India's Top 5 Fastest Wealth Creators Will Surprise You

Earlier, we wrote to you about India's top 5 biggest wealth destroyers and what they can teach us about investing.

The article covered the debacles of Reliance Capital, Yes Bank, RCom, among others.

Today we've done the opposite and picked out the fastest wealth creators over the past five years.

We've used five-year data to calculate the gains from the BSE 500 and BSE smallcap index. This would also factor gains made over the long term.

Using the compound annual growth rate (CAGR) for five years, here are the top wealth creators.

#1 GRM Overseas

A little known smallcap company is topping this list.

GRM Overseas is primarily engaged in the business of milling, processing, and marketing of branded and non-branded basmati rice in the domestic and overseas market, 

It exports basmati rice to over 38 countries. It's the 3rd largest exporter of basmati rice to the Gulf and 5th largest exporter globally. Exports account for most of its revenues with a major exposure to Iran.

Over the years, the company has reported steady revenues and increase in profitability margins. Back in fiscal 2016, the company had posted a net profit of just Rs 20 m. In fiscal 2021, these stood at 452 bn.

However, the company has substantial debt compared to its equity on the balance sheet. Its current debt to equity ratio stands at 1.4, which is high but less than what it was five years ago (3.8).

This year, there were several developments for the company. In April 2021, the company entered into an agreement with Walmart to place its products in Walmart stores.

In August 2021, the company's subsidiary GRM Foodkraft entered into a Memorandum of Understanding (MOU) with Spencer's Retail to place its products in Spencer's stores.

This month, the company expanded its direct-to-consumer (D2C) product offerings in the same subsidiary by adding Ready-to-Cook Biryani Kit under its brand portfolio.

GRM Overseas also made investments in a software as a service (SaaS) platform GoKhana.

Coming to wealth creation, the stock of GRM Overseas was trading at less that Rs 5 in 2016. It continued to trade in the Rs 5-25 range from 2016 to July 2020.

What followed was surprising. The stock saw a meteoric rise and it currently trades at Rs 580.75.

That's a rise of 13,500% in five years. In growth terms, that implies to a CAGR of 167%!

The outlook for the company remains good as demand for rice exports is expected to remain stable going forward due to increased demand from major rice importing countries because of creation of buffer stock amid the pandemic.

#2 HLE Glascoat

Next on the list, we have another smallcap company, this time from the industrial machinery space – HLE Glascoat.

The company is in the business of manufacturing and sales of glass lined equipment and filters and dryer equipment for various industries. It has expertise in stainless steel and exotic fabric alloy fabrication and is a market leader with around 60% share.

UPL, Sun Pharma, Atul, BASF, PI Industries, SRF, Zydus, Dr Reddy's, Sanofi among others are the company's key clients.

From trading at less than Rs 150 five years ago, HLE Glascoat shares currently trade at Rs 5,692.

But what explains this rally? There are several factors at play here…

HLE Glascoat undertook major capital expenditure of Rs 500 m for expansion and enhancement of its facilities which will be completed by end of current fiscal.

The company's sustained research and development (R&D) efforts have helped it to develop glass frit and glass lining technology, which is more corrosive-resistant.

The markets have also factored in company's efforts to reduce debt and its strong financial performance.

The company is also a top bet of Big Whale Ashish Kacholia, who currently holds 1.42% stake in the company. Promoters of the company hold a majority of the stake (71.3%).

This year, the company signed definitive agreements to acquire the global business of Thaletec GmbH, Germany as well as its subsidiary Thaletec USA. This acquisition is expected to created operation synergies for the company and is in line with its plans.

Over the past five years, shares of HLE Glascoat have gained 3,981%. In growth terms, they have delivered a CAGR of 110%.

#3 Tanla Platforms

Next on the list we have Tanla Platforms, a little-known cloud service providing company.

It's a cloud communications provider enabling businesses to communicate with their customers and intended recipients. It's a global A2P (application to person) messaging platform provider.

Tanla Platforms has an almost monopoly in the OTP business. It's one of the world's largest communications platform-as-a-service (CPaaS) players. It processes more than 800 bn interactions annually.

Trading at around Rs 50 back in 2016, the company's stock saw a meteoric rise in 2021. Between 2016 to 2020, the stock was rangebound and traded more or less near the same levels.

What followed was a sharp rally to Rs 2,000 with most of the gains coming between September 2021 to December 2021.

Considering the stock's performance for the past five years, investors are now sitting on 3,330% gains. (CAGR of just over 100%).

While there have been several instances in the past where the rally in tech stocks was a fluke and not backed by any fundamental performance, this is not the case for Tanla Platforms.

