Top 5 Microcap Stocks that Turned into Smallcaps

Have you ever wondered how a company's change in marketcap status affects its stock price and potential fortunes?

When a company transitions from a lower capitalisation status to a higher one, it undergoes changes that can greatly benefit its future.

Increased investor interest, particularly from institutional investors, enhances liquidity and trading volumes. This makes transactions easier with minimal impact on stock prices.

This heightened visibility also makes it easier for the company to raise capital through equity or debt, often under more favourable terms.

A larger market capitalisation enables the company to attract broader analyst coverage, leading to more accurate valuations, and thus, bolstering investor confidence.

The enhanced credibility resulting from this growth can strengthen business partnerships, aid in customer acquisition, and elevate brand perception.

As the company expands, it seizes new opportunities through acquisitions, introduces new product lines, and explores new markets.

Today, we delve into 5 companies that have successfully transitioned from microcaps to smallcaps, showcasing their growth trajectories and market evolution.

#1 Newgen Software

Newgen Software Technologies is a global software company engaged in the business of product development, like designing and delivering end-to-end solutions. It covers the entire workflow automation from document management to imaging.

Their key revenue segments include annuity-based revenue, sales of software products. and sale of services.

As of FY24, company has 17 verticals including majors like banking & financial services, insurance, government.

The company's primary clients are from the banking segment, accounting for 66% of Newgen's revenue, followed by 9% from government & PSUs, and 8% from the insurance sector.

Newgen Software Financial Snapshot (2020-24)

	FY20	FY21	FY22	FY23	FY24
Revenue Growth (%)	4.60%	5.70%	16.50%	24.90%	28.00%
Operating Profit Margin (%)	16%	29%	26%	22%	24%
Net Profit Margin (%)	11.40%	19.30%	21.90%	18.90%	20.90%
Return on Capital Employed (%)	16%	27%	27%	24%	27%
Return on Equity (%)	12.50%	18.60%	20.30%	18.20%	20.60%

Data Source: Screener.in

Coming to the financials of the company, over the past five years, it has recorded a compounded annual growth rate (CAGR) in sales of 16%, while the net income has grown by a CAGR of 20%.

The five-year average return on equity (RoE) and return on capital employed (RoCE) have stood at 20.2% and 24.1%, respectively.

In FY24, the registered revenue growth of 28% YoY, while the net profit has increased 42% YoY.

Moving forward, the company plans to improve its existing products and launch new ones for its AI portfolio.

It is also looking to expand in the insurance vertical with a focus on life, general, and health insurance.

The management is planning tactical acquisitions for speed to market and access to larger accounts.

On the guidance front, the management aims to maintain the historical growth rates and is confident in meeting targets.

The current market capitalisation of Newgen Software stands at Rs 134.7 bn. The company is trading at a PE of 58.2x, which is a premium compared to its 5-year median PE of 21.3x.

To know more about Newgen Software, check out its financial factsheet and latest financial results.

#2 Kirloskar Brothers

Kirloskar Brothers is an engineering company involved in manufacturing systems for fluid management.

Its primary operations cover large infrastructure projects such as water supply, power plants, and irrigation, as well as the production of pumps, valves, motors, and hydro turbines.

With over 250 product categories and 100,000+ SKUs, the company serves more than 12 industries and has a customer base of over 2,500.

Kirloskar Brothers Financial Snapshot (2020-24)

	FY20	FY21	FY22	FY23	FY24
Revenue Growth (%)	-6.40%	-13.40%	12.60%	22.00%	7.30%
Gross Profit Margin (%)	47.60%	46.60%	45.10%	47.60%	50.40%
Operating Profit Margin (%)	7%	9%	7%	11%	13%
Net Profit Margin (%)	2.30%	5.90%	3.10%	6.30%	8.80%
Return on Capital Employed (%)	12%	15%	11%	22%	27%
Return on Equity (%)	7.60%	14.60%	8.00%	16.80%	20.40%

Data Source: Screener.in

Coming to the financials of the company, over the past five years, it has recorded a sales CAGR of 4%, while the bottom-line has delivered a CAGR of 155%.

