Saurabh Mukherjea, founder and chief investment officer of Marcellus Investment Managers, is a strong advocate of this approach in India. He emphasises investing in high-quality businesses with a sustainable edge and holding them for the long term. To meet the coffee can criteria, companies must:
- Have existed for more than 10 years
- Have a market cap above ₹100 crore
- Deliver more than 10% annual profit growth
- Maintain a return on capital employed (ROCE) of more than 15% over a decade
- Have a strong competitive advantage
In this article, we will look at five small cap companies that are aligned with Saurabh Mukherjee’s coffee can criteria.
#1 Shilchar Technologies
Shilchar Technologies is a key player in India’s transformer manufacturing sector, and specialises in power, distribution and telecom transformers.
Established in 1990 and headquartered in Vadodara, Gujarat, it has more than three decades of expertise.
It has expanded its product portfolio in recent years by venturing into ferrite transformers, in addition to its existing range of distribution transformers (5 KVA to 3,000 KVA) and power transformers (3 MVA to 15 MVA).
With a strong focus on the extra high voltage (EHV) transformer segment, Shilchar is strategically positioned to capitalise on India’s growing power and energy demands.
A major highlight of its recent journey is a substantial capacity expansion aimed at scaling operations.
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Revenue from operations surged 41.6% year-on-year to ₹396.9 crore in FY24 from ₹280.2 crore in FY23. The Ebitda margin expanded to 29% in FY24 from 19% in FY23, while ROCE surged to an impressive 75%. Net profit more than doubled to ₹91.9 crore from ₹43.1 crore a year ago.
Another notable development is its strong export growth, with international sales now contributing 52% of total revenue, up from 26% just two years ago.
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Shilchar’s revenue and net profit have grown at a compound annual rate of 27.4% and 64% over the past five years.
The company remains optimistic about growth opportunities in both the domestic and global markets. The Indian government is investing heavily in power transmission infrastructure and rising energy consumption is driving demand, leaving Shilchar well-positioned to benefit.
It plans to fully use its expanded capacity by FY26, setting an ambitious revenue target of ₹750-800 crore, a significant jump from the ₹550 crore projected for FY25.
#2 Tanfac Industries
Tanfac was incorporated by Tamil Nadu Industrial Development Corporation (TIDCO) as a joint-sector company. In 1980, Aditya Birla Group bought a stake, becoming the co-promoter. In March 2022, Anupam Rasayan acquired a stake from Aditya Birla Group and became the co-promoter with TIDCO.
The company produces aluminium fluoride, anhydrous hydrofluoric acid and more. It is the largest producer of aluminium fluoride acid in India. It is also among the leading producers of hydrofluoric acid and its derivatives. These products are used in industries such as aluminium smelting and petroleum refining.
Revenue from operations surged marginally year-on-year to ₹378.1 crore in FY24, while net profit came in at ₹52.5 crore.
During the December 2024 quarter, Tanfac Industries doubled its sales to ₹180 crore while its net profit grew more than three-fold to ₹35 crore from ₹10 crore in the year-ago period.
EBITDA margin expanded to 19% in FY24, while ROCE surged to an impressive 33%.
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Tanfac Industries’ revenue and net profit have grown at a compound annual rate of 11.3% and 7.9% over the past five years.
The company plans to increase its hydrofluoric acid (HF) plant capacity. It recently announced the successful commissioning of this new expansion, which achieved 100% of its capacity within just 10 days of operation.
#3 Suyog Telematics
Suyog Telematics is a fast-growing provider of passive telecommunication infrastructure in India. Established in 1995 by Shivshankar Lature and Vivek Lature, it is headquartered in Mumbai and specialises in installing, maintaining and commissioning towers, poles and optical fibre cables.
Revenue from operations grew 16% year-on-year to ₹166.6 crore in FY24, while net profit surged 36.7% to ₹63.3 crore. The Ebitda margin expanded to 69% and ROCE was an impressive 22%.
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Over the past five years, the company’s sales and net profit have clocked a compound annual growth rate (CAGR) of 9.6% and 17.2%, respectively. Its five-year average RoE and RoCE are 22% and 29.3%, respectively.
The company is set to expand its network infrastructure significantly. It plans to roll out over 1,000 small cell towers in FY25, though some deployments may extend into FY26 due to the scale of the initiative.
Suyog Telematics also aims to lay over 5,000 km of optical fibre network cable over the next two years, enhancing connectivity and supporting high-speed data transmission.
#4 Ceinsys Tech
Ceinsys Tech Ltd, established in 1998 and part of the Meghe Group, is an Indian company that specialises in geospatial engineering, mobility and enterprise solutions. It helps businesses enhance their efficiency through innovative planning and execution.
A key area of Ceinsys Tech’s expertise lies in providing geographic information system (GIS)-based energy solutions to the power transmission and distribution industry. These solutions address critical operational needs such as asset management, power line monitoring, and distribution management.
The company’s revenue rose from ₹197.4 crore in FY20 to ₹252.9 crore in FY24, at a CAGR of 6.4%. Ceinsys Tech delivered strong financial results in FY24, with the Ebitda margin expanding to 18% and ROCE touching an impressive 22%.
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Profitability has also seen a notable improvement, with net profit growing from ₹22.1 crore in FY20 to ₹35 crore in FY24, at a CAGR of 12.2%.
The company aims to foster sustainable growth in rural and urban India while expanding its global footprint with contributions to projects in the US, Europe and Southeast Asia.
#5 KP Energy
The company provides balance of plant (BoP) solutions to the wind energy sector. It is involved in the development of wind farms, right from conceptualisation to commissioning. It also operates and maintains wind farms and currently has a large portfolio of over 200 MW. Its clients include NTPC, Aditya Birla Renewable Energy and Apraava Energy.
Revenue grew from ₹437.5 crore in FY20 to ₹469.9 crore in FY24, at a CAGR of 24.3%. Profitability also saw a notable improvement, with net profit growing from ₹1.1 crore in FY20 to ₹58.3 crore in FY24, at a CAGR of 24.6%. Ebitda margin expanded to 18% and ROCE hit an impressive 39%.
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In the December 2024 quarter, KP Energy more than doubled its revenue to ₹211.8 crore from a year ago, while net profit has shot up nearly three-fold to ₹26.5 crore.
To further expand its independent power producer (IPP) portfolio, KP Energy has applied for 100 MW connectivity to develop a wind power project connected to the Inter-State Transmission System (ISTS).
Given the growing need for renewable energy and the government’s massive renewable-energy target of 500 gigawatts (GW), the company is set to grow in the coming years.
Conclusion
Coffee can investing requires patience, discipline, and a long-term perspective. The strategy is designed for investors who can identify fundamentally strong companies with consistent earnings growth, high ROCE, and a sustainable competitive edge.
By holding such stocks for a decade or more, investors can benefit from compounding and create wealth without the stress of market fluctuations.
However, success depends on choosing the right companies—those with a proven track record, strong financials, and industry leadership.
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While this method reduces portfolio churn and transaction costs, investors must be prepared for periods of underperformance and resist the temptation to react to short-term market movements.
Investors should evaluate the company’s fundamentals and corporate governance, and the stock’s valuation before making investment decisions.
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
