5 microcap stocks that India’s Warren Buffetts are betting on

Their exact investment strategies may be known only to them, but their investing style is out there for everyone to see—and perhaps even learn a thing or two from.

Contrary to popular belief, these super investors don’t just stick to safe, blue-chip stocks. In fact, many of them made their first big gains from companies that were relatively unknown or flying under the radar.

They’re always on the lookout for massive opportunities and know when to seize one. Simply put, they have a knack for identifying potential early on.

Today, we’ll look at five micro-cap and small-cap stocks that have captured the attention of these Indian Warren Buffetts.

Religare Enterprises Ltd

Founded in 1984, Religare Enterprises is a diverse financial services provider with operations across India through its subsidiaries. It offers SME loans, affordable housing finance, health insurance, and retail broking, serving a client base of over 1.1 million customers.

With a presence in more than 400 cities and over 1,275 locations nationwide, Religare is currently undergoing consolidation, merging four of its subsidiaries to streamline operations.

Religare has been in the news recently, as the Enforcement Directorate (ED) conducted searches at the premises of its executives, linked to a legal battle between the Burman family—its largest shareholders—and the company’s chairperson over a control dispute.

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Despite this, the company has posted strong growth. Over the last five years, its Ebitda swung from a loss of ₹634 crore in March 2019 to an operating profit of ₹318 crore in March 2024. Net profit for FY24 stood at ₹347 crore, reflecting a 16% compounded profit growth over the last five years.

The stock currently trades at ₹291—a staggering 838% rise in five years. However, it trades at a high PE multiple of 146x, compared to a 10-year median of 39x.

Notably, prominent investors like Ashish Dhawan and Dilipkumar Lakhi hold stakes of 2.30% and 2.02%, respectively, while Motilal Oswal Large & Midcap Fund holds 6.32%.

Merits: Religare has shown strong growth with an 838% rise in its share price over five years, and a turnaround from losses to ₹318 crore operating profit in FY24. There is significant investor interest from high-profile names.

Risks: High PE ratio of 146x versus a 10-year median of 39x. Ongoing legal and regulatory challenges, including ED investigations.

Sula Vineyards Ltd

Established in 2003, Sula Vineyards is India’s largest wine producer and holds a 52% market share, with 60% in the premium categories. The company has a strong presence across 25 states and six union territories in India and exports to over 20 countries.

Sula operates two leased production facilities and is a leader in wine tourism, with vineyard resorts and tasting rooms. The company is expanding its operations near Bangalore to boost its wine tourism offerings.

For more such in-depth analyses, read Profit Pulse.

Sula has achieved a compounded sales growth rate (CAGR) of 21% over the past three years and 2% over the last five years. The company’s Ebitda rose from ₹78 crore in FY19 to ₹167 crore in FY24, reflecting a 16.5% CAGR over the past five years.

Sula posted a net profit of ₹95 crore in March 2024, with a compounded profit growth of 37% over the last five years. Its current share price is ₹488, a 52% jump from last year’s ₹320, trading at a PE multiple of 45x.

Investor Mukul Agarwal holds a 2.37% stake in Sula, and fund houses, including HDFC Business Cycle Fund, also hold significant stakes.

Merits: Market leader in the Indian wine industry with 52% market share and strong presence in premium segments. Net profit growth of 37% over five years.

Risks: Relatively slow sales growth over five years (2%). Trading at a high PE multiple of 45x

Wockhardt Ltd

Wockhardt is a global pharmaceutical and biotechnology company specializing in various dosage forms, including injectables, biopharmaceuticals, orals, and topicals.

The company holds strong market positions, ranking among the top three Indian generic companies in the UK and as the sixth largest generic supplier in Ireland. Key products like Wepox and Methylcobalamin dominate their respective markets with significant shares.

With operations spanning India, the US, the UK, Ireland, France, and emerging markets, Wockhardt runs 14 manufacturing facilities globally, all compliant with international standards. In recent years, it has expanded its product portfolio, launched new products, and secured agreements to manufacture Covid vaccines.

Additionally, Wockhardt operates six super-specialty hospitals in Maharashtra and Gujarat, focusing on advanced healthcare services and research in regenerative medicine.

The company’s performance has been mixed, with a compounded sales growth of just 1% over the past three years and a decline of 5% over the last five years, likely due to the challenges faced during the Covid-19 pandemic.

In March 2019, Wockhardt’s Ebitda was a negative ₹38 crore, but by March 2024, it had recovered to ₹91 crore, indicating a positive turnaround in operating profits. However, the company still posted a net loss of ₹471 crore for FY24.

Despite these setbacks, Wockhardt’s stock has seen impressive growth, rising from ₹220 five years ago to ₹1,042 today—a remarkable 375% increase.

Rekha Jhunjhunwala owns 1.89% of Wockhardt, with other significant investors including ICICI Prudential Equity & Debt Fund.

