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  • Feb 21, 2023 - 5 Penny Stocks Set to Grow Dramatically in 2023. Add them to Your Watchlist

5 Penny Stocks Set to Grow Dramatically in 2023. Add them to Your Watchlist

Feb 21, 2023

5 Penny Stocks Set to Grow Dramatically in 2023. Add them to Your Watchlist

Have you been looking for promising penny stocks to add to your portfolio?

Penny stocks can be a high-risk, high-reward option, but with the right research and timing, they can also offer enormous growth potential.

In this article, we'll take a look at five penny stocks that are poised to grow dramatically and could be the best additions to your watchlist.

Whether you're a seasoned investor or just starting out, adding these stocks to your watchlist could be a game-changer.

Take a look...

#1 3I Infotech

First on the list is 3I Infotech.

From humble beginnings as a back-office processing company in 1993, 3I Infotech has today emerged as a global information technology (IT) company.

It offers IT solutions and transaction services to more than 15 countries across four continents.

The company's services include 5G, cyber security, blockchain, DevOps, cloud computing, and the internet of things (IoT).

With large Indian IT companies such as Infosys, TCS, among others already having a dominant presence in the sector, how is 3I Infotech set to grow dramatically in 2023?

The company has adopted a 'Run, Grow and Build' strategy to grow its business and achieve US$ 1 billion (bn) in revenues by 2030. In line with this strategy, it is focussing on acquiring new clients across new business lines and innovating across next-gen services.

So far in the financial year 2023, it has acquired 39 new clients taking the total client count to 485 as of December 2022.

It has won several high-value deals in the current fiscal including the Rs 2.5 bn Wi-Fi monetisation project by RailTel Corporation. This project would monetise one of the biggest free Wi-Fi networks in the world, covering over 6,100 railway stations in India.

The company also won a mega project by Eureka Forbes worth Rs 102 million (m) for digital infrastructure managed services (DIMS).

Additionally, 3i Infotech is focussing on emerging industries such as EdTech, agritech, and greentech by launching new products and services.

Coming to its financials, the company's revenue has grown by 9.3% in the last one year, driven by deal wins. The company reported a net loss of Rs 575 m for the financial year 2022.

In the recent quarterly results, the company's revenue grew by 20% year-on-year (YoY), and it reported a profit of Rs 131 m driven by cost optimisation measures.

The company is also debt-free.

3I Infotech Financial Snapshot (2018-2022)

Particulars (Rs m) FY18 FY19 FY20 FY21 FY22
Total Revenue 10,104 11,428 8,469 6,322 6,908
Growth   13.1% -25.9% -25.4% 9.3%
Operating Profit 1,558 1,444 373 3,574 -432
Operating Profit Margin 15.7% 12.9% 5.3% 58.7% -6.4%
Net Profit 711 682 680 2,578 -575
Net Profit Margin 7.2% 6.1% 9.7% 42.4% -8.5%
Source: Equitymaster

New deal wins, cost optimisation measures, and new product launches will drive the company's revenue and profit growth.

To know more about 3I Infotech, checkout its factsheet and latest quarterly results.

#2 Ador Fontech

Second on the list is Ador Fontech.

The company started off as a repair welding service provider and later diversified into other segments, such as value-added reclamation, fusion, surfacing, and spraying.

It also manufactures and sells products such as low-heat input alloys, solid and flux-cored wires, and welding and cutting equipment.

Why does Ador Fontech make it to the list?

Welding is integral in manufacturing and construction. Moreover, with a boom in overall manufacturing and infrastructure spending in India, the demand for welding consumables is set to grow.

Apart from this, the introduction of cutting-edge technologies in welding automation is also contributing to this demand. This puts Ador Fontech, a leading welding service provider, in a sweet spot.

The company is focussing on an optimal blend of its product mix and expanding its customer base to capitalise on the growing demand.

Moreover, with the merger of Ador Welding, the company can combine operational synergies to improve its revenue and profitability.

Ador Fontech also received approval for a robotic welding system for Indian Railways. It is the first company to receive such approval in India.

Through its subsidiary, 3D Future Technologies, Ador Fontech is exploring business opportunities in 3D printing for the dental and healthcare industry.

All this shows that the company is poised for growth.

In the last three years, the company's revenue has grown at a compound annual growth rate (CAGR) of 6%, driven by high demand. The profit also grew at a healthy CAGR of 34.5% during the same period.

Ador Fontech is currently a debt-free company with healthy liquidity and an interest coverage ratio of 96.7x. The return on equity (RoE) for 2022 improved from 9.2% to 17.4% due to improved profitability.