This massive parity between the top line and bottom-line growth reflects the operational efficiency that the company has been able to achieve over the past five years.

The five-year average RoE and RoCE have stood at 15.1% and 17.5%, respectively.

The company's revenue has shown a steady YoY growth of 7.3% in FY24, attributed to sustained demand for customised products and an increase in standard product orders.

The net profit has surged by 48.3% YoY in FY24, primarily due to reduced interest expenses and increased other income for the year.

The management expects double-digit revenue growth in FY25. The consolidated pending order book for the international business stands at Rs 30 billion (bn).

The company is focused on continuous innovation with over 100 new product launches annually. It is also developing new products for green hydrogen and small modular reactors.

The management has a positive outlook on the international business, due to increased inquiries. The company is also making strategic investments in digital ventures to enhance its revenue streams.

Additionally, the company plans to capitalise on its localised global presence by introducing new products in the US and UK, while focusing on increasing revenue contribution from the service segment for its UK entity.

The current market capitalisation of Kirloskar Brothers stands at Rs 185.7 bn. The company is trading at a PE of 54.9x, which is a premium compared to its 5-year median PE of 21x.

To know more about the company, check out its financial factsheet and latest financial results.

#3 RailTel Corporation

RailTel is contributing to the implementation of Kavach system of the Indian Railways by partnering with Quadrant Future Tek Limited.

This collaboration aims to explore and deliver Kavach projects for Indian Railways and abroad.

RailTel's expertise in railway signalling and telecom engineering, combined with Quadrant's technology and innovation-driven approach, enhances the development and implementation of Kavach system.

The company enjoys a unique privilege - the exclusive right to lay optical fibre cables and provide telecom services across the massive Indian Railways' network.

Beyond this core function, RailTel has diversified into telecom networks, data centres, and hosting services and project execution.

RailTel Corporation Financial Snapshot (2020-24)

	FY20	FY21	FY22	FY23	FY24
Revenue Growth (%)	9.60%	23.80%	13.80%	27.90%	31.90%
Operating Profit Margin (%)	31%	24%	24%	19%	18%
Net Profit Margin (%)	12.80%	10.50%	13.70%	9.60%	9.60%
Return on Capital Employed (%)	17%	14%	16%	16%	20%
Return on Equity (%)	10.10%	10.00%	13.70%	11.40%	13.50%

Data Source: Screener.in

RailTel's financial performance paints a compelling picture of stability and profitability.

Over the past five years, it has recorded CAGR sales growth of 21%, while the bottom-line has grown by a CAGR of 15%.

The five-year average RoE and RoCE have stood at 12.5% and 16.7%, respectively.

The company even maintains a debt-free balance sheet, a significant advantage in today's economic climate.

RailTel's experience of over two decades, coupled with its strategic relationship with the Indian Railways, positions it as a preferred partner for government projects.

The company has been entrusted with implementing critical initiatives like the National Knowledge Network (NKN), Bharat Net, and the USOF-funded optical fibre connectivity project in North-Eastern India.

Its collaboration with Indian Railways also extends to the installation of an IP-based video surveillance system at more than 6,049 railway stations across the country.

The current market capitalisation of RailTel Corporation stands at Rs 167.8 bn. The company is trading at a PE of 63.2x, which is a premium compared to its 5-year median PE of 24x.

To know more about the company, check out its financial factsheet and latest financial results.

#4 Voltamp Transformers

Voltamp Transformer is a significant manufacturer of oil-filled power and distribution transformers. It has a 15% domestic market share as stated by management.

Its comprehensive product portfolio is a direct result of the company's technical collaborations with a myriad of pioneers in the world.

Voltamp Transformers Financial Snapshot (2020-24)

	FY20	FY21	FY22	FY23	FY24
Revenue Growth (%)	3.60%	-19.40%	62.80%	22.90%	16.70%
Gross Profit Margin (%)	47.50%	45.40%	45.00%	44.80%	52.80%
Operating Profit Margin (%)	13%	11%	12%	17%	20%
Net Profit Margin (%)	10.40%	16.20%	11.80%	14.40%	19.00%
Return on Capital Employed (%)	15%	15%	19%	25%	32%
Return on Equity (%)	11.90%	13.40%	14.10%	18.10%	22.70%

Data Source: Screener.in

Coming to the financials of the company, over the past five years, it has recorded 14% CAGR in sales, while the bottom-line has grown by 29% CAGR.

