Top 5 Stocks With Highest 5Y CAGR in Their Sector (2024)

Like 2022, early 2023 has also shown signs of turbulence in the stock markets. As the global economic slowdown continues and rising inflation pushes the pressure pedal, all eyes are on the Indian stock markets and their resilience test this year. As compared to the markets worldover, stock markets in India have been better off. However, investors are playing extremely cautious now as each wants to protect his/her portfolio by making it turbulence-proof.

Read More – Sectors that are expected to do well in 2023

Understanding 5-Year CAGR: an overview

To identify strong companies for their portfolio, investors can look at several parameters. Here, we have highlighted 2 such that have been used for identifying stocks:

1. 5 Year CAGR
2. 5 Year average net profit margin

CAGR or Compound Annual Growth Rate of an investment is its annual growth rate, provided the profits of the investment are reinvested during the period. With this metric, we can estimate how much our investment would grow in the long run if it grew at the same rate every year.

Let’s understand how this works – suppose you bought a stock at Rs. 100 and decided to leave it in your portfolio for the next 5 years without withdrawing it. During this duration, whatever profits are earned from this investment, you will reinvest them. In these 5 years, the CAGR of this investment is 20%. This means, after completion of 5 years, your investment value will be about Rs. 250.

With the help of CAGR, we can easily compare different investment options and select the best of the lot.

Net Profit Margin is how much profit a company earns as a percentage of its total revenues. This metric tells us about the company’s profitability or the percentage of its sales that the company is able to turn into profits after covering its operating expenses and overhead costs.

If a company has been able to constantly increase its revenues, investors must also check whether its net profits have been rising in sync.

In this article, we will be discussing 5 high growth stocks that have been identified based on –

1. Highest 5Year CAGR in their industry
2. 5Year Average Net Profit Margin more than 10%

Methodology for identifying top stocks with highest 5-Year CAGR

Before sharing the stock names, these are the 2 criteria used for stock selection:

1. Stocks with Market capitalisation above Rs. 15,000 crore
2. Stocks with highest 5Year CAGR in their industry

Top 5 Stocks with highest 5-Year CAGR

1. Linde India Ltd

(Data as of Feb 28, 2023)

India’s chemical sector is one of the fastest growing in the country. Linde India Ltd is a top stock in this sector with:

1. 5 Year stock price CAGR of 49.72 %
2. 5 Year Avg Net Profit Margin of 15.31%

Here are some top facts about this company

• Linde India is a subsidiary of Linde Plc, which is a global multinational chemical company.
• Linde India manufactures and sells:
  • industrial gases and specialty gases,
  • engineering services for gas processing plants and equipment.

Some of the company’s main offerings include:

• oxygen,
• nitrogen,
• hydrogen,
• acetylene,
• argon,
• carbon dioxide gases,
• various specialty gases used in industries like healthcare, electronics, and chemicals.
• Company is also involved in gas equipment installation, maintenance, and on-site gas supply solutions.

Company’s current performance

Company’s financial performance over the last 5 years –

• Company’s net income has been growing at an average yearly rate of 93.49% vs industry average of 24.29%
• Linde India has been consistently paying out dividends over the last 10 years. This is an indication that the company is committed to sharing its profits with shareholders.

Future prospects

• India’s chemical industry is expected to see significant growth in the future because of increasing demand for chemicals in various sectors like agriculture, healthcare, and consumer goods. As per market experts, by 2025, the sector’s size will touch USD 304 billion.
• Favorable government policies and rising exports are other favourable factors promoting the sector’s growth.
• Like any sector, chemical industry also faces multiple challenges including environmental concerns, lack of innovation and R&D, and inadequate infrastructure.

2. J B Chemicals and Pharmaceuticals Ltd

J B Chemicals and Pharmaceuticals Ltd. 5 year performance performance can be seen via it’s:

1. 5 Year stock price CAGR of 44.32
2. 5 Year Avg Net Profit Margin of 14.48

This pharma sector company was established in 1976. It offers a range of pharmaceutical products, including products for:

• cardiology,
• dermatology,
• neurology, and
• Gastroenterology

JB Chemicals & Pharma offerings include prescription drugs, over-the-counter (OTC) medicines, and active pharmaceutical ingredients (APIs).

The company has a market both domestically and onshore. One of the strong points of JB Chemicals & Pharma is their R&D facility which allows the company to develop innovative and affordable drugs.

