Investors have made fortunes betting on penny or low-value stocks since last Diwali despite the Indian markets having been volatile, tracking global equities amid expectations of rate hikes by global central banks to tackle inflation, geopolitical tensions and energy crisis in Europe. Both Sensex and Nifty are down nearly 3 percent since last Diwali till date, the first decline in the last seven years.
Typically, penny stocks are those that are priced below Rs 10 and considered the riskiest across categories. Moneycontrol research has discovered seven stocks that have advanced over 1,000 percent since last year, giving multi-bagger returns to investors. The list is interesting because most of these stocks are reporting continued losses from the last many years with zero revenue.
These stocks are SEL Manufacturing Co Ltd, Kaiser Corporation Ltd, Supreme Holdings & Hospitality India, Cressanda Solutions, Vegetable Products, KBS India and Kakatiya Textiles Ltd.
Investment in penny stocks has always fascinated investors due to the small investment amount involved and expectations of huge gains. But it is also important to analyse the reasons for the stock to have remained in the penny stock category. Analysts say choosing a penny stock is like finding a needle in a haystack. Such investments can backfire in most cases if proper research is not carried out. Checks like promoters' quality, business prospects, and potential turnaround story need to be undertaken. Analysts believe a lot of ground research is required before investing in such companies to understand the clear picture.
"Just because a stock has given good returns in a very short period of time doesn't necessarily translate into it being a good investment. Investors should study the fundamentals and then invest, past returns are not a proxy for the quality or the soundness of the business. One should always conduct proper fundamental analysis and only then buy a particular stock," said Aditya Kondawar, Partner and Vice President of Key Accounts, Complete Circle Capital.
Let’s now take a closer look at some of these star return performers.
SEL Manufacturing Co Ltd
The stock has advanced over 10,870 percent over the last one year. Last year, it was trading at around Rs 6 a share, and now trades at Rs 698 a share. The stock is currently suspended on BSE and NSE. The firm made losses over the last four consecutive quarters. However, in the December and March 2021 quarters, it turned EBITDA positive. The total debt as of March 2022 was at Rs 1,016.55 crore, up from Rs 958.78 crore a year ago. SEL manufactures and exports a wide range of textiles. The company's products include cotton yarn, combed yarn, knitted fabrics and knitted garments.
Kaiser Corp Ltd
The stock surged 10,365 percent since last Diwali. This multi-bagger stock was trading at Rs 0.58 a share last year, and currently it is trading at Rs 60 a share. The rise in the stock can be attributed to improved revenue and fall in debt. The firm reported a 40 percent jump in consolidated revenue to Rs 33.05 crore in FY2022, compared to Rs 23.51 crore in the previous year. The firm also reported consolidated profit every year except in 2020, when it posted a loss of Rs 76 lakh. For FY22, the company reported a profit of Rs 55 lakh compared to Rs 93 lakh a year ago. Total debt declined to Rs 5.76 crore this fiscal year, from Rs 7.58 crore last year. Kaiser Corp provides printing and packaging services. The company prints labels, packaging materials, magazines and cartons.
Supreme Holdings & Hospitality India Ltd
The stock climbed over 1,266 percent since last Diwali. It now trades at Rs 150 a share, up from Rs 9.90 a share a year ago. The firm showed significant improvement in earnings and also cut down its debt in the last few years. For FY22, it reported consolidated net profit of Rs 12.88 crore, up sharply from Rs 1.28 crore last year. Revenue rose to Rs 99.46 crore from Rs 51.16 crore. Debt dropped significantly. In FY17, its debt was at Rs 54.34 crore, which currently stands at Rs 5.76 crore. For the six months ended June 2022, revenue was at Rs 80.52 crore, up from Rs 15.63 crore a year ago. Supreme Holdings develops and manages hotels and resort projects, and offers hospitality services. For the September quarter, its net profit surged over 1,840 percent to Rs 2.72 crore, while revenue advanced 13.4 percent to Rs 15.4 crore.
Cressanda Solutions Ltd
The stock of Cressanda Solutions jumped over 1,220 percent in the last one year. The stock was trading at Rs 2.45 a share a year ago; it now trades at Rs 32.35 a share. Its earnings are not impressive at all. The firm, on a consolidated basis, never made profit annually, while since FY16 its revenue shows zero, according to Bloomberg. The firm offers a wide range of information technology, digital media and IT-enabled services. The firm’s services include software development, IT consulting search engine optimisation, online marketing and call centre operations.
Vegetable Products Ltd
Kolkata-based Vegetable Products makes plant-based edible oil, and markets it under the brand name Pratap Vanaspati. Last year, the stock was trading at Rs 4 a share. Currently, it is trading at Rs 54 apiece, up 1,143 percent. Analysts say the sharp surge in the share price can be attributed to reduction in import duty by the government amid surge in global commodity prices. In December 2021, the government reduced the import duty to 12.5 percent from 17.5 percent till end of March 2022. From FY2016 to FY22, the firm reported zero revenue. Net loss for the year was Rs 20 lakh against Rs 16 lakh last year. Total debt for the fiscal stood at Rs 2.80 crore, according to Bloomberg.
KBS India Ltd
KBS India gained over 1,140 percent in the last one year to Rs 63 a share from Rs 5 a share. The firm reported revenue of Rs 1.86 crore in FY22 against nil revenue a year ago. Net profit for the year was at Rs 39 lakh versus Rs 0.01 lakh last year. In 2020, it reported revenue of Rs 83 lakh against profit of Rs 0.07 lakh. The firm offers wealth management services.
Kakatiya Textiles Ltd
Kakatiya Textiles manufactures and sells cotton yarn of different counts. The stock advanced over 1,000 percent to Rs 56 from Rs 5 a share last year. The stock reported net profit for the first time in many years. In FY22, it reported a consolidated profit of Rs 3.35 crore from a loss of Rs 55 lakh in FY21. Revenue for the year was Rs 42.27 crore versus Rs 18.09 crore. For the six months ended June 2022, the firm reported a profit of Rs 5.85 crore. Its debt for the fiscal declined to Rs 18.48 crore from Rs 26 crore last year.
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