#4 Adani Transmission

No prizes in guessing this name. You probably thought of Adani Transmission when you clicked on this article.

The dream run of Adani Transmission continued even after there were controversies of National Securities Depository (NSDL) freezing the accounts of three foreign funds that together owned shares worth Rs 435 bn in four Adani group companies.

Adani Transmission is present in 10 states with a transmission network of 15,487 circuit km. It's known for providing electricity to over 3 m customers in Mumbai and Thane district with a distribution network spanning over 400 square km.

In 2018, the company also forayed into the distribution space with the acquisition of Reliance Infrastructure's power unit in Mumbai.

The rally is so spectacular that in September this year, it became the first Adani group company to surpass Rs 2 lakh crore in market cap.

So what explains the rally in Adani Transmission shares?

To begin with, there's the low free float factor. Majority of shares are held by promoters and foreign investors which leaves little for retail investors. September 2021 shareholding data of Adani Transmission shows just 1.18% stake was with individual investors.

In May this year, global brokerage firm CLSA had reportedly dropped coverage on the company saying that the stock is driven by speculation and not because the trading volumes are huge.

Another reason is that investors are so gung-ho about the company because all of Adani group companies seem to have a bright future.

Trading just above Rs 50 back in December 2016, Adani Transmission currently trades at Rs 1,700 levels.

That's an over 3,000% gain with CAGR of 100%.

#5 Olectra Greentech

Olectra Greentech is one of the lesser known stocks in the electric vehicle (EV) space. It has major interests in electric buses, composite insulators, amorphous core-distribution transformers, data analytics, and IT consulting.

The company is a pioneer in electric bus manufacturing and is a market leader in the nascent yet growing electric bus market. It has a market share of 35-40%.

A part of Megha Engineering and Infrastructures, Olectra Greentech has developed its buses with technical support from China's largest electric vehicle maker, BYD. It does not rely on BYD for technology now and has in-house capabilities.

As the company is involved in the fast growing EV market, its shares have been on a solid run this year due to increased focus on EVs and more orders.

The company is currently sitting on orders for 2,000 electric buses worth Rs 30-35 bn, which it plans to deliver in the next 12-18 months.

To meet the increasing demand for its buses, the company is setting up the country's biggest electric bus factory with a capacity of 10,000 units on the outskirts of Hyderabad.

Coming to the company's financials, Olectra Greentech has steadily increased its revenues over the years. Starting from 2012, when it had revenues of Rs 640 m, the figures have grown consistently each year and currently stand at Rs 2,814 m (fiscal 2021).

2019 was a tough year for the company when it reported losses to the tune of Rs 158 m but it was quick enough to turnaround fortunes and was back to posting profits.

Apart from this, the market has also factored in the reducing debt factor. Olectra Greentech has reduced its debt to almost zero this year. This brought down its debt to equity ratio to 0.01.

Coming to wealth creation, the stock of the company used to trade at Rs 25 levels five years ago. Today, the stock has zoomed to Rs 800 and has a 52-week high quote of Rs 941.

It has registered gains of 3,000% in the past five years with a CAGR of 99%.

The growth outlook for the company looks bright as it has plans to venture into manufacturing of electric trucks, passenger vehicles, and three-wheeler segments.

Which other stocks turned out to be the fastest wealth creators?

Apart from the above, here are a few stocks which multiplied investors wealth in the past five years.

Since big gainers interest you, check out Equitymaster's Powerful Stock Screener which filters out the top multibagger stocks.

The simple formula for making long-term wealth

If you see the share price charts of all the companies above, you would notice one trend. Most of the gains for these companies have come in the recovery period post the March 2020 crash.

Prior to this, they were trading rangebound or near the same level for years.

Once the companies broke out of their range and started to ride the tailwinds of the megatrends they are involved in, compounding did its job and multiplied wealth. That's the power of long term investing.

Even if you stayed invested in these stocks during market crashes, you won't have anything to worry about because you're in it for the long run.

The key to success in investing is adopting a long-term approach i.e. practicing long-term investing.

However, here's the most important thing. If you get your analysis wrong and you end up investing near the top, you might as well say good-bye to your hard-earned money.

So stick with stocks that have at least a 5-year track record of stable or growing profits or both and also a strong balance sheet.

To conclude…

Co-head of Research at Equitymaster Rahul Shah laid out three rules to follow for making long-term wealth back in 2018.

1. Small, consistent investments over a very long-term period.

2. Having a bulk of investments in the best performing asset class like stocks or real estate.

3. Not hurting the process of compounding by incurring frequent losses.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. 

(This article is syndicated from Equitymaster.com)

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)