- These penny stocks have a high potential to deliver good returns in the long term. Watch out for them.
The year 2022 has so far been very gloomy for investors. Benchmark indices BSE Sensex and Nifty 50 have fallen by more than 8% this year. Forget looking for multibagger penny stocks, even bluechip stocks have undergone a major correction and are trading close to their 52-week lows.
If bluechip stocks are taken to the cleaners, imagine the phase which penny stocks must have been going through.
The most popular category of stocks, the penny stocks, are also losing traction among investors due to extreme market volatility.
Penny stocks are very volatile in nature and could either lift up or create an irreparable dent in your portfolio.
But despite having such a poor reputation, there are select few penny stocks that are diamonds in the rough and can become future multibaggers. These penny stocks are fundamentally strong and have a decent track record.
Such stocks are usually undervalued compared to their peers, have good profit and revenue growth, and have a strong credit profile.
Here’s a list of the 10 best penny stocks in India that have the potential to deliver good returns in the long run.
#1 Pudumjee Paper
Pudumjee Paper is engaged in the business of manufacturing speciality paper.
The company also manufactures hygiene products such as tissues and facial wipes.
It has a pan Indian presence with its strong distribution network and a global presence across Europe, UAE, and South East Asia.
In the last three years, the company’s revenue declined slightly due to the pandemic. However, the net profit has grown at a compound annual growth rate (CAGR) of 21.6% during the same period.
Besides this, it also has a strong financial risk profile. As of 31 March 2021, its debt-to-equity ratio stood at 0.1x, and the interest coverage ratio was 6.4 times.
Compared to its peers, shares of Pudumjee Paper are trading at a discount. The company’s price to earnings (P/E) ratio currently stands at 6.9x, while the industry average is 14.19x.
The company’s revenue is expected to go up in the financial year 2023 on account of the reopening of schools and increasing demand for packaged goods.
#2 International Conveyors
International Conveyors is engaged in the business of manufacturing PVC conveyor belts.
The company’s belts find use in coal, potassium, and cement transportation in underground mines.
It also trades conveyor belts, fitting and accessories. Besides this, the company also has five windmills with an installed capacity of 11 million kilowatt hours (kwh).
The company is one of the key players in the global conveyor belt market and has a reputed client base within and outside India.
Some of its clients include Tata Steel, Coal India, Rosebud, BeltTech, and Mosaic.
During the last three years, the company’s revenue has grown at a CAGR of 23.7% due to growth in exports. The net profit also grew at a CAGR of 42.8% during the same time.
Being a debt free company, it enjoys a strong risk profile. Currently, the company’s shares are trading at a P/E of 28.6x and a price to book value (P/BV) of 2.94x.
A strong order book and high operational efficiency are expected to drive the company’s revenue and profit in the next fiscal year.
#3 Menon Piston
Menon Pistons is an auto ancillary company that manufactures auto components such as pistons, auto shafts for commercial vehicles, and gudgeon pins.
The company’s products are used by original equipment manufacturers such as Cummins India, Eicher Motors, Tata Motors, and Maruti Suzuki.
It also earns revenue from aftermarket sales by selling directly to customers.
In the last three years, the revenue and profit of the company declined slightly due to the pandemic.
Menon Pistons is a debt free company and has a healthy interest coverage ratio of 60.4 times in the financial year 2021.
Compared to its peers, the shares of Menon Piston are trading at a discount. The P/E ratio of the company currently stands at 13.5x, and the industry average is 24.9x.
Going forward, an increase in operating capacity is expected to drive the company’s revenue.
#4 Geojit Financial Services
Geojit is a financial services company that offers a range of financial services, including online broking, advisory, portfolio management services, financial product distribution, and margin trading.
The company also offers software development and maintenance services.
It has a presence across India through 470 branch offices serving over 1 m clients. The company also set up offices in UAE, Oman, Kuwait, and Bahrain primarily to offer financial services to non-resident Indians.
In the last three years, Geojit Financial Services’ revenue has grown at a healthy CAGR of 11.2%, driven by growth in the equity business.
The net profit also grew at a healthy CAGR of 60.1% during the same time. Add to that, Geojit is a debt free company.
The company’s shares are trading at par with the industry average of 8.5x.
Despite being present in a competitive industry, it has an established market share in the equity broking segment, which will drive the company’s revenues in the medium term.
#5 Jagran Prakashan
Jagran Prakashan is a media conglomerate.
It is primarily into printing and publishing newspapers and magazines. In the last few years, the company also forayed into FM radio, promotional marketing, event management, and outdoor and digital advertising.
Jagran Prakashan operates 34 printing facilities and has a readership of 84 m readers. It also has ten publications, 39 radio stations, and 15 digital portals across ten languages.
Some of the company’s well-known brands are Dainik Jagran, Mid-day, and Radio City, among others.
The revenue and net profit of Jagran declined due to the pandemic but the company was quick enough to bounce back.
It has a strong credit profile. In the financial year 2021, the debt-to-equity ratio stood at 0.1x, and the interest coverage ratio was 4.2 times.
Shares of the company are currently trading at a PE ratio of 7.8x, which is much below the industry average of 17.2x.
