2 Growth Stocks with Consistently Improving Profit Margins Year After Year
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Discover two growth stocks showing strong revenue and operating profit margin expansion. Are these sustainable long-term compounders or cyclical plays?
Why Focus on Profit Margin Expansion?
Growth investing is often associated with sales growth. However, real value emerges when profitability also improves consistently. When a company can grow revenues while expanding operating margins, it signals pricing power, efficiency, and better execution. Today, we analyze two companies that fit this theme: BLS International Servicesand Mazagon Dock Shipbuilders Limited (MDL). Both have shown not only revenue expansion but also margin improvement.
2 Continuously growing stocks in India With High Profit Margin Expansion
1. BLS International Services – Visa & Digital Services Leader
BLS International Services is part of the BLS Group and is one of the largest visa outsourcing players globally.
Business Verticals
- Visa & Consular Services (75% of revenue) – Includes visa processing, biometric collection, document verification, and attestation. Clients include 46+ governments across 70 countries.
- Digital Citizen Services (25% of revenue) – Covers Aadhaar enrollment, banking services, and government citizen programs in India, partnering with leading banks like SBI, PNB, and HDFC.
Financial Performance
- Revenue Growth: 37% CAGR over 3 years. FY25 revenue grew 30.8% YoY to ₹2,193 crore.
- Margin Expansion: Operating profit margin improved from 9% in FY21 to 29% in FY25.
- Net Profit: Jumped 65.6% YoY to ₹540 crore, driven by higher service fees and value-added offerings.
A key operational shift from partner-led to self-managed models helped reduce service costs as a percentage of sales from 57.5% to 45%, significantly boosting profitability.
Balance Sheet & Cash Flows
- Borrowings rose from ₹31 crore to ₹359 crore (mainly for acquisitions).
- Despite this, net cash flow from operations jumped 4.5x to ₹829 crore in three years.
- ROCE improved to 33% in FY25, showing efficient capital use.
Future Outlook
The global visa outsourcing market is expected to grow at 14% CAGR and reach ₹71,000 crore by 2028. BLS has ₹8,500 crore worth of tenders up for renewal over the next 18 months. It is also focusing on digital expansion and value-added services, which could be margin accretive.
Risks
- Heavy dependency on tender-based contracts.
- Seasonal fluctuations in visa applications.
- Integration challenges from recent acquisitions.
Mazagon Dock Shipbuilders is India’s oldest and strategically important shipyard with Navratna status.
Business Segments
- Shipbuilding: Commercial vessels, naval ships, and refits.
- Submarine & Heavy Engineering: Building and refitting diesel-electric submarines.
Financial Performance
- Revenue: FY25 revenue grew 20.8% YoY to ₹1,432 crore.
- Margins: Operating profit margin expanded from 6% in 2021 to 18% in FY25.
- Net Profit: Increased by 24.6% YoY despite higher depreciation.
Material costs as a percentage of sales dropped by 14 basis points, reflecting better procurement and cost control.
Order Book Strength
- Current order book: ₹32,260 crore (with ₹24,000 crore executable in 2 years).
- Expected new projects like P75 submarines and frigate contracts could push the order book beyond ₹1.25 lakh crore.
Operational Efficiency
- Inventory Days: Reduced from 285 days to 98 days.
- Cash Flows: Cash from operations surged by 23.8%.
Risks
- Large dependency on defense orders.
- High subcontracting costs for simultaneous projects.
- Long project cycles (e.g., submarine deliveries only in 2032).
Key Insights
Both companies have shown margin expansion driven by structural efficiency, not just cyclical trends:
- BLS International: Lean model, strong international presence, and digital service growth.
- Mazagon Dock: Order book visibility and operational improvements supporting high profitability.
Final Words
Growth at a reasonable price works best when margins improve sustainably, signaling operational excellence and pricing power.
- BLS International is leveraging global visa demand and digital services to maintain double-digit growth and superior margins.
- Mazagon Dock benefits from strategic defense importance and a massive order pipeline, though execution cycles are long.
These are not buy/sell recommendations but case studies of companies improving operational efficiency. Investors should watch for tender wins, order flow, and sustainability of margins before taking a position.
Disclaimer
Investment in securities markets is subject to market risks. Read all relevant documents carefully before investing. This blog is for educational purposes only and does not constitute financial advice or stock recommendations.
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