What would Peter Lynch buy in India today? Here are three tenbagger bets.

Lynch’s tenets are underpinned by thorough research to understand a business and a long-term vision. He cautions against investing in businesses one does not understand. At the same time, familiarity with a product or service won’t go a long way in achieving investment outcomes if the product makes up only a small portion of the business.

He also has a few fundamental filters that proxy as secular drivers of growth. He popularized the price/earnings-to-growth ratio to identify undervalued stocks, while also swearing by low financial leverage and robust cash flows.

Which small-cap stocks check these boxes today? Let us explore.

Unimech Aerospace: Can export demand keep up with expansion?

Unimech Aerospace, listed this year, provides high-precision engineering solutions to clients in the aerospace, energy, and semiconductor industries. The focus on emerging industries is not just on paper. Surging aircraft orders and defence exports have ensured market-beating revenue growth year after year for the company, while also expanding its operating and net profit margins.

More importantly, the growth has come with moderating financial leverage. Expansion was funded through private placement and its IPO, rather than by piling on debt to its books. In fact, Unimech’s debt-to-equity has mellowed from 0.6X to 0.1X between March 2022 and March 2025. Its cash-flow position was also maintained, thanks to robust operating cash flows amid the expansion.

That said, there are risks. The company had almost tripled its capacity in FY25. However, with almost 90% of its revenues derived from exports, and the US and Europe being its primary export destinations, demand has not yet caught up.

The company has been operating at less than 60% capacity utilization since FY25, down from about 95% in previous years. With higher employee and other expenses, Ebitda margin has contracted by 12 percentage points year-on-year to 31% in the quarter ending June 2025. Here onwards, margins will be contingent on demand scaling up to meet capacity, and execution keeping up as well.

E2E Networks: Emerging industry tailwinds, but risks loom

E2E Networks is one of the few listed stocks in India that focus on advanced Cloud GPU Infrastructure to meet AIML workloads. Buoyed by growing global and government demand for advanced GPUs, the growth of open-source AI, and India’s largely digitized population, India’s cloud/AI market is expected to grow at more than 25% CAGR between 2025 and 2030.

E2E Networks’ offerings in cutting-edge NVIDIA GPU servers and a proprietary AI software stack position it well to capitalize on the emerging industry tailwinds. The company has grown to 10MW in data centre IT capacity and nearly 3,900 cloud GPUs. Speaking to its quality, E2E Cloud commands a G2 Satisfaction Score of 81, ranking 4th among global infrastructure as a service (IAAS) providers.

The proof is in the financial pudding, too. Its top line has expanded at an exponential 47% CAGR from just about ₹35 crore in FY21 to more than ₹160 crore in FY25. As scale picked up, the company has gone from making losses in FY21 to reporting a 29% net profit margin in FY25.

E2E has scaled up capex massively during the year. With the expansion funded by a preferential issue of shares worth ₹1,845 crore in FY25, the company has also managed to deleverage. Its cash position has improved as well, going from a negative balance in FY24 to ₹456 crore as of March 2025.

However, the industry is still in its early stages and remains vulnerable to technological and competitive disruptions. Take, for instance, how E2E was corrected by more than 40% in half a month when China announced its sleek and low-cost AI model, DeepSeek. The massive capex from FY25, as well as the recent plans to raise another ₹1,000 crore, can also weigh on E2E’s operating leverage. The company has already slipped back into losses in Q1FY26. Order wins and margin protection here onwards will need to be closely monitored.

Poly Medicure: Aggressive expansion against promising prospects

Poly Medicure had almost tripled investor wealth in the one and a half years ending 2024. But come 2025, the stock of the medical equipment exporter has corrected by more than 40% from its 52-week high. Risks from the slowdown in its mainstay export segment have outweighed its strengths in recent months.

The company derives about two-thirds of its revenues from exports, primarily to Europe. While exports to the US account for only 2-2.5% of its sales, most of its European customers are working on reduced inventory levels due to global tariff issues. This second-order impact of the tariffs manifested as a 6.7% year-on-year degrowth in its sales to Europe. Result? Despite a 20% growth in domestic revenues, overall growth came in much lower at 4.8%. The management has revised its FY26 growth projection down from 20% to 16%.

Meanwhile, its operating expenses (primarily, R&D) grew faster than its top line, leading to a 70-bps compression in its Ebitda margin to 26.3%. It has also been expanding aggressively, utilizing both internal accruals and fundraising to cover the costs. Last month, it announced the acquisitions of Citieffe and PendraCare groups of Italy and the Netherlands, for a combined enterprise value of more than ₹500 crore. These investments can further stress out its cash position.

That said, the long-term prospects remain promising. Having commenced operations in 1997, Poly Medicure has decades of operational excellence, R&D capabilities, and long-standing customer relationships to back it up. Its consolidated revenues have more than doubled to ₹1,670 crore between FY21 and FY25, while its operating margin has remained stable at around 27%. Its financial leverage has been consistently low, while its efforts at expansion and diversification into new segments and geographies can improve business prospects.

Bottom line

No business is without risks, no matter which investment guru’s principles we follow. While Unimech and E2E stand to benefit from industry tailwinds, the other side of the coin is that emerging industries and markets tend to be vulnerable to geopolitical, competitive, and technological shocks. Expansions undertaken in uncertain demand environments can stress out operating leverage and margins. Along similar lines, aggressive expansion, as seen in the case of Poly Medicure, can ultimately drain internal accruals and raise funds simultaneously.

The idea is to deeply understand what makes a business tick, along with its risks. This would help investors not overpay for the stock. In the end, when we invest in fundamentally strong businesses, time is on our side.

Peter Lynch has time and again talked about how futile it is to time the market. No expert can sustainably buy in gloom and sell in boom. Instead, the ingredients of wealth compounding lie in investing after thorough thought, and for the long term.

For more such analysis, read Profit Pulse.

Ananya Roy is the founder of Credibull Capital, a SEBI-registered investment adviser.

Disclosure: The author does not hold shares of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.