Mutual funds are often seen as a leading indicator in the market. They have teams of analysts digging deep into companies, and when they quietly start accumulating a stock, it often signals that something interesting is brewing beneath the surface.
Over the past year, two small-cap stocks have caught the attention of several prominent mutual funds, rewarding investors with nearly 80% returns. Naturally, that kind of rally catches the attention of investors.
As such, it’s tempting to jump into anything that’s buzzing, especially when institutional names are involved. But smallcaps can be tricky — they move fast on the way up and can turn just as quickly. Therefore, before being influenced by the impressive figures, it is advisable to think deeper and understand the logic behind this surge.
But one question remains: what’s driving the optimism? Let’s unpack the details.
#1 Gravita India
Established in 1992, Gravita India is one of the largest recycling companies in India. It operates across multiple segments, including lead-acid batteries, lead scrap, aluminum scrap, plastic scrap, and rubber scrap. The company is not expanding into lithium-ion, steel, and paper recycling.
Gravita smelts lead battery scrap and lead concentrate to produce secondary lead metal. This is further processed into value-added products, such as customized lead alloys, lead oxides, lead sheets, lead powder, lead shot, and other related materials.
It has built a strong relationship with original equipment manufacturers, including Exide, Nilakamal, Polycab, Asian Paints, TVS, and Hitachi.
The company has a diversified geographical presence with 10 recycling plants across Andhra Pradesh, Jammu & Kashmir, Sri Lanka, Ghana, Mozambique, Senegal, Togo, and Tanzania. These facilities have a total capacity of about 3.1 lakh metric tonnes across lead, aluminium, plastic, and rubber.
Most plants are located near ports or major industrial hubs, helping reduce freight costs and improve distribution efficiency. Gravita’s spread also allows it to collect scrap in one region and deliver processed lead from a plant closer to the customer, lowering costs for clients.
Gravita has been a key beneficiary of the shift towards organised recycling. Over the last four years, revenue rose at a compound annual growth rate (CAGR) of 24% to ₹31.6 billion. Of this, 62% came from India, and the remaining 38% from overseas. Value-added products accounted for 45% of the revenue.
With a consistent margin of about 10%, Gravita’s net profit grew at a massive 64% CAGR to ₹2.4 billion during the same period. Domestic operations accounted for 73% of profits, while the rest came from overseas markets. As a result, Gravita’s return on capital employed (RoCE) has increased from 16% (in FY20) to 25% in FY24.
The company maintained growth momentum in 9MFY25 as well. Revenue increased 23% to ₹28 billion, driven by a 22% rise in volumes and improved realisation. Net profit surged 26% to ₹2.2 billion.
Looking ahead, Gravita aims to become one of the top five global recycling companies by 2026. This strategy includes expanding into new geographies, adding new products such as lithium-ion and rubber recycling, and maintaining operational efficiency.
Furthermore, the company targets a 25% CAGR in revenue growth and a 35% profitability rate by 2028, while maintaining a return on capital employed (RoCE) above 25%. It sees improving industry dynamics, reduction in working capital, and strong demand as key drivers.
To achieve this, Gravita plans to expand its capacity to 5.1 lakh metric tonnes by FY27, with ₹6 billion capex. It follows a minimum payback period of 3 years for new investments.
Recently, Gravita has also raised ₹10 billion through a qualified institutional placement, which saw strong participation from institutional investors, including Mirae Asset Mutual Fund, Goldman Sachs, and Aditya Birla Sun Life. The funds will likely be used to repay debt and for upcoming expansion plans.
Overall, domestic institutional investors (DIIs) holding in Gravita jumped from 0.43% in March 2024 to 5.4% in March 2025. Mirae Asset, Tata Mutual Fund, and UTI remain the largest shareholders among DIIs.
Gravita is also well-positioned to benefit from the formalisation of the recycling industry, which has grown from 20% in FY16 to 35% today, and is expected to reach 75% by FY26. From a valuation perspective, Gravita trades at a price-to-equity multiple of 46x, about a 100% premium to a 10-year median of 22.
Gravita Share Price is Up 93x in last 1-year and 50x in 5-years
#2 Amber Enterprises
Amber Enterprises is the largest contract manufacturer of air conditioners (AC) in India, with a market share of 27% as of FY24.
The company currently has 30 manufacturing plants across nine states and serves all major RAC brands, including Voltas, Blue Star, LG, and Daikin. Amber’s customers are diverse, with the top five customers accounting for 50% of revenues in FY24.
The company has spread its business operations across three divisions: consumer durables, Electronics Manufacturing Services (EMS), and Railway Subsystems & Mobility Division.
