Creating a Portfolio of Small Market Cap Companies

Introduction to Small Market Cap Investments

• The video addresses viewer requests for a portfolio of small market cap companies suitable for long-term holding.

• Emphasizes that while the selected companies are fairly valued, their small market caps can lead to high volatility in stock prices.

• Advises that such portfolios are best suited for investors with a high risk appetite.

Criteria for Shortlisting Companies

• Highlights the importance of product and service acceptance as a key criterion; successful companies often have strong market acceptance.

• Sets a market cap limit of less than ₹2000 crores, noting that only one or two businesses may exceed this threshold.

• Stresses the need for businesses to survive and grow over the next decade as an essential factor in selection.

Investment Philosophy

• Discusses how micro and small-cap investing is more challenging compared to large-cap investments due to differing performance metrics.

• Points out that past performance does not guarantee future returns, especially in smaller companies where current performance may not be indicative of future success.

Focus on Future Performance

• The discussion centers around future potential rather than historical performance, aiming to provide viewers with competitive advantages in the market.

Company Selections Overview

Jewelry Industry Insights

• Introduces Sky Gold Limited from the jewelry industry, which has seen significant growth potential due to increasing organized sector share from 10%-15% in 2001 to an expected 42%-47% by FY26.

• Notes India's cultural significance regarding gold demand, with gold-based jewelry constituting 70% of total demand.

Growth Projections for Sky Gold Limited

• Details Sky Gold's production capacity increase from 250–275 kg per month to 750–800 kg, indicating substantial growth potential.

• Management targets revenue growth from ₹1154 crores (FY23) to ₹5000 crores within three years.

Water Treatment Industry Potential

• Shifts focus to the water treatment industry, highlighting ongoing coverage since channel establishment and consistent returns from shortlisted companies.

Challenges and Opportunities in Water Treatment Sector

Current Water Crisis Context

• Discusses India’s status as a water-stressed country with per capita availability below critical thresholds leading towards increased demand for water treatment solutions.

Market Opportunities

Analysis of EMS Limited and Other Companies

Overview of EMS Limited

• EMS Limited has been shortlisted primarily due to its impressive profit margin of 27.7%, which stands out in comparison to competitors like Tech Buck Limited (12.2%) and Ion Exchange (12.9%).

• The company's revenue is largely derived from CVS treatment, contributing to healthy profit margins, alongside a satellite business model that supports growth.

Growth Potential and Orders

• EMS Limited currently holds unexecuted orders valued at ₹1835 crores, significantly exceeding the revenue for FY23 by more than three times.

• The company is also engaged in bidding with a pipeline worth ₹4000 crores, maintaining a success rate of around 10-15%.

Financial Strategy and Market Position

• Management initiated an IPO to raise funds, enabling the company to undertake projects ranging from ₹500 crores previously to now being able to handle orders between ₹1500 and ₹2000 crores.

Alcohol-Based Beverage Industry Insights

Introduction of Som Distilleries & Breweries Ltd.

• The alcohol industry is experiencing growth due to increasing acceptance in India; Som Distilleries derives most revenue from the beer segment.

• The company has successfully captured 45% market share in Madhya Pradesh's beer segment.

Expansion Plans

• Future growth prospects include capacity expansion in Hassan, Karnataka, expected completion by Q1 FY25, along with strategic contracts for production and supply agreements.

Strategic Partnerships and Market Expansion

• Som Distilleries plans further market penetration into Delhi and Uttar Pradesh while preparing for expansions into Pondicherry and Kerala.

• A strategic tie-up with Carlsberg will facilitate beer production at their Odisha plant.

Revenue Projections

• Management anticipates revenues could reach ₹2000 crores within two years—2.5 times current figures—with promoters increasing their holding by 10% over the last two years.

Fashion & Lifestyle Sector: Cantabil Retail Ltd.

Market Dynamics

• Cantabil Retail operates within a growing fashion industry at a CAGR of 12%, benefiting from increased market share among organized players.

Growth Strategies

• Aggressive store expansion plans aim for opening 80–90 new stores annually; already achieved 66 openings in the first nine months.

Online Presence Enhancement

• Focus on boosting online sales contribution from 2–3% up to 8–10% over the next two years as part of overall growth strategy.

