Swiftest Nanos

Although India Inc’s giants hog the limelight more often, their smaller counterparts are not far behind. ET Intelligence Group brings you the latest list of 100 Fastest Growing Small Companies that hold the potential to make it big

SUCCESS, be it small or big, needs to be celebrated. In keeping with this belief, ET Intelligence Group unveils a list of India Inc’s 100 Fastest Growing Small Companies annually. It is the fastestgrowing small companies of today that hold the promise to emerge as tomorrow’s giants.

But this comes with a caveat. It is difficult to say, for sure, which of these smaller speedsters of India Inc would make it to the Grand Prix in the future. As they say, past performance is no guarantee of excellence in the future. But what we can state from historical trends is the kind of companies which have the potential to make it big. Given their consistent past performance, the companies in the latest list of ETIG’s 100 Fastest Growing Small Companies hold the potential to emerge as likely winners. Investors should cherry-pick stocks from the list based on further research or build a portfolio based on our selection to stay ahead of the markets.

THE SHOWSTOPPERS ON BOURSES A robust financial performance goes a long way in winning investor confidence. To put it in perspective, 77 companies that featured in our 2009 list of 100 Fastest Growing Small Companies outperformed the benchmark indices in the year gone by. Moreover, the stock prices of 27 companies more than doubled during the period.

A portfolio, which includes the top 10 companies from the list, would have enriched an investor by 59%, as against a market gain of 21%. A portfolio of top 25 companies would have earned 61%. And a portfolio with equal weightage of all these 100 companies would be valued higher today by 73%. Indeed an impressive feat.

THE NEW HEROES

Zydus Wellness leads the ETIG’s 2010 list of 100 Fastest Growing Small Companies. It zoomed to the top from fourth position last year. The scrip has benefited immensely due to the merger of Cadila Healthcare’s consumer healthcare business and continues to remain debt-free and cash-rich.

The recently listed Technofab Engineering occupies the second spot, thanks to its impressive profit growth ov the last three years. But it is Hawkins Coo ers, which stole the show in the top five. made it to the top three after figuring do in the list at the 19th position last year. A superior profit growth in FY10 helped the company cruise past the likes of Man Infr construction, Vinati Organics and VST Tillers Tractors. Vinati Organics shot up from last year’s 14th rank to 8th this year and VST Tillers from 27th to 12th positio

A few seem to have lost their ground compared to last year. Tata Sponge Iron, which stood tall at the third position in 2009 list, has slipped to 20th this year. Similarly, Praj Industries slipped considerably moving down to 83 in the l after being ranked 10th last year. Sulzer dia, the topper from last year, recently g delisted and hence couldn’t make it to th list this year.

Among other firms, Bliss GVS Pharma made an impressive entry to the list occupying the fourth position. Man Infra — another newly listed company — entered the list directly at the fifth spot. Plastic goods manufacturer, Mayur Uniquoters, which had failed to make it to last year’s list due to weak interest coverage ratio in the past, has made it this year. The company ranks seventh in this year’s list.

Do refer to the future editions of ET Investor’s Guide to know more about some of the companies in the latest listing.

HOW WE DID IT? For compiling the list of companies, we included companies with net sales below 1,000 crore during FY10. With a view to exclude small companies with possibly dubious credentials, we eliminated from the list companies with a market capitalisation of less than 50 crore.

To make sure that the list was populated only with companies showing healthy financials, we added further criteria, such as return on capital employed (RoCE), debt-equity ratio (DER) and interest coverage ratio (ICR), cash flows from operations and dividends paid. India Inc’s Small Speedsters AS A result, the final list comprised companies, which consistently maintained their RoCE over 15% during the past three years, DER below 1.5 in the past three years and an ICR above 5. Companies which had missing or skipped dividends more than once during the last three years or companies with more than one year of negative operating cashflows, too, were weeded out.

This left us with nearly 140 companies with healthy financials. Since we were trying to identify the fastest growing companies, we calculated weighted average growth rates of sales and profits for all these companies, assigning the highest weightage to growth in FY10. This rewarded their latest performance over growth in the past. Finally, the three-year sales and profit growth and RoCE were assigned 30:30:40 weightage to decide the final rankings. We also decided not to select such companies that have strained their balance sheets for the sake of pursuing high growth. Our list comprises healthy cash generating companies, paying regular dividends with under-leveraged balance sheets. These companies are also earning substantially higher on the capital they have invested in their businesses than their cost of funds. This ensures that they will continue to have sufficient surplus to reinvest in the business after paying their creditors and equity shareholders. Less of debt and higher interest coverage ensure their sustainability even in difficult times.

These companies have performed consistently to deserve a ranking in the list. But remember, the entry to our list of 100 Fastest Growing Small Companies alone is not an investment trigger. It serves more as an entry point to begin your investment research. Happy investing…