Synopsis: Ace investor Ashish Kacholia has recently picked up stakes in two relatively lesser-known small-cap companies operating in completely different industries, one in fintech distribution and the other in industrial electrical products. What connects them is not the sector, but the return ratios. One company operates with a ROE of nearly 35%, while the other delivers a staggering 43% ROE, numbers rarely seen consistently in listed smallcaps.
In small-cap investing, growth often attracts attention first. But sophisticated investors frequently look deeper into capital efficiency, specifically how effectively a company converts shareholder capital into profits.
That is where these two companies become interesting. Both businesses operate below the ₹600 crore market capitalisation mark, yet generate return ratios that are significantly above broader market averages. In many cases, even large established companies struggle to sustain ROEs above 20–25% over long periods.
The Fintech Distribution Story
Finbud is a retail loan aggregation platform operating under the Finance Buddha brand. It connects borrowers with banks and NBFCs, earning commission on every disbursement. No lending. No credit risk.
Revenue has compounded at 36% over three years to Rs 260 crore TTM. Operating margins have expanded from 2% to 7% as fixed costs stayed flat while revenue scaled. The 3-year average ROE is 42%.
That becomes notable because most fintech distribution businesses often struggle to balance growth with profitability. Customer acquisition costs, scaling expenses, and competitive intensity typically compress return ratios in digital financial platforms.
Finbud appears to be operating differently. The business model remains relatively asset-light, allowing the company to scale distribution without deploying large amounts of capital into physical infrastructure. If execution sustains, that creates the possibility of high incremental profitability as scale increases.
The risk is working capital timing. Finbud gets paid only after loan disbursement, creating a gap between cost incurrence and revenue collection. Borrowings rose from Rs 19 crore to Rs 35 crore in six months. Cash from operations was negative Rs 13 crore in FY25. Real constraint, but a timing issue, not a structural flaw.
The Indo SMC Story
The second company, Indo SMC, operates in a completely different segment, manufacturing SMC and FRP-based electrical products such as transformer components, electrical enclosures, distribution panels, and junction boxes. What makes the company stand out is the sheer magnitude of its capital efficiency metrics.
The company currently operates with a ROCE of nearly 47.7% and a ROE of around 34%, while its three-year average ROE remains at 43%. Those are unusually high numbers even within the broader small-cap universe.
The business benefits from operating in a relatively niche industrial segment with specialised manufacturing capabilities. Companies serving electrical infrastructure and industrial utility ecosystems can sometimes generate strong margins when operating within less commoditised product categories.
The warning signs for the company are that debtor days have moved from 70 in FY23 to 124 in FY25, and government utility customers are slow payers. Cash from operations has been negative for three years running. The structural tailwind is genuine. India’s Rs 3 lakh crore power sector modernisation creates multi-year demand for electrical products, exactly what Indo SMC makes.
Market Takeaway
Two stocks, two very different ROE stories. Finbud’s 35% ROE is the more durable of the two, built on an asset-light model that gets better as it scales. Indo SMC’s 43% ROE is more, but less permanent, built on a young asset base that will expand as the business captures its power capex opportunity.
Ace investor Ashsih Kacholia has bought both holding 2.46% in Indo AMC and 5.36% in Finbud Financial Services under his name and 3.42 percent through Bengal Finance And Investment Pvt Ltd.
The smarter question is not whether to follow him, but rather which position you are making when you do. One is a hold-and-compound story. The other is a buy-early-and-monitor story. Treating them the same because the same investor bought both is where most retail followers of super-investors go wrong.
Add both to the watchlist. Track Finbud’s working capital cycle and lender concentration in quarterly filings. Track Indo SMC’s debtor days, order book momentum, and capacity expansion timeline. The story is early. The risks are visible. The return ratios are real.
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