Company’s current performance

Highlights of the company’s financial performance for the last 5 years are:

• Company’s revenues have grown at a yearly rate of 12.05% vs industry average of 7.66%
• Net income has risen at an annual rate of 15.92% versus industry average of 4.09%

Future prospects

Some of the points that highlight the company’s future prospects are:

• According to experts, India’s pharma industry is likely to witness fast growth in 2023. This growth will be driven by factors like:
  • increased healthcare spending
  • a growing middle class, and
  • adoption of new technologies
• Generic and specialty drugs will also be seeing rising demand domestically as well as in developed markets.
• Pharma sector is expected to play a key role in shaping the Indian economy over the next few years. It will help create more jobs and boost innovation in the coming years.

All these factors will positively influence the growth of JB Chemicals & Pharma in the near future.

3. Tata Elxsi Ltd

Coming to the IT sector, we have Tata Elxsi that has demonstrated strong performance over the last 5 years.

The stock’s:

1. 5 Year stock price CAGR is 43.67
2. 5 Year Avg Net Profit Margin is 18.28

Currently, this stock is also trading at a discount of 69% from its 52-week high price.

Established in 1989, Tata Elxsi is part of Tata group of companies.

Tata Elxsi provides design and technology services to multiple industries. The company specialises in emerging technologies like AI, IoT, and ML. Their services include product engineering, system integration, and software development.

Company’s current performance

• In the last 5 years:
  • Company’s revenues have grown at an annual rate of 14.91% versus industry average of 12.63%
  • Company has also managed to expand its market share from 5.04% to 5.53%
  • Net income has grown at a yearly rate of 25.75%, versus industry average of 21.05%

Future prospects

• Due to the current global economic slowdown, IT sector companies may see some level of impact in the near future.
• As per Tata Elxsi’s CEO and MD Mr. Manoj Raghavan, the company has had a strong order book and healthy deal pipeline. This has allowed the company to be well positioned as compared to its competitors.

4. KPR Mill Ltd.

Coming to India’s textile sector, the stock that has shown very good 5 year performance is KPR Mill Ltd.

KPR Mills’s:

1. 5 Year Stock price CAGR is 32.78
2. 5 Year Avg Net Profit Margin is 12.40

This is a Tamil Nadu based textile manufacturing company which started operations back in 1984.

KPR Mills offers products like:

• Yarn, fabric, and readymade garments.

Company has also invested in business segments like sugar and wind power generation. Company’s wind power generation capacity is over 169 MW across various locations in India.

Company’s current performance

• Over the last 5 years, company’s revenues have grown at an annual rate of 11.59% versus industry average of 6.42%
• Company has also managed to consistently grow its market share from 2.32% to 3.04% over the last 5 years
• Company has also been able to share its profits with shareholders by paying out regular dividends.

Future prospects

• India’s textile sector faces many challenges, including:
  • rising cotton prices
  • rising freight costs
  • lukewarm consumer sentiment due to inflation
• Company has managed to strategically diversify its business segments across power generation and sugar production. Thus, even if there’s lackluster demand in the textile segment, the company will still be able to sustain the slowdown.

5. Bajaj Finance Ltd

About company

One of the major players in India’s finance sector is Bajaj Finance. This leading non-banking finance company has demonstrated strong performance, which can be seen through its:

1. 5 year Stock price CAGR of 30.18
2. 5 Year Avg Net Profit Margin of 19.98

Established in 1987, this company is part of Bajaj Group, which is one of India’s leading business conglomerates.

Bajaj Finance offers a wide range of financial products and services like:

• Consumer finance including home loans, personal loans, etc.
• Business finance, under which the company offers loans to small and medium-sized enterprises (SMEs) and corporations.
• Investment services like fixed deposits, mutual funds, and insurance.
• Bajaj Finance has also launched many digital products like mobile wallets and payment services.

Company’s current performance

• In the last 5 years, Bajaj Finance has managed to consistently increase its market share from 13.28% to 22.52%
• Company’s geographic presence has also expanded across 3,714 locations through 1,43,900+ distribution centres.
• Company’s NPA (Non performing assets) have been consistently going down while its Net Interest Income has been on a steady rise.

Future prospects

• Company’s management has rolled out a 5-year long range strategy (LRS) that focuses on credit expansion.
• Company has also planned the entry of its new products across auto financing and emerging corporate segments.
• Through digital transformation, client additions and ambitious targets, company aims to boost profitability while maintaining stable asset quality.

Conclusion

The stock markets in India are facing turbulence due to the global economic slowdown and rising inflation. To protect portfolios, investors should look for strong companies based on parameters like 5-year CAGR and net profit margin. The 5 stocks with high 5-year CAGR and net profit margin discussed above have shown consistent growth and profitability over the past 5 years and may have favorable future prospects. Investors must remember to do their own research

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