Micro-cap companies pose quite some challenge in their analysis due to inadequate information available about them. However, we managed to find some promising ones in this category. For that, we considered the listed companies on the BSE with market capitalisation between 100 and 1,000 crore. We then checked whether the current returns on equity (capped minimum ROE at 18 per cent) and operating margins higher than their five-year averages. Also, we ensured that the increase in operating margins should not be at the cost of a decline in sales. Companies which clear these criteria are likely to have some sort of efficiency in their operations and enjoy economies of scale, which reduce their cost of production per unit as the production increases.
The following table lists the companies which made the cut. Note that many of them have seen their stock prices racing and their PE multiples have got stretched. Exercise caution and study these companies thoroughly before you make up your mind to invest in them and especially mind the volatility in them.
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