Three under-the-radar microcaps that you can start tracking right away

Hidden from the daily headlines and news channel debates, a lot of comparatively smaller companies, including microcaps, are silently rubbing shoulders with the who’s who of the market when it comes to growth and profitability.

The prices for this category, which includes lesser-known stocks, can move more strongly than their larger counterparts, making many investors nervous. But this very size gives them an edge – they are agile, hungry for growth, and often operate in specialized markets that bigger companies haven't yet noticed. Some are pioneering new technologies, others are disrupting traditional businesses, and a few are simply executing their basic business plans with exceptional efficiency.

Here are the three less known microcap stocks that have been flying under most investors' radar even with some strong numbers. You probably don’t see them trending on social media or on any channels, but their numbers and business trajectories tell a compelling story that smart investors must know about.

Also read: These three stocks doubled dividends in five years. Could they do it again?

#1 Swadeshi Polytex Ltd

Incorporated in 1970, Swadeshi Polytex Ltd is a microcap company in the business of real estate development.

The company specializes in comprehensive real estate development and management, covering residential complexes to industrial infrastructure. It handles property acquisition, development, leasing, and sales of various assets, including land parcels, warehouses, factories, and commercial spaces.

With a market cap of ₹363 crore, the company is almost debt-free.

What is interesting is the growth and profit the company has recorded in the last 10 years. Especially when compared to its peers in the industry.

The sales for the company grew from ₹6 crore in FY19 to ₹99 crore in FY24. That is a compounded sales growth of 31%. The industry average is just 11%, leaving Swadeshi Polytex out of the mix.

Profit after tax (PAT) for Swadeshi, in the last 10 years, has grown at a compounded rate of 38%, from ₹3 crore in FY14 to ₹82 crore in FY24.

Now that is the number which is higher than any when compared to its peer industry group, albeit on a much smaller base. The industry median is 15.84% if you consider Swadeshi’s number. If you keep it out, the industry median is still around 19%.

The strongest point in the case of Swadeshi Polytex is the return on capital employed (ROCE). It is a measure of how much money the company is making on the capital it is investing in the business. The current ROCE of the company is a huge 147%.

In simple words, it means the company is making ₹147 on every ₹100 of capital invested. Even the 10-year average is a huge 314%.

Its peers, in comparison, are some big names, but even they have not delivered such ROCE numbers.

When it comes to valuation, the stock is trading at a very modest 4.58x and the 10-year median PE is also 3x.

Let us look at a comparison table:

The table shows that even though Swadeshi Polytex is a less known stock, it has been silently climbing its way up.

No wonder its performance has lifted its stock prices as well in the last decade.

The stock was trading at ₹1.75 in October 2019 and has grown to ₹93 as of today. That is a growth of a huge 5,214% in absolute terms and 49% CAGR.

Swadeshi Polytex Ltd Share Price

The numbers look very promising and given that this is a microcap stock, it surely aims to break the barrier into being categorised as a smallcap or midcap stock and may be even above that.

The only place where it could be a red flag is that even though the company has been recording and maintaining such eye-catching numbers, it is not paying out any dividend.

#2 Key Corp Ltd

Second in our list of silent microcaps is a company incorporated in 1986. An NBFC, Key Corp provides loans on vehicles, hire-purchase and lease, particularly in old vehicle finance, and deploys surplus funds in mutual funds.

With a market cap of ₹189 crore, the company is almost debt-free and has maintained a good return on equity (RoE) record of 43% in the last three years.

This, too, is a company with impressive growth and profitability numbers, both standalone and in comparison to peers.

The sales for the company grew from ₹2 crore in FY19 to ₹32 crore in FY24. That is a compounded sales growth rate of 77%. The industry average is just 17.21%.

The PAT for Key Corp in the last five years has grown at a compounded rate of 92%, from ₹1 crore in FY19 to ₹32 crore in FY24.

The industry median is 22.6%, much lower than Key Corp's numbers.

