5 Penny Stocks at Deep Discount to Book Value. Add them to Your Watchlist

The benchmark stock indices are down in 2022.

With FIIs being net sellers for nine consecutive months since November 2021, many stocks have corrected. Penny stocks, being the riskiest of the lot, have fallen the most. Some are now trading at half their book value.

What is book value?

The book value of a company is its value according to its balance sheet. Its calculated as total assets minus total liabilities.

It's usually compared to the market price of the stock to determine whether the company is undervalued or overvalued.

Most companies' shares trade above their book value, i.e. their price to book value (PBV) ratio is greater than one. This is because investors expect the company to generate higher earnings in the future.

However, sometimes, the PBV ratio falls below 1, making the shares available at a discount.

Here are five penny stocks that are trading below their book value.

#1 Saurashtra Cement

First on the list of is Saurashtra Cement.

The stock is trading at a price to book value of 0.8.

Saurashtra Cement is in the business of manufacturing and selling of cement. It markets cement under the brand name 'HATHI'.

It recently acquired Snowcem Paints, including the brands owned by it on a slump sale basis. The acquisition was in line with the company's growth plans to diversify into building materials.

Over the last five years, Saurashtra Cement's revenue has grown at a CAGR of 10%. However, net profit has shown a de-growth of 24% CAGR.

The increase in cement prices could not offset the increase in the power, fuel, and diesel prices. Thus, the company's profits declined substantially.

In financial year 2022, the company saw a revenue growth of 13% YoY while net profit fell 94% YoY.

Going forward, the company is making efforts to revive the business by refurbishing the production units, revitalising its distribution channels, and providing adequate working capital.

It has also decided to invest up to of Rs 1 bn in various projects under the building/finishing material portfolio.

Saurashtra Cement has a low debt to equity ratio of 0.12.

The promoters of the company hold a 72.5% stake. However, they have pledged 19.6% of the shares.

To know more about the company, check out Saurashtra Cement's fact sheet and quarterly results.

#2 Manaksia Ltd

Second on the list is Manaksia.

The company's shares are trading at a PBV ratio of 0.5.

Manaksia is in the business of trading metals and other items. It has 18 manufacturing plants: fifteen in India, two in Nigeria, and one in Ghana.

The company's sales have grown at a CAGR of just 2% in the last five years. However, net profit has grown at a CAGR of 13% on the back of lower expenses.

The company's numbers have improved over the last year.

In financial year 2022, Manaksia registered a 200% YoY growth in net profit. This was on the back of a 36.4% YoY increase in revenue.

Manaksia has a consistent track record of paying dividends. The company has also maintained low debt levels and kept its debt-to-equity ratio below 0.1 for the past five years.

As of June 2022, promoters of the company held 74.93% stake in the company. No shares have been pledged.

To know more about the company, check out Manaksia's fact sheet and quarterly results.

#3 Orient Paper & Industries Ltd

Third on the list is Orient Paper & Industries Ltd.

The company's shares are trading at price to book value of 0.4.

Orient Paper & Industries is in the business of manufacturing of paper and other products such as caustic soda Lye, C.S Flakes, Liquid Chlorine, and Hydrochloric Acid.

The company's paper products are sold under the brand names 'Diamond Touch, 'Orient', and 'First Choice'.

Orient Paper's sales have grown at a CAGR of 3% over the last five years. However, profit has seen a de-growth as the company has posted losses for the last two years.

For the financial year 2022, Orient Paper & Industries reported a 32% YoY increase in revenue. But due to higher expenses, the company posted a loss of Rs 290 m.

Orient Paper & Industries also has been a consistent dividend payer since March 2007. For the year 2022, it declared a dividend of Rs 0.25 per equity share.

The company has a low debt-to-equity ratio of 0.06. Promoters hold a 38.7% stake with no shares being pledged.

To know more about the company, check out Orient Paper & Industries' fact sheet and quarterly results.

#4 Modern Insulators Ltd

Fourth in the list is Modern Insulators.

The stock is trading at PBV ratio of 0.6.

Modern Insulators is in the business of manufacturing insulators, terry towels, and EPC projects.

Over the last five years, the company's sales have grown marginally, while net profit has grown at a CAGR of 13%.

For the financial year 2022 as well, the company's sales grew marginally due to the lockdown. However, net profit fell 40% YoY.

The company is taking various steps to increase its turnover over the next few years. It's making efforts to add new customers from South East Asian Countries, East & Southern Africa, Latin America, etc.

It's also focusing on getting product approvals from various power utilities to strengthen its presence in the international market.

Besides this, it has reduced its debt. Its debt to equity ratio stands at 0.07. The company's promoters hold a 60.2% stake and have also not pledged any shares.

To know more about the company, check out Modern Insulator's fact sheet and quarterly results.

#5 Ircon International

Last on our list is Ircon International.

The company's shares are trading at a PBV of 0.8.

Ircon International is an engineering and construction company that specialises in transport infrastructure. It's owned by the Government of India and is a wholly-owned subsidiary of the Indian Railways.

Its services include project management consulting, EPC (engineering, procurement & construction), and real estate.

The company has delivered a sales growth of 19% CAGR over the last five years. Net profit has seen a growth of 12% CAGR. This was on the back of its significant project execution capabilities and its strong order book.

In financial year 2022, the company reported a 38.2% YoY increase in revenue. Net profit grew 51% YoY.

Going forward, IRCON plans to enhance its portfolio with projects in international markets such as Bangladesh, Sri Lanka, etc to achieve healthy profit margins offered by these projects.

It will move from individual projects to partnership projects by forming joint ventures with local companies. It's exploring additional infrastructure development opportunities in sync with the government such as Smart City Mission and Metro Rail.

Ircon International has a debt to equity ratio of 0.3. The company's promoter holding stands at 73.2% with no pledged shares.

To know more about the company, check out Ircon International's fact sheet and quarterly results.

Things to keep in mind while investing in penny stocks...

Penny stocks are extremely volatile and hence require investors to have a higher tolerance for risk. However, they can be quite rewarding as they have huge growth potential.

Before investing in a penny stock, one must check whether the company has a strong balance sheet.

Next, check for future growth opportunities. Favourable government policies or good order book status are some indicators you can look at.

Finally, check for feasibility of business. The more viable the business, the longer it will last.

Investing in penny stocks is not rocket science. However, it requires you to practice caution.

To know more, check out the below video by Co-head of Research at Equitymaster, Rahul Shah, where he reveals his pick of top penny stocks in this market.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...