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Small-cap companies are usually attractive owing to their potentially high returns. However, chasing small caps can come back to haunt you, as they are inherently volatile. But worry not; we have identified small caps that have performed consistently well in the last five years.
What do we mean by 'highly-rated small caps'? We simply used our newly-launched 'Stock Ratings' tool to find companies whose market cap ranges between Rs 500-1,000 crore, with at least four stars and a minimum quality score of nine between FY18 and November 2023.
When we inputted our criteria on Stock Ratings, these are the companies it spat out instantly:
Good quality small-caps
These companies have been able to sustain a quality rating of at least eight in the past five years
| Company | M-cap (Rs cr) | FY18 quality score | FY18 stock rating | Current quality score | Current stock rating |
|---|---|---|---|---|---|
| Allsec Technologies | 986 | 9 | 5 | 10 | 5 |
| Cheviot Company | 858 | 9 | 5 | 10 | 5 |
| Eldeco Housing & Industries | 709 | 9 | 4 | 10 | 5 |
| Gandhi Special Tubes | 927 | 10 | 5 | 10 | 5 |
| IST | 909 | 9 | 4 | 10 | 5 |
| Sandesh | 808 | 10 | 5 | 9 | 5 |
Let's look at each of the companies in brief.
Allsec Technologies
Allsec offers BPO (business process outsourcing) solutions to businesses. It operates in two segments: HRO (human resources operations) and DBS (digital business service). HRO covers payroll services, time and attendance management, etc., contributing 35 per cent to the company's total revenue.
On the other hand, DBS encompasses lead generation, customer retention and relationship management. It is the major revenue contributor for the company, constituting a 65 per cent share.
Cheviot Company
It is a textile company that manufactures jute products such as jute yarn, fabrics, sacks and customised goods such as geotextiles, food-grade bags and technical textiles for domestic and international markets.
The company's primary client in the domestic market is the Indian government, which utilises these products to package food grains. In the international market, Cheviot exports goods to the US, Belgium, Netherlands, Turkey, Japan, etc.
Eldeco Housing & Industries
It is a leading real estate development company operating in north India, particularly in Lucknow, where it has delivered 59 projects. Eldeco is mainly involved in constructing, developing and selling townships and residential and commercial properties.
The company has consistently maintained an ROCE (return on capital employed) and operating profit margin of 19 and 41 per cent, respectively, among the highest in its industry.
Gandhi Special Tubes
The company manufactures cold-drawn seamless tubes and caters to various sectors such as automotive, farm equipment manufacturing, and hydraulics. Its product portfolio boasts seamless steel tubes, welded tubes, coupling nuts and fuel injection tubes, with steel tubes being the major revenue contributor, comprising an 80 per cent share.
Gandhi Special Tubes is the only firm on our list that has maintained a growth score of six on average and a perfect 10 quality score in the past five years.
IST
IST is an auto ancillary company involved in the manufacturing and assembly of high-precision engineering components such as throttle shaft and throttle valves, piston cooling nozzles, CNG (compressed natural gas) kit components, etc.
Its clientele includes Tata Motors, Maruti Suzuki, Fiat and Greenfuel, among many others. While the company has sustained a high quality score in the past five years, revenue from operations has risen by a mere 2 per cent, affecting its growth rating.
Sandesh
Sandesh is the largest media house in Gujarat. It publishes 'SANDESH', a premium Gujarati newspaper, and runs a news channel called 'Sandesh Telecast'.
The company has recently ventured into the real estate and marine chemicals businesses. However, its media segment continues to be the highest revenue contributor, with a 97 per cent share.
From FY18 till November 2023, the company maintained an average ROCE of 13 per cent. Yet, it has struggled to achieve substantial net profit growth.
A word of caution
Before you rush to invest, note that the companies mentioned above are not our recommendations.
Our 'Stock Ratings' tool is designed to make investing easy for you. Thus, treat it as the starting point in your research process and do your due diligence before making an investment.
Also read: Companies that went from hero to zero
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