Ador Fontech Financial Snapshot (2018-2022)

Particulars (Rs m) FY18 FY19 FY20 FY21 FY22
Total Revenue 1,560 1,893 1,800 1,520 2,141
Growth   21.3% -4.9% -15.6% 40.9%
Operating Profit 106 170 146 173 289
Operating Profit Margin 7% 9.1% 8.2% 11.6% 13.8%
Net Profit 70 110 88 100 214
Net Profit Margin 4.6% 5.9% 5% 6.7% 10.2%
Source: Equitymaster

Going forward, the company's continuous efforts to update and upgrade its welding techniques and materials will drive growth.

To know more about Ador Fontech, checkout its factsheet and latest quarterly results.

#3 Asian Granito

Third on the list is Asian Granito, one of the leading ceramic companies in India.

Established in 2000, the company has built a reputation for manufacturing the finest quality ceramic tiles, engineered marble and quartz.

In its 23 years of existence, the company rose to become the fourth largest listed ceramic tiles company in India, with a market share of 11% as of March 2022.

It also exports to over 100 countries across the globe.

This penny stock made it to the list as it has huge plans in store, which are a blend of manufacturing, branding and go-to-market initiatives.

It plans to increase its manufacturing capacity from 32 million square meters by setting up three state-of-the-art manufacturing units in India, taking the total number of manufacturing plants to twelve.

The company is also adding additional infrastructure for its value-added products.

Asian Granito is expanding its vast product portfolio by foraying into new-age flooring.

In line with its branding initiatives, it is setting up one of the largest display centres for tiles, marble, and quartz.

In the last three years, the company's revenue has grown at a CAGR of 9.2%, driven by diversified product portfolio and wide distribution network. The net profit also grew by 28.2% on a CAGR basis during the same period.

The company's debt-to-equity ratio reduced from 0.3x to 0.1x in the last five years.

The return ratio (RoE) has also improved significantly from 4.2% in the financial year 2019 to 10% in the financial year 2022.

Asian Granito Financial Snapshot (2018-2022)

Particulars (Rs m) FY18 FY19 FY20 FY21 FY22
Total Revenue 11,448 11,958 12,380 12,968 16,131
Growth   4.5% 3.5% 4.7% 24.4%
Operating Profit 1,390 837 1,119 1,350 1,197
Operating Profit Margin 12.2% 7.1% 9.1% 10.4% 7.7%
Net Profit 544 187 435 557 916
Net Profit Margin 4.8% 1.6% 3.6% 4.3% 5.9%
Source: Equitymaster

Going forward, the shift from an unorganised to an organised tiles market and growth in ceramic tiles exports will drive its revenue and profitability in the medium term.

To know more about Asian Granito, checkout its factsheet and latest quarterly results.

#4 Bliss GVS Pharma

Next on the list of penny stocks is Bliss GVS Pharma.

The company is engaged in the business of manufacturing and marketing pharmaceutical formulations.

It has five manufacturing facilities in India that manufacture over 150 brands across 60 therapeutic areas.

Apart from manufacturing basic pharma products like capsules, etc., Bliss GVS Pharma also undertakes contract manufacturing for several companies, including Sun Pharma, Sanofi, Mankind Pharma, and Alkem Laboratories.

The company has a global presence in over 64 countries and draws a majority of its revenues from exports.

It has an established presence in the sub-African region, with a market share of more than 75% for its anti-malarial segment.

In the last three years, the company's revenue has grown marginally at a CAGR of 2.3%. However, in the last year, its revenue has grown by 30% YoY, driven by exports. It reported a net profit of Rs 231 m for the financial year 2022.

Bliss GVS Pharma Financial Snapshot (2018-2022)

Particulars (Rs m) FY18 FY19 FY20 FY21 FY22
Total Revenue 8,407 9,362 7,285 5,992 7,789
Growth   11.4% -22.2% -17.7% 30%
Operating Profit 1,629 1,576 1,099 1,066 447
Operating Profit Margin 20% 17.5% 15.9% 18.5% 6%
Net Profit 887 1,267 953 740 231
Net Profit Margin 10.9% 14.1% 13.8% 12.8% 3.1%
Source: Equitymaster

The company has invested in a solar plant which will meet close to 70% of its energy needs, helping Bliss GVS to cut costs.

Bliss GVS Pharma has a host of growth plans to grow its presence in the pharma sector.

Having an established leading presence in the Sub-Saharan African market, it plans to expand its presence in Latin America, Southeast Asia, Europe, and North America.

