In recent years, as India’s economy has risen quickly, interest in investing in growth companies has increased.
Growth stocks can give investors the chance to profit from innovative businesses while also sharing in the nation’s economic growth.
What precisely are growth stocks then?
Growth stocks are shares of firms whose sales and/or profits have increased more quickly than those of their competitors. They typically benefit from a desirable quality, such a solid brand value or an economic moat, that enables them to accomplish such a feat.
In light of this, we select and research five growth stocks that have excellent long-term growth prospects.
Varun Beverages, first
We start with the market leader in soft drinks, Varun Beverages.
Varun Beverages produces, markets, and distributes soft drink goods under PepsiCo-owned trademarks and brands. Both carbonated and non-carbonated beverages fall under this category.
The business operates in 17 Indian states and two union territories on a franchisee model. Also, there are certain overseas markets.
Although PepsiCo supplies brands, concentrates, and marketing assistance, Varun Beverages offers end-to-end execution capabilities from manufacturing, distribution and storage, customer management, and in-market execution.
The previous five years have been fantastic for the company. On a 5-Year CAGR (compounded annual growth rate) basis, the profit increased by 74.8%, outpacing the revenue growth of 17.4%. The return on equity (RoE), which now stands at a 5-Year average of 17.5%, has increased as a result.
In the last five years, the company’s net debt-to-equity ratio has dropped sharply from 1.5x to 0.82x, and the current interest coverage ratio is currently at 3.2x.
Gains in market share and an increase in the contribution of non-carbonated drinks are to thank for this outstanding result. Long-term, it is likely to persist.
Even though the company has been in the business for more than three decades, it is always increasing its capacity to keep up with rising demand expectations. This covers both brownfield expansion at six plants in India and greenfield growth in the Indian states of Rajasthan and Madhya Pradesh.
By increasing its market share across categories via a variety of customer push techniques in licenced territories, the company intends to promote growth.
With 63.9%, the promoter holding is substantial.
Bajaj Finance, #2
Our next stop is Bajaj Finance.
The largest NBFC (non-banking financial company) in India is Bajaj Finance. The lender boasts over $2 trillion in assets under management (AUM). Around 80% of the AUM is made up of its portfolio, which is focused on consumer and mortgage finance for the retail market.
For traditional retail lending products (mostly personal/consumer loans and mortgages) as well as other non-retail lending products, Bajaj Finance competes with banks and NBFCs.
As opposed to retail banks that target high net worth individuals, the organisation concentrates on a comparatively lower income category when it comes to personal financial services.
The company has experienced strong growth.
Over the past five years, the private lender’s advances have increased by nearly 2.4 times. The lowest in the sector, the net non-performing assets (NPAs) have remained stable, ranging from 0.30 to 0.4% from the financial year 2018.
This is commendable since it shows that the business has grown while minimising risks.
The business’s profitability has also increased. Net profit increased at a 5-year CAGR of 20.1%. The average return on equity over the previous five years was 18.6%.
The utilisation of data analytics has long been a strength of Bajaj Finance. The business’s financing plan makes use of artificial intelligence. Due to this, the company has been able to grow while maintaining a high credit rating.
Yet, because investors and analysts anticipated a stronger quarterly update from the company, the stock has lagged the markets during the last few months.
Nonetheless, this does not change the reality that the company is sound and well-positioned to expand over time.
The long-term goal of Bajaj Finance is to keep increasing its AUM at a rate of 25% while maintaining strong return ratios. Existing and new verticals including microfinance, commercial vehicle loans, and tractor loans will contribute to the expansion.
55% or more of the company is owned by the promoters.
Affle India, #3
Our third choice is Affle India.
Leading provider of mobile marketing and advertising technologies, Affle gives companies a variety of digital solutions. 30% of the overall revenue comes from domestic sources, with international sales accounting for 70% of the total.
