Seven lesser-known, most profitable stocks that can deliver big in future

NEW DELHI: For every investor, profitability of a company that he has put his money on is the only thing that matters.

But profitability can be a tricky thing to get one’s head around.

Getting a ‘beat’ on earnings can often be easy, as a lower guidance on EPS or sales growth can do the trick.

So it requires extra digging to find out the real profitable companies from among interesting results.

To measure profitability, PAT margin can be a good starting point, as it exposes the bones of a company one is investing in.

Profit after tax margin is calculated by dividing a company's PAT by net sales or revenues and is considered a better gauge of how efficiently a company has managed to convert sales into actual profit.

“PAT margin is definitely an ideal measure to assess the health of a business – as it captures not just operational profitability of a business (Ebitda margin) but also the impact of increasing leverage or capital expenditure on a company’s financials,” said Nikhil Khandelwal, MD, Systematix Stocks & Shares.

Out of all the companies in the BSE500 index, we narrowed down our search to 200, which have reported their earnings through May 23. Counting companies that saw quarterly PAT margin growth for at least four successive quarters, our search led us to these seven names.



The first thing you notice in this list is the absence of major names. There is not a single largecap name on the list, perhaps a sign of the times we are in.

The list is dominated by smallcap names which are relatively lesser known and often get covered in business newspapers and websites – including ours.

The presence of IT names like Vakrangee and Geometric is perhaps commendable, given the slowing growth outlook and margin contraction in the sector.

CanFin Homes, the only financial company on the list, has combined expansion in profit margins with sales growth to emerge with a winning combination.

“It is growing at 30 per cent in terms of the asset under management (AUM) and hopes to expand from Rs 8,000 crore at present to Rs 20,000 crore by FY18. The stock has reasonable valuation and is fairly priced,” said Rahul Shah, Associate Vice-President, Group Leader-Equity Advisory Group, Motilal Oswal Financial Services.

A comparison with their benchmark shows all the seven stocks have outperformed their benchmark index, BSE500, in last one year.



Having profitability is one thing but to combine that with sales growth quarter after quarter is a winning formula.

Here is the sales per share comparison of the most recent quarter with that of the year-ago quarter.



Leaving out La Opala RG and Dishman Pharma, all others have reported double-digit growth in sales per share.

The above research, though, is just a guiding light for investors who are willing to do additional research to dig out names that can actually compliment their belief on profitability instead of just reporting earnings 'beat' quarter after quarter.