The phrase “nothing succeeds like success” might be a cliché.
But when it comes to demonstrating corporate success, nothing quite succeeds like growth – not revenue growth, but profit growth.
After all, a long-term growth in profit validates the correctness of a business strategy or the robustness of a business model.
While a company can grow its sales by compromising on prices and margins, the real winner is one that works with a consistent focus on profit.
This is simply because profit is what determines how much goes back to the shareholders and how much can be reinvested into the business for faster growth in the future.
Here are India’s 5 mid-size companies that have consistently ranked high on the profit growth charts.
It is companies like these that hold the potential to become India Inc.’s poster boys in years to come.
Data Source: Ace Equity, Safal Niveshak Research; PAT-Profit after tax; RONW-Return on net worth;
D/E-Debt to equity, P/E-Price to earnings; P/BV-Price to book value
For zeroing on these fast-growing companies, I have excluded those that have resorted to high levels of borrowings in the past to fund their growth.
Also, growth isn’t important if it doesn’t benefit shareholders. As such, another selection criteria I chose was ‘return on net worth’, which indicates the annual return that a company earns on shareholders’ funds.
So, companies that had ‘high profit growth’ but ‘low return on net worth’ over the past 10 years were also excluded.
In all, not only are these 5 companies fastest growing in terms of profit growth, they have done this without compromising on the safety of their balance sheets and shareholder returns.
Now the question you may have is – “Why mid-size companies and not the larger ones?”
Well, both large companies and the smaller ones have their own set of growth stories. However, the limelight they receive is never the same.
Bigger companies are always the ones that are talked of more and corner the bigger share of mindshare. This is simply because they are ‘big’.
However, the great American poet Oliver Wendell once said, “The great thing in the world is not so much where we stand, as in what direction we are moving.”
Going by this, it is important to bring into the limelight the growth stories even of mid and small size companies.
They may be standing low on the ladder (of size), but their consistent and high growth indicates that they are indeed moving in the right direction.
Anyways, now your next question would be – “Should I buy these 5 stocks right away?”
Well, stocks mentioned in the table above are indeed the best and most consistent profit growth stories in India and also the ones that have achieved this with safe balance sheets.
But that doesn’t mean you go all out and buy any or all of these stocks after finishing reading this post.
You still need to…
- Understand their businesses
- See whether their managements are capable of taking the companies in the right direction
- Gauge other financial aspects of the companies, like free cash flow generation, and dividend history, and
- Find out if the stocks are available cheap (as seen from their valuations like P/E or P/BV ratios that I’ve included in the table above)
Only then you should take the decision to buy any or all of these stocks.
But then, the analysis I’ve done in this post provides you a great starting point to find out the best stocks among these to invest for the long term.
Disclaimer: The author of this post, or any of his family members, does not own any stocks mentioned herein. The opinions in this post are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies is not an indicator of the future. The information in this post is believed to be accurate, but under no circumstances should a person act upon the information contained within. I do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.