As the year winds down, investors are looking forward to 2023 and wondering where they should place their top bets. That’s true that the market conditions in 2022 have been volatile and negative for investors. The high inflation environment, coupled with increasing interest rates, has slowed down the economy.
However, shrewd investors are aware of the fact that it is in times of economic downturn when fortunes are made. In the current environment, many stocks are trading at less than half of what they were trading for a year ago. Hence, this provides an opportunity for long-term investors to start building a position in good stocks. The number of investors interested in buying unlisted shares has risen dramatically. In India, a large number of unlisted companies have formed, and their valuations are performing strongly.
Basis of Valuation
Shares of these companies are available to only those investors that have the deep pockets to bet big on them during the early stages of growth. For unlisted companies, valuation is based on a comparison with their listed equivalents using prevailing industry multiples such as Price to Earnings, Price to Sales, EV to sales, and EV to EBITDA. Other methodologies such as Discounted Cash Flow and Tobin’s Q are also used. In certain cases of early-stage companies, the First Chicago Method for valuation is used. Financial information used is from the latest available annual reports or audited financial statements, as per the Mint report.
Here’s your introduction to the best Unlisted Companies!
The top five unlisted companies ranked in this year are – NSE, CSK, Studds, Elofic and Martin & Harris.
National Stock Exchange of India
NSE emerged as a big beneficiary from the Covid pandemic due to outperformance of the Indian capital markets, record primary market listings, and record high inflow of foreign and domestic investor capital. The NSE has a monopoly on stock derivatives and boasts operating margins of approximately 80% EBITDA (profits before interest, taxes, depreciation, and amortization) and a 93% operating to total income ratio.
NSE’s operating income increased by 60% to INR 5,625 crore in March 2021, compared to the previous year. Its net profit increased by 89 percent to INR 3,574 crore from INR 1,885 crore the year before. The sole flaw in NSE’s present value is that a portion of its net income came from a one-time stock sale in CAMS last year.
Chennai Super Kings
The stock which is poised for the largest gain is CSK which is a cricket franchise team, based in Chennai, Tamil Nadu that plays in Indian Premier League (IPL). Chennai Super Kings (CSK) brand is valued at Rs. 732 Crs according 2019 IPL brand valuation conducted by Duff & Phelps. It is ranked 2nd in brand valuation after Mumbai Indians.
Chennai Super Kings (CSK) has few well- known and best sports players in the team such as: Ms. Dhoni (Wicket Keeper & Batsman), Dwayne Bravo, Francois Du Plessis, Shane Watson, etc. It is going to be the 1st listed cricketing entity on BSE/NSE. It has turned profitable after 2017 & 2018 loss.
Martin and Harris
A significant value from Martin and Harris platform in total can be seen as a leader in a disruptive field. Martin and Harris is among the fastest-growing pharma companies with 29% CAGR sales growth. It is a debt-free company with a D/E ratio of 0.01 (FY 2019-20). Moreover, It has attractive financials with 21% ROE and 28% ROCE (FY 2019-20) and Martin and Harris Share Price has increased from last year.
Studds is a leading manufacturer and exporter of automotive and bicycle helmets, motorcycle accessories, and face shields. The company exports around 20% of its turnover to around 40 countries in the Middle East, Europe, North America and Latin America.
Studds is growing fast to grow its market share from 26% to 40% in the coming three years on the back of rising market share of organized players and stringent regulations. Studds maintains excellent corporate governance standards and consistently distributed dividends at average 10% of net profits. Studds is a relatively debt-free company and maintains a negative working capital cycle. It is expanding its retail presence through dealerships and exclusive brand outlets and aims to double its exports presence in the coming three years.
Elofic is the largest manufacturer of automotive filters in India. Besides, Elofic also manufactures lubes and automotive coolants. It has developed a vast network of 7 warehouses, 1400 distributors, and 55,000 dealers to market its products.
Elofic is a research-driven company with backward and forward linkages. It has a diversified business with consistently growing exports turnover [₹138 crores during FY 2022]. Moreover, it is a debt-free company with increasing sales and net profits. Elofic has also forayed into the lucrative air-purifier segment. Elofic consistently generated dividend income for its investors.
If you go down the above-mentioned route, you too can benefit from this. But as with any other investment, make sure you do your due diligence on the listed companies. Check the valuation as well as the financial track record. And if you are looking to ride a particular trend make sure the company has a significant stake in the startup.