The company competes in the digital advertising market with InMobi, a global mobile advertising and discovery platform, as well as other market leaders like Google Ads and Facebook Advertising.
The company has prospered thanks in large part to various acquisitions and increased mobile penetration in the nation.
In the last five years, both revenue and net profit have increased dramatically.
The business does not pay its stockholders dividends. A popular practise among IT organisations is to invest the money made in subsidiaries and to buy IT companies.
Over time, it’s anticipated that the company will also provide value for its shareholders.
The expansion of the consumer base will be the source of the following phase of growth. Some of the most recognisable brands in India and around the globe, including McDonald’s, Apollo, Byjus, Swiggy, Zee5, etc., have joined the company’s growing list of clients.
Since they were sure that artificial intelligence would become more widely used in the digital advertising industry, they also made an expansion into AI and machine learning solutions.
In addition, the business has developed a patent portfolio with 20 patents in India, the US, and Singapore in the hopes of gaining long-term advantages from it.
With a 59.9% ownership stake in the company, the promoters have a sizable investment.
Dixon Technologies, #4
Dixon Technologies is ranked fourth on our list.
A worldwide manufacturer and provider of electronic services is Dixon. Manufacturing everyday consumer electronics including televisions, washing machines, smartphones, LED lights, battens, downlighters, and CCTV security systems is its main competency.
Although the company hasn’t created its own brand, they have an advantage because to their long-term agreements with some of the most well-known brands, like Samsung, Xiaomi, Panasonic, OnePlus, and Philips.
The company has done exceptionally well during the past five years. The profit has increased three times while the revenue has increased by 3.5 times.
With a 5-Year average RoE of 23.2%, this has made it possible for the business to generate significant profits.
Dixon Technologies has avoided accruing debt despite aggressively growing in a sector that requires a lot of money. In the fiscal year 2022, the debt-to-equity ratio is 0.3 times.
While the company has had a difficult year due to sluggish growth in the mobile industry and underwhelming results in the consumer electronics and lighting sectors, it is well-positioned to grow in the long run.
The Middle East is the company’s newest source of customers, signalling the next phase of corporate expansion. Moreover, a rise in production-linked incentives (PLI) from emerging markets like refrigerators, wearable technology, and IT can fuel significant long-term growth.
The promoters only own 34.1% of the company. Nonetheless, institutional investors own a sizable portion of the balance, and their proportion has been rising over the past two years.
Sona BLW Precision, No. 5
Sona BLW Precision Forgings is the last on our list.
One of India’s top automotive technology firms is Sona BLW. It creates, produces, and provides highly engineered, vital automotive systems and parts.
Based on total quantities delivered to tractors, PVs, and CVs, the company is among the top 10 participants internationally in the differential bevel gear industry.
The company has performed successfully over the last five years, with net profit and sales increasing by 4 and 5 times, respectively. Returns increased as a result, reaching 18% in the fiscal year 2022.
This extraordinary growth is the result of increased market share in the starter motor industry and stable, long-term orders from clients, particularly in the electric car industry.
The business’s prospects are positive.
There is no question that the company can continue to create new products and fulfil a sizable order book given the strength of its order book, which is supported by its research and development team.
The PLI incentive bodes good for the company and, in the long run, will increase margins. Moreover, differential assembly manufacturers in India and overseas face a lack of competition, which will encourage expansion.
Around 53.5% of the company, according to the most recent shareholding pattern, is owned by the promoters.
As a result,
A well-liked method for building long-term wealth is investing in growth stocks. Growth stocks generally have good fundamentals and significant potential for future growth, despite the fact that they can be short-term volatility.
Growth stocks may present a possibility for substantial profits for investors prepared to hang onto their investments for the long term.
Yet, you must take into account a number of variables before going all in, including the company’s financial health, market trends, and the level of competition.
Fundamental research must be prioritised even with good chances.
Disclaimer: This piece is solely for informational reasons. It is not an investment advice and should not be regarded as one.