The five-year average RoE and RoCE have stood at 17.2% and 21.1%, respectively.

The company reported a robust order book of Rs 18.5 bn for FY24, representing a significant 37% increase compared to the previous year.

This healthy order book indicates strong demand for the company's products and positions them for potential growth in the coming year.

Between 2020-24, the net sales and profits registered a 5-year CAGR of 13.3% and 29.3%, respectively. The returns have also been strong, with a 5-year average RoCE and RoE of 15.8% and 12.3%, respectively.

With a strong order book, a robust balance sheet, and a positive outlook for profitability, the company is expected to grow well.

The current market capitalisation of Voltamp Transformers stands at Rs 123.7 bn. The company is trading at a PE of 41.9x, which is a massive premium compared to its 5-year median PE of 16.1x.

To know more about Voltamp Transformers, check out its financial factsheet and latest financial results.

#5 Anand Rathi Wealth

Anand Rathi Wealth is an AMFI registered mutual fund distributor. It's one of the leading non-bank wealth solutions firms in India. It's ranked among the top three non-bank mutual fund distributors in the country.

The company offers a wide product portfolio of wealth solutions, financial product distribution, and technology solutions to its clients.

The company is primarily into three business verticals, namely, private wealth, digital wealth, and omni financial advisor.

It has offices in 17 major Indian cities and a representative office in Dubai.

Anand Rathi Wealth Financial Snapshot (2020-24)

	FY20	FY21	FY22	FY23	FY24
Revenue Growth (%)	19.70%	-18.60%	55.30%	31.80%	34.50%
Operating Profit Margin (%)	33%	28%	43%	45%	44%
Net Profit Margin (%)	18.50%	16.50%	30.00%	30.20%	30.10%
Return on Capital Employed (%)	48%	25%	50%	51%	51%
Return on Equity (%)	33.30%	18.60%	36.90%	36.10%	34.80%

Data Source: Screener.in

Coming to its financials, from FY20 to FY24, the company has achieved a sales growth of 22%, while during the same period, the net income is up by a CAGR of 31%.

The five-year RoE and RoCE has stood at the levels of 38.5 and 41.3%, respectively.

In terms of its performance in the latest year, the company has registered a sales growth of 34.5 YoY%. Its net income has increased by 34% YoY.

The consolidated assets under management have grown by 52% YoY and now stand at Rs 593.5 bn as of 31 March 2024.

The company's growth strategy includes equity mutual funds, digital wealth, and the OFA model to capture the wealth management landscape.

The company is positioning itself as a market-agnostic financial services provider, focusing on logical finance and client-centric solutions.

The management is also emphasising consistency, client performance, and long-term relationships to drive business growth.

On the guidance front, the management is optimistic about the long-term. It's aiming for a 20-25% CAGR growth over the next few years, by focusing on market growth, leveraging existing client assets, acquiring new clients, and adding relationship managers.

The current market capitalisation of Anand Rathi Wealth stands at Rs 173.6 bn. The company is trading at a PE of 76.5x, which is a massive premium compared to its 5-year median PE of 34.9x.

To know more about Anand Rathi Wealth, check out its financial factsheet and latest financial results.

Conclusion

Transitioning from microcap to smallcap significantly boosts a company's financial stability, market presence, and growth potential.

While increased regulatory and compliance requirements may raise operational costs, they also enhance corporate governance and investor trust.

This evolution positions the company for a more promising and dynamic future, opening new opportunities and reinforcing its credibility in the market.

Investors should carefully evaluate the company's strategic plans, management capabilities, and market conditions to make informed decisions.

Conducting thorough due diligence is essential to understand the potential risks and rewards associated with investing in a company undergoing such a significant transition.

Hapy Investing!

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