When it comes to ROCE, the company is currently hitting 57.25% when the industry average is 10.41%. Which means, the company is making ₹57 on every ₹100 of capital invested.

The 10-year average is 19.91% which is higher than some of the heavyweights in its category.

In valuation, the stock is trading at a very modest 2.49x and the 10-year median PE is 4x.

Here is a peer comparison table highlighting where Key Corp is beating even the bigwigs in its group…

The company is beating the industry averages in almost all ratios and numbers that an investor looks for.

And the same reflects in its share price which has grown at a CAGR of 50% in the last 10 years and 102% in the last five years.

The stock was trading at ₹9 in October 2019, which has now grown to ₹314, is an absolute growth of 3,389% and a 102% CAGR.

Key Corp Ltd Share Price

The company has no borrowings and is debt-free. It uses its own capital resources in the hire-purchase business and deploys surplus funds in mutual fund units for better earnings.

Key Corp has not been paying out dividends despite reporting repeated profits.

For more such analysis, read Profit Pulse.

#3 Global Education Ltd

This ISO-certified educational service provider and consultancy firm offers business management consulting services and skill development programs to various organizations. With a market cap of ₹383 crore, Global Education Ltd (GEL) focuses on admission, training, branding, and skill development.

GEL is almost debt-free and has maintained a good RoE record of 37% in the last three years.

The company's sales grew from ₹30 crore in FY19 to ₹72 crore in FY24, a compounded sales growth rate of 19%. The industry average is negative 0.26, which means the sector overall is seeing losses.

GEL's PAT has grown at a compounded rate of 19% in the last five years, from ₹7 crore in FY19 to ₹30 crore in FY24.

The industry median is 31%, which the company is reaching if we look at the 10-year profit CAGR, which is 41%.

The company is currently recording an ROCE of 54.6% when the industry average is 11.65%. This means the company is making ₹55 on every ₹100 of capital invested.

Even the 10-year average is 47.96%, while the industry average is 6.42%.

The stock is trading at 13x, and the 10-year median PE is 11x.

Here is a peer comparison…

Compared to the industry, the company is showcasing some solid growth and profitability and seems to be set for further growth.

In October 2019, the company’s stock price was around ₹13 and today it is ₹188, an absolute growth of 1,346% and a CAGR of 73%.

Global Education Ltd Share Price

The company is listed only on NSE and is almost debt-free.

One point worth noting is that the promoter holding has dropped by a little over 4% in the last three years.

The company’s clientele includes Capgemini, HCL, Wipro, Justdial, Flipkart, Yahoo, TCS and Infosys. It has also acquired around 51%equity shares of OwnPrep Private Ltd which is an online education and testing platform company, in August 2023.

Also Read: These three auto stocks could hit top gear this Diwali

Fear or fortunes?

Larger the risk, larger the return. This oft misused phrase is perhaps better stated thus: Only if you venture into the unknown will you find hidden treasure. That is what one must keep in mind when investing in microcap stocks.

Of course these stocks are more volatile when compared to their wealthier cousins, but the growth opportunity they hold is something every investor is hungry for.

Also, these are very small companies, and therefore one must thoroughly do the due diligence on a range of factors, including succession planning.

The three stocks are at the top of the microcaps that are silently making big moves. With robust growth and profits, these companies are well poised to become household names in the future.

But again, only time will tell if they do anything. However, it would not be a bad idea to keep a very keen, observant eye on these and other such stocks if you are in this game for growth and profits.

Note: We have relied on data from www.Screener.in and www.trendlyne.com throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.

The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.

Suhel Khan has been a passionate follower of the markets for over a decade. During this period, He was an integral part of a leading Equity Research organisation based in Mumbai as the Head of Sales & Marketing. Presently, he is spending most of his time dissecting the investments and strategies of the Super Investors of India.

Disclosure: The writer and his dependents do not hold the stocks discussed in this article.