Most profitable stocks in India 2017

I was always very inclined to buy stocks having high operating profit margins. But during last days something which changed my lookout towards profitable stocks.

Recently I was doing a study on stocks having high operating profit margins. The only filter that I used was “volume”. I was ready to consider any stocks which had at least last 10 years of data available on internet. But I didn’t want to select such stocks which trade very less (low volumes).

I was sure that even small and mid cap stocks can offer high operating profit margins. Generally I deal only with large cap stocks, but this time I wanted to venture into a new area.

True to my belief, I found some very interesting small and mid cap stocks during my analysis. These were stocks with huge profit margins.

But while I was analyzing their fundamentals deeply, I had some stunning realizations. In fact for me these realizations are so big that, it will change forever that way I see profitable stocks.



As soon as I realized these facts, I immediately corrected my search criteria. Now the filter that I use to analyze profitable companies is not only volume and operating profit, but new ones.

I will tell you about my realizations in the following lines. But first lets see my initial list.

The list of decent stocks having high operating profit margins:

SL Stocks Volume Operating Profit Margin (10Y Avg.)
1 Balmer Lawrie Investments Ltd 9.81K 98.10%
2 Tata Investment 41.78K 94.37%
3 Pilani Investment And Industries Co 232 94.16%
4 Vardhman Holdings Ltd 26 93.46%
5 JSW Holdings 20 92.26%
6 Gujarat Hotels 111 91.93%
7 Bajaj Holdings & Invest 557 89.86%
8 Integrated Financial Services 3.78K 87.74%
9 Coal India 264K 86.06%
10 NMDC 131.48K 73.18%
11 Bajaj Finserv 13.20K 65.35%
12 Nesco 224 61.08%

These are top 12 stocks with phenomenal operating margins. The operating margin range from 61% to 98%.

Just to give you an idea, a typical company in India works at an average operating margin of 20-25% (Example: ITC: 40%, Maruti: 14%, NTPC: 27%, Tata Motors: 7%)

So, what made these 12 companies so profitable?

For several days I did not get my answer. I struggled for several days and ultimately it came as a flash.

The answer was right in front of my eyes. The nature of business was the answer. See this table:

SL Stocks Sector
1 Balmer Lawrie Investments Ltd Finance – Investments
2 Tata Investment Finance – Investments
3 Pilani Investment And Industries Co Finance – General
4 Vardhman Holdings Ltd TEXTILES
5 JSW Holdings Finance – Investments
6 Gujarat Hotels Hotels
7 Bajaj Holdings & Invest Finance – Investments
8 Integrated Financial Services Finance – General
9 Coal India Mining & Minerals
10 NMDC Mining & Minerals
11 Bajaj Finserv Finance – Investments
12 Nesco Diversified

Most profitable stocks in India

Out of total 12, 7 companies were from Financial Sector whose main job is investment only. Such companies are bound to have lower expenses, hence they exhibit higher operating margins.

I was aware about the high margin of Coal India & NMDC. Again the nature of business (mining and minerals) give them this leverage. But both these companies are a government owned subsidiaries. I personally try to avoid investing in public sector companies as far a possible.

Vardhman Holdings, Gujarat Hotels and Nesco made to this top 12 list came as a small surprise to me. But again, these are smaller companies. Apart from Nesco, which has operating profit of 96 Crore, Vardhama holdings and Gujarat Hotels has operating profit of only Rs.16 Crore and Rs.3.8 crore respectively.

Looking at the above data, I was sure that, picking only operating profit margin figure is not giving the right picture of profitable companies. Host of top names were missing from this list.

What was the problem?

If companies of finance sector are so profitable, why leaders chose to do business in other sectors?

The answer was hidden in the below table.

SL Stocks Operating Profit (Rs.Cr.) *
1 Balmer Lawrie Investments Ltd 26.27
2 Tata Investment 209.59
3 Pilani Investment And Industries Co 63.48
4 Vardhman Holdings Ltd 16.59
5 JSW Holdings 30.26
6 Gujarat Hotels 3.82
7 Bajaj Holdings & Invest 865.66
8 Integrated Financial Services 2.77
9 Coal India 8,218.82
10 NMDC 7,459.52
11 Bajaj Finserv 100.74
12 Nesco 96.44

* Operating Profit (10 Year Average)

You can see that all the above companies (except for Coal India, NMDC & Bajaj Holdings), all companies made low lump-sum profits.

So this was the answer, though finance sector is very profitable, but it did not generate higher monies (profits).

I realized that my logic of identifying most profitable stocks via only operating profit was partially flawed. It inherently favored companies of finance sector. So what next?

I began talking to myself, If I would have been a business man, which company I would have like to invest in?

The logic was simple, the company which generates more profits for every dollar of invested capital is preferable.

Suppose I invest $8Mn in Business-A and another $10Mn in Business-B. Both the companies made $1Mn of profit. It means, Business-A generates $0.125 for every dollar I have invested in it.

Business-B generates $0.1 for every dollar I have invest in it.

It means Business-A is more profitable.

Using the same logic, a financial ratio called, “Return on Capital Employed” (RoCE) can be used to identify profitable companies.

I decided to check the above 12 stocks based on RoCE.