The company also plans to expand in India and has purchased 28 acres of land in Gujarat to expand its manufacturing and business operations.

With government initiatives such as Ayushman Bharat Scheme, National Digital Health Mission and trends such as China plus one, the company is poised for growth.

To know more about Bliss GVS Pharma, checkout its factsheet and latest quarterly results.

#5 Haldyn Glass

Last on the list is Haldyn Glass.

The company is engaged in the business of manufacturing glass containers and bottles. Its products are used in several industries, including food, beverage, pharmaceuticals, and cosmetics.

Some of its notable clients include Amul, Vadilal, United Spirits, and Parle Agro.

Why does a glass manufacturing company make it to the list?

With the government's vision of a plastic-free India, glass has gained importance. Many food and beverage companies are also replacing plastic with glass as products packed in glass have a longer shelf life and retain taste and quality.

This gives Haldyn Glass an excellent opportunity for growth.

The company has a long track record in the glass business and a long-standing relationship with its clientele. It also has in-house mould designing capability providing it with the flexibility to meet client requirements.

The company is implementing a huge project in Gujarat. It is upgrading its furnaces to manufacture premium quality products.

The company is also investing in modernising existing furnaces to increase its capacity by 95 tonnes per day.

The estimated cost of its capex plan is Rs 1.5 bn which will be funded through a mix of debt and internal accruals. At present, the company is debt-free, but with a debt-funded capex, the debt-to-equity ratio can go up in the financial year 2023.

In the last five years, its revenue has grown at a CAGR of 5.4%, driven by higher demand. Its net profit also grew at a CAGR of 10.9%.

High input costs are putting pressure on the company's profit margins but it plans to achieve economies of scale and reduce its expenses through the expansion plan.

What's more, the company has paid consistent dividends and has a five-year average dividend payout ratio of 28.8%.

Haldyn Glass Financial Snapshot (2018-2022)

Particulars (Rs m) FY18 FY19 FY20 FY21 FY22
Total Revenue 1,678 2,260 2,333 1,828 2,180
Growth   34.70% 3.20% -21.60% 19.30%
Operating Profit 135 241 254 204 163
Operating Profit Margin 8.30% 10.80% 11.10% 11.50% 7.60%
Net Profit 65 121 105 100 109
Net Profit Margin 4% 5.40% 4.60% 5.60% 5.10%
Source: Equitymaster

Going forward, the company's expansion plans and growing demand for glass containers are expected to drive revenue and profit growth.

To know more about the company, checkout its factsheet and latest quarterly results.

To conclude...

The stock market is rife with opportunities for investors who are willing to take calculated risks. The recent correction in Indian share markets due to the Adani-Hindenburg saga has not spared even the good quality stocks.

Many fundamentally strong companies are available at attractive valuations.

However, stock markets are equally risky, and many even say that investing in penny stocks is more dangerous.

Conduct proper due diligence before investing your hard-earned money in penny stocks.

Before leaving, do watch the video below, where the Co-head of Research at Equitymaster shares his strategy for penny stock investing and three low-risk penny stocks for 2023.

Checkout the top multibagger penny stocks.

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

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Which are the top multibagger penny stocks in India right now?

As per Equitymaster's Stock Screener, here is a list of the top multibagger penny stocks in India right now...

These companies have been ranked as per the returns they have given shareholders in the last 3 years.

Remember, it's not easy to identify future multibagger stocks, but if you do it carefully and with due diligence, you can find high growth companies which can turn out to become future multibaggers.

What are penny stocks?

Penny stocks are shares of listed companies priced below Rs 100. In the US market, these stocks trade for less than a dollar i.e. for pennies. Hence the name.

Penny stocks have the potential for above-average returns. However, they are extremely risky. Therefore, investing in them requires care and caution.

You can see the list of Indian penny stocks and how they are performing here...

How should you go about investing in penny stocks?

Penny stocks are usually issued by new or very small companies. These companies often don't have a proven track record, which is why their shares are sold for so little.

Larger, more established companies may also have stocks trading under Rs 100 when they are facing financial trouble or approaching bankruptcy.

Since they carry a high amount of risk, one must have a proper strategy in place.

Check out our framework for investing in penny stocks. This strategy is the easiest one to make money from penny stocks.

How much should you invest in penny stocks?

Penny stocks are not suitable for investors who have a low-risk appetite.

However, even if you have a high-risk appetite, we believe one should not invest more than 2-3% of one's stock portfolio in penny stocks.

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