Is It The Time To Invest in SmallCap Leaders?

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Overview

Let’s figure out if this is the time to invest in smallcap leaders.

The small-caps have come to the party of their own as increasing risk appetite and valuation comfort has aided sentiments for investors. Further, the recent SEBI circular which stated to restructure the multi-cap funds has also aided the rally.

And let’s not take away from the fact that small-caps do offer value to investors. However, the street is somewhat still divided over if the small-caps can outperform the large-caps in the next 1-2 years.

Some believe that the market outlook still remains uncertain and hence it’s better to stick to large caps, while others are sticking their guns out and saying that large caps do not offer value currently and therefore one should broaden their universe to look for value stocks and generate alpha.

But one thing has remained crystal clear with broad consensus that companies struggling with corporate governance issues and deteriorating fundamentals would not be looked at.

Further, there is a growing misconception amongst investors about the whole large companies becoming larger.

It’s true to a certain extent but the whole idea behind large companies becoming larger is tied to the fact that these would strengthen their market share and become an even bigger player in their respective sector.

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Basically, it’s not the market cap (that will come inevitably if a company is gaining market share), it’s the market share in that sector or industry. While many large caps are leaders in their respective industry, there are certain small-cap companies as well which enjoys a leadership position in their respective industry or niche category.

In this article, we briefly look at the companies that are leaders in their respective small industry or niche. They do carry risk, but it’s definitely worth looking.

NOCIL

The Company is India’s largest rubber chemical manufacturer in India with the expertise of 4 decades. It has presence in over 40 countries and enjoys long term standing relationships with the tyre majors and it boasts of its strong technical expertise and a diversified product range. It garners 65-70% revenue from tyre companies and the rest from sectors like latex, cycle tyres, surgical gloves, footwear etc.

Sector Dependence –Tyres, indirectly Auto but not necessarily

Action Construction Equipment

It is India’s leading material handling and construction equipment manufacturing company with a majority market share (65%) in the cranes’ segment. It has a consolidated presence in all major Infrastructure, Construction, Heavy Engineering and Industrial Projects across the country. Further, the company is also focusing on new product launches which are currently fulfilled by imports in India.

Sector Dependence – Infrastructure and Real Estate

Avanti Feeds

It is the leader in the shrimp feed segment with a market share of 50% as of FY20. It has a strong technical and marketing tie-up with the Thai Union Group Public Company Ltd (equity shareholding of 15%), one of the world’s largest seafood processors and leading manufacturer of prawn and fish feeds in Thailand. Avanti has expanded to the processing segment (with an installed capacity of 22000MTPA) and is now in the process of setting up a shrimp hatchery with a capacity of 400 million seeds in Andhra Pradesh.

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TeamLease Services

It is India’s leading human resource services company that provides Flexi-staffing in the organized segment. It has a market share of 6%. Yes, only 6% because the market is highly fragmented. It has a wide presence across the country and has also forayed into specialized staffing business which would help improvement in margins.

 Sector Dependence – Overall economy, but manufacturing, e-commerce are the main ones

Jamna Auto

It is India’s largest spring (leaf spring and parabolic spring) manufacturer with a market share of 66%. It caters to the top OEMs in the commercial vehicle segment. Further, it is constantly trying to increase its content per vehicle and also broaden its reach by catering to OEMs across the globe (exports) and tapping the aftermarket segment in India as well as in exports.

Sector Dependence – Auto (Commercial Vehicles)

Delta Corp

Gambling is very popular in India but it is mostly illegal and Delta Corp is India’s only listed casino player and a market leader as well. The company’s online poker asset is also the market leader in that segment.

Sector Dependence – Largely Travel & Tourism

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Subros

It is the largest manufacturer of auto air-conditioning system in India with a market share of 44% in India’s passenger vehicle segment. Further, it has a market share of ~60% in the commercial vehicle segment. It enjoys a strong relationship with Suzuki Motor Corp (12% holding in the company) and Denso Corp (20% holding in the company) which is a leading supplier of advanced automotive technology worldwide.


Sector Dependence – Auto (Passenger Vehicles)

Balaji Amines

It is the leading manufacturer of Aliphatic Amines and enjoys a leadership position its products like Monomethylamine, Dimethylamine, Trimethylamine, Dimethyl Amino Ethanol, Mono Methyl Amino Ethanol etc. It caters to several industries wherein Pharma is a major one followed by Agro Chemicals, Paint Stripping & Resins, and Rubber cleaning. Over the years the company has indigenously developed products and has a market share of nearly 60-70% in India across products.

Sector Dependence – Pharma, Agriculture


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Disclaimer: The companies listed in the article are not recommendations from FinMedium or/and Monergise. Please consult your financial adviser or do your own analysis before investing in these companies.

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