The consumer durables segment leads, accounting for 75% of the revenue. Under this vertical, it manufactures and assembles room air conditioners (RACs), including RAC components such as motors, and non-room AC components.
The segment’s revenue grew at a strong 28% over the last three years, reaching ₹50 billion in FY24, driven by favorable tailwinds from Make in India and rising RAC penetration. However, the segment saw a 7% decline in sales in FY24, due to brands taking RAC assembly in-house and unseasonal rains in Q1FY24.
However, owing to an improved product mix—driven by more component sales—the operating margin improved from 6% in FY23 to 7.1% in FY24.
To counter the shift from outsourcing to in-house manufacturing, Amber has expanded into non-RAC applications, including washing machines, telecom, smart meters, and automobiles. In addition, it has also diversified into the component space, which is more margin accretive. This move reduces dependence on seasonal RAC demand and aligns with the broader push for electronics manufacturing in India.
On the other hand, the EMS division accounts for 18% of revenue. The product portfolio of this segment includes printed circuit boards (PCBs) and printed circuit board assembly for consumer durables, telecommunications, wearables, and hearables.
EMS segment revenue has grown at a 40% CAGR over the last 3 years to ₹12.4 billion, up 10% from the previous year. The growth was driven by wearables, telecom products, and onboarding new customers. Operating margin improved 110 basis points to 5.6% in FY24.
Over the past four years, the company has diversified its product offerings in this segment. It plans to expand further and has signed a memorandum of understanding with Korea Circuit to manufacture flexible PCBs, Semiconductor substrates, etc.
This collaboration is expected to strengthen Amber’s EMS segment, help it enter higher-value segments, open up export opportunities, and capitalise on the growing demand for high-performance electronics.
The Railway Subsystems and Defence vertical offers integrated solutions to rolling stock customers, including Indian Railways, Metros, Buses, and Defence, providing customised solutions for doors, gangways, and pantry systems.
Segment revenue rose at a 34% CAGR to ₹4.8 billion during the period, up 14% from the previous year. The growth was driven by an expanding wallet share among existing customers (4% in FY21 to 16% in FY24) and rising demand in defense applications.
The segment has established a strategic alliance with Titagarh Rail Systems, given the government’s emphasis on the railway sector. This partnership will help it enter the European market and access the order book of Titagarh Firema SPA in Italy and Titagarh Rail Systems. Together, it aims to supply 20% of the bill of materials for rolling stock by developing components and sub-systems for these coaches.
On a consolidated basis, over the last three years, Amber’s revenue has grown at a 30% CAGR to ₹67.3 billion, driven by strong growth across all segments. However, the profit grew at a slower rate of 16% CAGR to ₹1.4 billion.
Growth slowed in FY24, with revenue down 2.9% and profit down 15%. However, the margin improved by 1.3 percentage points to 8.1%. The decline was led by the slowdown in consumer durables, especially the RAC business.
But, the momentum picked up in 9MFY25. Revenue has grown 59% to ₹6,219 crores, led by 62% growth in consumer durables and a 79% growth in the electronics division. Net profit jumped 228% to ₹1.3 billion.
From a valuation perspective, Amber trades at a P/E of 97, a 28% premium to the 7-year median P/E of 76. The valuation increased due to continuous buying by institutional investors, with DII holdings rising from 15.8% in March 2024 to 19.4% in March 2025. DSP, Baroda BNP Paribas, and Axis Mutual Funds hold the highest shares among DII.
Amber Enterprises is a key beneficiary of the Make in India initiatives in the Air Conditioners and electronics manufacturing sectors. The growth drivers remain encouraging as the company diversifies away from revenue concentration in RAC.
Conclusion
Both Gravita India and Amber Enterprises are riding on structural tailwinds in their respective industries. Gravita is formalising the recycling ecosystem with a clear roadmap for capacity expansion and value-added product focus. Its strong margins, rising RoCE, and global presence strengthen its long-term case.
Amber, on the other hand, is navigating the slowdown in its core RAC business by expanding into non-RAC, EMS, and railway segments. Early signs of recovery and strong 9MFY25 performance indicate that its diversification strategy is gaining traction.
While Gravita offers relatively better growth at reasonable valuations, Amber could benefit from an earnings rerating if it sustains its turnaround.
Disclaimer:
Note: We have relied on data from http://www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
About the Author: Madhvendra has been deeply immersed in the equity markets for over seven years, combining his passion for investing with his expertise in financial writing. With a knack for simplifying complex concepts, he enjoys sharing his honest perspectives on startups, listed Indian companies, and macroeconomic trends.
A dedicated reader and storyteller, Madhvendra thrives on uncovering insights that inspire his audience to deepen their understanding of the financial world.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
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