SL Stocks Sector RoCE*
1 Balmer Lawrie Investments Ltd Finance – Investments 43%
2 Tata Investment Finance – Investments 13%
3 Pilani Investment And Industries Co Finance – General 9%
4 Vardhman Holdings Ltd TEXTILES 10%
5 JSW Holdings Finance – Investments 5%
6 Gujarat Hotels Hotels 26%
7 Bajaj Holdings & Invest Finance – Investments 17%
8 Integrated Financial Services Finance – General 11%
9 Coal India Mining & Minerals 47%
10 NMDC Mining & Minerals 36%
11 Bajaj Finserv Finance – Investments 6%
12 Nesco Diversified 33%

* I used 10Y Avg. Operating Profit instead of PAT to calculate roce.

Invariably all finance sector stocks (except for Balmer Lawrie Investments) showed a RoCE in range of 5% to 17%. This is too low compared to their phenomenal operating margins.

Conclusion

If one wants to find most profitable stocks, looking only into operating margin is not enough. Stocks which has a combination of high operating profit margin and high RoCE (like Balmer Lawrie) are actually most profitable companies.

List of Most profitable stocks in India 2017

(Updated on 10-April’2017)

SL Company Name Market cap  P/E ratio  Div yield (%) RoCE (%) Operating margin (%)
1 Sun TV Network Ltd.   311.27B 73.92 1.87 25.87 54.44
2 Castrol India Limited   213.91B 31.75 2.13 112.44 28.48
3 Ajanta Pharma Ltd   152.15B 30.54 0.75 39.01 31.42
4 Tata Consultancy Services Limited   4.75T 18.28 1.91 38.88 25.77
5 Oracle Financial Services Software Ltd.   314.36B 26.82 4.44 25.09 36.67
6 Eclerx Services Ltd   55.50B 14.78 0.07 39.19 33.24
7 CRISIL Ltd.   142.75B 44 1.38 35.15 27.22
8 Procter & Gamble Hygiene & Health Care   240.37B 51.86 0.49 29.25 25.78
9 Accelya Kale Solutions Ltd   21.75B 22.98 2.8 68.83 37.6
10 Hindustan Zinc Ltd   1.21T 16.37 1.34 18.98 38.33
11 Advanced Enzyme Technologies Ltd   46.37B 44.14 - 25.03 44.88
12 Infosys Ltd   2.18T 15.18 2.57 23.04 24.9
13 Torrent Pharmaceuticals Ltd   249.72B 24.57 1.72 31.75 21.88
14 Bajaj Corp Limited   60.84B 50.51 2.84 40.46 24.07
15 Jagran Prakashan Limited   61.36B 13.65 1.87 26.4 28.38
16 Colgate-Palmolive (India) Limited   275.66B 47.59 1.29 59.36 18.34
17 Balmer Lawrie Investments Ltd.   8.85B 22.7 3.16 35.34 97.86
18 Dr. Lal PathLabs Ltd   79.86B 51.02 0.26 29.84 24.02
19 GlaxoSmithKline Pharmaceuticals Limited   230.86B 70.36 1.83 18.39 33.89
20 Aurobindo Pharma Ltd   383.70B 16.46 0.49 26.52 20.77
21 Vakrangee Ltd   177.90B 36.35 0.38 27.28 21.47
22 La Opala RG Limited   29.63B 53.26 0.33 26.76 31.4
23 Pidilite Industries Limited   361.57B 42.2 0.59 28.78 19.08
24 Page Industries Limited   157.10B 61.13 0.67 40.58 18.45
25 VST Industries Limited   44.58B 26.18 2.4 41.8 22.48
26 NESCO Ltd.   34.95B 31.42 0.34 19.1 67.61
27 Kitex Garments Limited   20.10B 18.26 0.34 31.35 30.23


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About the Author

Mani
I am a Blogger with a passion for investment education. I started blogging in 2007-08. Blogging didn’t happened to me as a coincidence, it was a conscious decision. The idea with which I started blogging still stands true. In my starting days my finances remained tight. I was reading heavily about how to manage finance. One day I got hold of a book which my father gifted me in 2003. It was stacked below my graduation books. It was a small-thin book with its cover named "Rich Dad Poor Dad".....more

8 Comments on "Most profitable stocks in India 2017"

  1. I think apart from Operating Margin and ROCE (both based upon last 10 years average numbers), what one must additionally look at is D/E ratio and free cash flow from the business. And above all, stock should be available at a reasonable valuation leaving room for appreciation in future. In isolation, these numbers look great, but, if you carefully look at the table, you will find that most of the good stock are having a P/E of more than 25 or even 30 which is higher in today’s plateaued market.

  2. i have 50,000/- looking to invest for 1 year in which company shall i invest were i can get good return .

  3. Dude, is the last table again a 10 year average?? Consider this TCS (IT) was a very good sector 8 years back but in bad shape since last 3 years. A higher weigtage needs to be given to recent data and less to performance 10 years back.

    • Anu, IT in India will always be a good a good sector because of the kind of quality software engineers we have in India. Moreover, we must enter market when chips are down otherwise we will end up buying only expensive stocks

  4. Great post!! Appreciate your effort to educate retail investors in India. Hope some of them will be multubagger stocks.
    Thanks keep posting similar stuff.

  5. This is a great approach for identifying investment candidates. However it needs data, analysis and interpretation. Another approach could be using ready-made free tools available on various websites which process the data at back-end and throws the result & insights in easy to understand format. Even a layman can simply pick the fundamentally solid stock.

  6. Sabyasachi Sadhu | April 14, 2017 at 6:16 am | Reply

    Most of these stocks have given multi-bags return in past, but still a very good choice for future good returns, still we can extract lot of juice of these stocks.

  7. What is Your Opinion About DeltaCorp in Intraday or Short Term

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