Merits: Significant recovery in Ebitda from losses to ₹91 crore in FY24 and strong product portfolio. Share price surged 375% in five years.

Risks: Posted a net loss of ₹471 crore in FY24, and negative compounded sales growth (-5%) over five years. High volatility due to past performance issues.

Patel Engineering Ltd

Established in 1949, Patel Engineering is a Mumbai-based civil engineering leader, specializing in high-margin, technology-intensive projects.

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The company’s core strengths lie in hydroelectric projects, tunneling, irrigation, water supply, urban infrastructure, and transport—sectors that make up 90% of its order book. Patel Engineering has completed over 87 dams, 15,000+ MW of hydro projects, and more than 300 km of tunnels.

As of Q3FY24, the company’s order book stood at approximately ₹19,000 crore, spread across 48 projects in 14 Indian states and Nepal. Its client roster includes notable names such as NTPC, NHPC, and NHAI.

Patel Engineering has achieved a compounded sales growth of 32% over the last three years and 14% over the last five years. Its Ebitda rose from ₹377 crore in FY19 to ₹690 crore in FY24, reflecting a 13% CAGR over the last five years.

For FY24, the company posted a profit after tax of ₹290 crore, with a 15% compounded profit growth over five years.

Currently, Patel Engineering's share price is ₹59.4, a significant 640% increase from ₹8 five years ago. The stock trades at a price-to-earnings (PE) multiple of 21.8x, with a 10-year median PE of 21x.

Vijay Kedia owns a 1.42% stake in the company through Kedia Securities Pvt Ltd. Apart from him, Ajay Dedhia and Bank of Baroda also own shares of Patel Engineering.

Merits: Impressive order book of ₹19,000 crore, with consistent sales and Ebitda growth (13% CAGR). Share price up 640% in five years.

Risks: Operating in a capital-intensive and competitive sector, which could pressure margins if project costs rise.

Va Tech Wabag Ltd

Va Tech Wabag is a leading player in the water treatment industry, providing comprehensive solutions across the entire value chain. The company specializes in the design, supply, installation, construction, and operational management of water treatment plants, including drinking water, wastewater, industrial water, and desalination facilities.

With a global presence in over 25 countries, Va Tech Wabag has completed more than 6,500 municipal and industrial projects, benefiting over 88 million people. Its client portfolio includes both municipal bodies like CIDCO and Delhi Jal Board, as well as industrial giants such as Reliance Industries and ONGC.

The company emphasizes research and development, with R&D centers in India and Europe, and holds over 125 intellectual property rights.

Va Tech Wabag has posted a compounded sales growth of 1% over the last five years. Its Ebitda grew from ₹194 crore in FY19 to ₹366 crore in FY24, reflecting a CAGR of nearly 13.6% over the last five years. The company’s profit after tax for FY24 stood at ₹250 crore, with a compounded profit growth of 21% over the same period.

Currently, Va Tech Wabag is trading at a price-to-earnings (PE) multiple of 34x, while its 10-year median PE is 18x. The stock price has surged to ₹1,360, a 350% increase from ₹300 five years ago.

Prominent shareholders include Rekha Jhunjhunwala, who holds 8.04% of the company’s shares, along with SBI Long Term Fund and Motilal Oswal Small Cap Fund, holding 1.28% and 1.03%, respectively.

Merits: Leader in water treatment with a global presence and strong R&D capabilities. Profit after tax grew by 21% CAGR over five years.

Risks: Trading at a high PE multiple of 34x, well above its 10-year median of 18x. Sales growth remains low at 1% over the last five years

Midas’s Microcaps?

Today, we explored five microcap stocks held by India’s own Warren Buffetts: Religare Enterprises Ltd, Sula Vineyards Ltd, Wockhardt Ltd, Patel Engineering Ltd, and Va Tech Wabag Ltd.

Though the microcap space is known for its volatility and rapid changes, these seasoned super investors have placed their bets on these stocks. Whether they turn out to be Midas’s Microcaps or notable missteps remains to be seen. What stands out is the expertise and foresight these investors possess in picking stocks that deliver substantial returns over time.

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In conclusion, it wouldn’t be a bad idea to add these stocks to your watchlist. However, remember that these Indian Warren Buffetts likely bought in at significantly lower levels—perhaps that’s part of the reason they’ve earned their iconic status.

Note: The purpose of this article is to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you're considering an investment, it's strongly advised to consult your financial advisor. This article is intended solely for educational purposes.

Manvi Agarwal has been tracking the stock markets for nearly two decades. During this time, she spent around eight years as a financial analyst at a value-style fund, managing investments for international clients. Currently, she focuses on writing about overlooked or misunderstood investment opportunities in the Indian stock market.

Disclosure: The author or their dependents may hold positions in the stocks mentioned here, in accordance with Sebi guidelines.