Engineering Research & Development: Navar Technologies Ltd.

Industry Context

• Navar Technologies operates within engineering R&D across transport, mobility equipment, heavy machinery, and healthcare sectors; India's contribution is projected to rise from 17% to potentially 22% by 2030.

Client Base Strength

Technology Excellence Award 2022 and Company Growth Strategies

Overview of Revenue Goals

• The company aims to increase its revenue to ₹800 crores, with the current financial year (FY23) revenue reported at ₹441 crores.

• Previously, the company had over 250 clients but has reduced this number to 88 to focus on providing top-notch services.

Strategic Focus on Client Services

• The management is adopting a strategy that emphasizes exclusive services for clients, which cannot be found elsewhere.

• Instead of being everything to everyone, the company aims to specialize in specific areas for better growth potential.

Electric Vehicle Industry Insights

• The company is involved in manufacturing LED headlamps and other components for electric two-wheelers, indicating a strong market presence.

• There has been a significant growth of 34% in the electric vehicle segment compared to Q2, highlighting an expanding market focus beyond just two-wheelers.

New Partnerships and Market Expansion

• The company has been selected as a supplier for full LED headlamps for a high-end European car manufacturer, indicating growing credibility in the industry.

• A strategic tie-up with Gogoro, Taiwan's leading electric two-wheeler manufacturer, is underway. This partnership will enhance production capabilities in India.

Future Growth Potential

• Initial products will be exclusively made for Gogoro before being offered to other OEMs. This could lead to substantial future growth opportunities.

• Bird Wizard Innovations & Mobility Ltd. is gaining market share in the two-wheeler segment and aims for a target of 15% market share by next fiscal year.

Market Trends and Challenges

Current Market Performance

• Despite being a small player, Bird Wizard has established itself across 400 cities through distributor showrooms aimed at increasing brand presence.

• The launch of e-rickshaws and e-loaders indicates diversification into three-wheeler segments as well.

Recent Sales Growth Data

• In February 2024, there was an impressive growth rate of 112% in electric two-wheeler sales compared to February 2023.

Strategic Developments

• A new assembly line is being set up in Deoghar, Jharkhand, targeting demand from Eastern India and potential exports to Nepal.

Risks Associated with Business Expansion

Partnership Risks

• An MOU signed with US-based Ton EV involves producing battery-operated trucks; however, entering multiple vertical markets may dilute focus on core segments like electric two-wheelers.

Shareholding Concerns

• Recent data shows a decline in strong hands' holdings among promoters and investment firms. This could indicate potential instability or lack of confidence among major stakeholders.

Conclusion on Future Outlook

Investment Insights in the Chemical and Hospital Sectors

Overview of Investment Opportunities

• The current investment amount could potentially be reduced to zero if performance does not meet expectations, with a present price of 68 for 110 quantities.

Chemical Sector Analysis

• The chemical sector has been shortlisted for potential revival in the near term, with previous discussions available via a video link. Key growth drivers include:

• China Plus policy changes.

• Ongoing US-China trade war.

• Low-cost labor availability in India.

• Competitive corporate tax rates.

• Nafk Industries Limited is highlighted as a promising company due to its strong holding pattern linked to Anupam Rasayan Group, which possesses significant expertise in the chemical sector.

• The paint sector is also under consideration, noted for its consistent growth rate that often doubles GDP growth. Currently, it is growing at a CAGR of 15%. New entrants like Z Group and Grasim Industries are increasing supply levels.

• Despite Asian Paints showing quarter-on-quarter and year-on-year profit growth, stock prices have remained stagnant. This indicates potential undervaluation despite positive financial results.

• Sirca Paints India Limited has been identified as another key player due to its parent company’s presence in over 85 countries and leadership position in the wood coatings segment.

Hospital Industry Growth Potential

• Yatharth Hospital & Trauma Care Services Limited has been shortlisted within the hospital industry, which is currently experiencing an impressive CAGR of 18%. Major factors contributing to this growth include:

• Increasing per capita income.

• The company recently acquired a successful Asian Fidelis hospital with a capacity of 200 beds and is expanding through brownfield projects focused on advanced surgical technologies like robotics.

Conclusion on Risk Assessment