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Rally takes promoters of small-cap companies past the $1 billion mark

The average stock return of these five companies has been almost seven times higher than the BSE Small Cap index over the past two years.

Updated: Aug 16, 2016, 12.29 PM IST
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The average stock return of these five companies has been almost seven times higher than the BSE Small Cap index over the past two years.
The average stock return of these five companies has been almost seven times higher than the BSE Small Cap index over the past two years.
ET INTELLIGENCE GROUP: The recent rally in small-cap stocks has changed the fortunes of promoters of these companies. According to Bloomberg data, the market value of the stakes held by the promoter groups of Ajanta Pharma, Alembic Pharma, Dalmia Bharat, Muthoot Finance, and Welspun India has crossed the mark of $1 billion or `6,800 crore.

The average stock return of these five companies has been almost seven times higher than the BSE Small Cap index over the past two years. A key reason for high investors’ interest in these companies is major business transformation and high earnings visibility.

Alembic Pharma

The company’s strategy to increase the proportion of specialty products in revenue to more than half from 42% in 2011 has paid-off. As a result, earnings per share increased by 3.3 times in the past four years. In addition, it has increased export to the US by selling Abilify — a drug having a $5-billion market in the US.

Muthoot Finance

The company introduced the scheme to collect monthly interest to maintain loan-value ratio of 75% thereby reducing the default risk when gold price falls. This has ensured regular interest payment by customers. Hence, the probability of auction losses has reduced even if gold prices were to fall from here. The lender is also focusing on non-gold segments such as affordable housing and microfinancing.

Ajanta Pharma

Over the past five years, the pharma company has increased focus on specialty products from commoditised products. Its India business now earns 80% revenue from chronic therapies after gradually reducing exposure to low-margin institutional business. It also sells branded products in more than 25 countries, which has accelerated revenue growth. Company’s management expects revenue growth of 12-15% for FY17 and 15-20% for FY18 with operating margin before depreciation (EBITDA margin) of 32%.

Rally takes promoters of small-cap companies past the $1 billion mark

Dalmia Bharat

After making Dalmia Bharat Cement as 100% subsidiary, Dalmia Bharat now has presence in the eastern, north east and the southern region. The company sells 70% of its cement production in non-trade segment (dealers and sub-dealers). In addition, it uses pet coke as raw materail, which is available at lower price. These two factors have boosted the company’s financials and provided good returns to shareholders.

Welspun India

The company benefitted from improvement in home textiles business especially terry towels and bed sheets. With more than 95% revenue from export, it is among the top three global home textile companies. It supplies to 14 of the top 30 global retailers including Walmart, JC Penney and Macys. In the past three fiscals, the company’s net sales and profit grew at a compounded annual rate of 17% and 35% respectively. This growth came at a lower valuation, which triggered a sharp rise the stock price. Also, the company started paying dividend since the past three fiscals which gave confidence to investors.

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