With the economy back on track, the advertisement revenue is expected to increase in the next fiscal year.
#6 Ador Fontech
Ador Fontech manufactures welding electrodes, welding alloys, ceramic pipes and blends, pulley lagging mats and other welding equipment.
It also repairs vital machinery for core sectors like power, mining, steel, and petroleum refineries.
The company has two manufacturing plants and one reclamation centre in India, where it manufactures and repairs welding products for its clients.
The company was affected by the pandemic like every other company.
However, in the recent quarterly results, its revenue grew at 25.9% year-on-year (YoY). The net profit also grew at a healthy rate of 51.5% (YoY).
The company’s debt metrics are also quite strong, with zero debt and an interest coverage ratio of 22.9 times in the financial year 2021.
S hares of Ador Fontech are currently trading at a P/E of 10.9x, while the industry average is 39.8x. This shows the shares are undervalued when compared to the industry.
Going forward, the company’s expansion plans will increase its operating capacity, hence providing an opportunity to grow its revenue.
#7 Munjal Showa
Munjal Showa is an auto ancillary company that manufactures auto components for two and four-wheeler vehicles.
It is established as a collaboration between Hero Group and Showa Corporation of Japan.
Munjal Showa currently has three manufacturing facilities in India and derives 100% of its revenue from Indian markets.
Munjal’s revenue and net profits declined due to the pandemic. However, as the economy opened up, the revenue grew at a healthy pace.
The company is debt-free, and its interest coverage ratio in the financial year stood at 103.1 times.
Munjal Showa’s shares are trading at a P/E of 35.4x and P/BV of 0.6x.
Going forward, economic recovery and pent-up demand for automobiles from the pandemic will drive Munjal’s revenue .
#8 Gujarat Pipavav Port (GPPL)
Gujarat Pipavav Port is India’s first private sector port. It connects India with the US, Europe, the Middle East, and Africa to the west and the far east on the other side.
It handles four types of cargo, namely container, dry bulk, liquid bulk, roll on and roll off ships.
Gujarat Pipavav Port has access to modern technology and operational know-how of its parent company, APM Terminals, one of the world’s largest port and terminal operators.
In the last three years, the company’s revenue has grown at a CAGR of 1.2%, led by moderate growth in operations.
The net profit also grew at a CAGR of 1.4% during the same period.
Gujarat Pipavav is a debt-free company and has an interest coverage ratio of 52.2 times in the financial year 2021.
The company’s P/E and P/BV current stand at 21.8x and 1.8x, respectively.
Going forward, the company’s competitive tariff rates and strategic location are expected to drive the revenue and profit margins in the medium term.
#9 Rubfila International
Rubfila International is one of India’s largest manufacturers of heat resistant rubber threads.
It is also the only Indian company that manufacturers talcum and silicon-coated rubber threads.
The company’s products are used in toys, bungee jumping cords, medical webbing, and meat packaging, among others.
Apart from a strong domestic presence, it also exports its products to over 30 countries.
In the last three years, Rubfila International’s revenue has grown at a CAGR of 14.3% due to the high demand for rubber threads.
The net profit also has grown at a CAGR of 25.2% during the same period.
Being a debt free company, it has a lot of scope for relying on debt for expansion. As of the financial year 2021, it has a healthy interest coverage ratio of 178.4 times.
Shares of Rubfila International are currently trading at a P/E of 10.1x, while the industry average is 18.1x.
#10 Marksans Pharma
Marksans Pharma is engaged in formulations of pharmaceutical products.
It focuses on over the counter and prescription drugs that find use in multiple fields such as oncology, gastroenterology, gynaecology, antidiabetic, antibiotics, and pain management.
The company has a diversified product portfolio with over 80 products across ten therapeutic segments.
Apart from a strong domestic presence, it also exports its products to over 25 countries.
Marksans Pharma is present across the value chain from R&D to the distribution of medicines to end customers.
It is planning to integrate backwards into active pharmaceutical ingredients (API) manufacturing for captive consumption.
Over the years, the company expanded by acquiring companies across the globe.
In the last three years, Marksans Pharma’s revenue has grown at a CAGR of 11.2%, driven by higher demand.
The net profit also grew at a CAGR of 43.7% during the same time.
Apart from a strong profit growth, it has zero debt on its books, and its interest coverage ratio in the financial year 2021 stood at 38.8 times.
Compared to its peers, shares of the company are trading much below the industry average of 23.6x. The company’s P/E ratio is 8.5x.
Going forward, new product launches are expected to drive the revenue in the next fiscal.
Why you should invest in the best penny stocks in India
Penny stocks look very attractive due to their low prices. Investors and traders often use them to speculate in the stock market.
Besides this, penny stocks are very volatile. Even a small piece of news will lead to a big jump or fall in the share price. Therefore, it is suggested that you practice caution while investing in penny stocks.
Choose only those stocks that are fundamentally strong. In other words, stocks that have stable revenue and profit growth, good credit profile, and are trading at a discount to their peers.
Such stocks are comparatively less volatile to market corrections and have high growth potential in the long run.
Choosing the right penny stock is no rocket science. You can choose the best stocks for your portfolio by practising a little caution.
Happy Investing!
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
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