Small Companies list for second consecutive year and has proven a multibagger in last one year. It appears well placed to continue its steady growth in coming years.
Sandur Manganese & Iron Ore is India's secondlargest manganese ore miner and also operates a ferro-alloys plant with almost all its 2,000-acre mining land in Karnataka. The company benefited from the improved pricing scenario in FY11 although its sales volumes dipped on export ban in Karnataka, high freight costs and 20% export duty imposed on iron ore. The company's June 2011 quarter numbers were hit by Supreme Court's blanket ban on mining activity in Karnataka. This factor is likely to weigh on its overall performance of FY12 like other mining companies and could make it difficult to maintain its position in the list next year.
LUMAX AUTO TECHNOLOGIES
Lumax Auto Technologies is an auto-component maker supplying transmission and steering components, body and chassis and electrical components. Growing production of automobiles by both Indian and foreign players, a buoyant replacement market and rising costs have benefited Lumax. It is a debt-free, cashrich company and is planning to add two more plants to the existing six facilities in Maharashtra. Its entry into infrastructure lighting, although small at present, could safeguard it from cyclicality of the auto industry in the future.
WABCO India, now a 75% subsidiary of WABCO Holdings of the US, is a supplier of auto components to commercial vehicles industry. A significant revival in Indian commercial vehicles industry, thanks to investments in development of road and infrastructure, enabled it to post a strong revenue growth. As investments in roads grow with more and more private participation, the long-term growth trajectory will remain strong for the commercial vehicle segment. However, in the shortterm, cyclicality in the commercial vehicle market and rising raw material costs could be a concern.
Mumbai-based KPO operator eClerx has benefited from the buoyancy in the demand from the global financial market. Despite talks of a global slowdown, eClerx reported a strong sequential growth of over 6% in the five out of the six quarters ended September 2011, validating success of its business model. PBDIT margin above 33% shows that the new business did not come at the expense of profitability. This has helped in offsetting the impact of higher taxes due to minimum alternate tax on SEZ income. The company offers critical back-end services to the financial sector, which are not affected by the movement of business cycles. This should keep the company going during tough times.
Hawkins Cookers is seeing a huge demand for its products but was unable to meet it because of labour issues at its plants. Last year, the company's net sales grew 17%. The profit declined due to higher raw material prices. But now most of the labour issues have been resolved and input prices have come down from their peak. Hence the company will be able to run its plants more efficiently and higher growth can be expected. Besides, the company is financially sound with high return ratios, strong cash flows and low debt.
Education services provider Everonn Education has reported strong buoyancy over the past three years backed by sound return and liquidity ratios. Its stock has, however, plummeted 44% from the year-ago level following the judicial action against its erstwhile MD in early September.
The company has appointed new leadership and has ensured the soundness of its business fundamentals. In the past one month, its stock has recovered from the lows of 228 to the current level of 380. Its performance under the new leadership in the next few quarters will be crucial to restore the investor confidence.
Click here For The Full List of Fastest Growing Small Companies 2011