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  • Sep 6, 2022 - 5 Indian Penny Stocks with Good ROE and ROCE to Watch Out for in 2023

5 Indian Penny Stocks with Good ROE and ROCE to Watch Out for in 2023

Sep 6, 2022

5 Indian Penny Stocks with Good ROE and ROCE to Watch Out for in 2023

Warren Buffett's investment portfolio has been known to deliver average returns of 30% consistently over a period of five decades.

The investment philosophy for the Oracle of Omaha is simple.

Know what you are investing in. Check the economic moat. Buy at a discount. Sell only if the value dissipates.

This is one of the best investing techniques and a proven one for sure.

This begs the question whether the strategy works on the most volatile segment of the stock market - penny stocks?

Penny stocks are shares that are available at low value and a lower market capitalisation than their counterparts.

As volatile as they come, penny stocks with good fundamentals offer a massive potential runaway ahead of them.

The affordability factor is definitely attractive to investors who are looking to diversify their portfolios.

If you do your homework right, you can end up with a bunch of penny stocks to buy for the long term and not just invest in them for short term gains.

Keeping this thought in mind, we have shortlisted 5 Indian penny stocks with good fundamentals. The parameters that we've taken into consideration include consistency in revenues and increasing profits, low or zero debt, good return ratios, and companies that offer decent dividends.

#1 Haldyn Glass

Haldyn Glass is engaged in the business of manufacturing and marketing high quality glass bottles and containers that are exclusively used in the food, beverages, and spirit industries.

During the pandemic, the company forayed into manufacturing small vials for pharma companies that are being used to bottle Covid-19 vaccines.

Some of the major clients of Haldyn Glass are United Spirits, Amul, Parle Agro, and Vadilal.

The company has a manufacturing unit, located in Vadodara, Gujarat with a capacity of producing 1.5 m high quality containers every day.

Haldyn Glass generated Rs 2,127.6 m in gross sales in the financial year 2021-22, a jump of 19.6% from the previous year.

The sales compound annual growth rate (CAGR) for the past 5 years stands at 4%.

Haldyn Glass has a track record of generating consistent profits since financial year 2015-16. Profit after tax (PAT) for financial year 2021-22 was Rs 108.7 m, a year on year (YoY) increase of 8.4% from the previous year.

Haldyn Glass is virtually debt free. Currently, the company's debt to equity ratio stands at 0.1x.

The company has a good track record of dividend payouts since the year 2005. It recently declared a dividend of Rs 0.60 per share.

Financial Snapshot of Haldyn Glass

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenues 1,695 2,229.5 2,293.7 1,779 2,127.6
Growth (%) -10.5% 31.5% 2.9% -22.4% 19.6%
Operating Profit 1,083.1 1,474.7 1,486.6 1,287.5 1,499.8
OPM (%) -7.9% 36.2% 0.8% -13.4% 16.5%
Net Profit 64.7 121.3 105.2 100.3 108.7
Profit Margin (%) 3.8% 5.4% 4.6% 5.6% 5.1%
Total Debt 28.3 75.3 15.1 34 73
Debt to Equity (x) 0 0.1 0 0 0.1-
Data Source: Ace Equity

In the past one year, the share price of Haldyn Glass has surged by 46.1%.

The company is expected to grow at an accelerated pace with the government of India's policy on anti-dumping duty on some varieties of float glass imports from Malaysia for five years that came into effect in November 2020. This will support revenue growth for domestic manufacturers like Haldyn Glass.

#2 Ador Fontech

Founded in 1974, Ador Fontech is one of India's top repair welding companies with a strong foothold in the products, services and solutions that caters to the repair segment of life enhancement of industrial components.

The company has two manufacturing plants in Bengaluru and one reclamation centre in Nagpur.

The overall construction industry faced considerable disruptions because of back-to-back lockdowns. However, there has been an uptick in recent international demand that is leading to a strong revival of the global welding electrode market.

Against this backdrop, Ador Fontech recorded gross sales of Rs 2,095.5 m in financial year 2021-22, a significant increase of 40.1% from the previous year.

The sales CAGR for the last five years stands at 7%.

With ongoing domestic and international demand, Ador Fontech has a history of delivering good profitability.

It recorded gross profits at Rs 991.9 m, a jump of 36.7% YoY.

The profit CAGR between 2018 and 2022 stands at a healthy 24%.

Spearheaded by a seasoned management team. Ador Fontech is a zero debt company. The company continued with its debt recovery efforts despite the challenges brought on by the pandemic.

The company has maintained a healthy dividend payout of Rs 2.2 per share and the yield is 4.8% for the financial year 2021-22.

Financial Snapshot of Ador Fontech

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenues 1,520.4 1,864.3 1,771.5 1,495.2 2,095.5
Growth (%) 3.8% 22.6% -5% -15.6% 40.2%
Operating Profit 653.4 824.4 801- 721.1 991.9
OPM (%) 7% 26.2% -2.9% -10% 37.6%
Net Profit 69.5 109.9 88.3 100.4 213.9
Profit Margin (%) 4.6% 5.9% 5% 6.7% 10.2%
Total Debt 18.8 30.1 57.5 17.7 0
Debt to Equity (x) 0 0 0.1 0 0
Data Source: Ace Equity

Over the past one year, Ador Fontech share price has moved up from Rs 63.6 to Rs 74.7, registering a gain of Rs 11.2 or around 17.5%.

The company is on the cusp of long term growth as it continues to actively invest in upgrading infrastructure and welding techniques and materials.

#3 Jagran Prakashan

Incorporated over seven decades ago, Jagran Prakashan is one of India's premier media conglomerates.

The group has a significant footprint across printing and publication of newspapers and magazines, FM radio, digital, outdoor advertising and promotional marketing, event management and activation businesses.

The company is home to the iconic Dainik Jagran newspaper, its flagship brand that boasts a nationwide readership.

With gross sales of Rs 16,350.9 m in the financial year 2021-22, Jagran Prakashan clocked a YoY growth of 25.4%.

The company benefits from its strong market position which has led to delivering high profits. In financial year 2021-22, Jagran Prakashan recorded an increase in gross profits by 21.7% whereas PAT saw a staggering jump by 177.3% YoY.

Long term debt for the company went down at Rs 2 bn as compared to Rs 3 bn in 2021. The current debt to equity ratio stands at 0.13x.

Jagran Prakashan is a legacy company that has always looked after its shareholders. The average dividend yield for the last 5 years is around 1%.

Financial Snapshot of Jagran Prakashan

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenues 23,039.8 24,008.2 21,233.1 13,035 16,350.9
Growth (%) 0.9% 4.2% -11.6% -38.6% 25.4%
Operating Profit 16,398.8 16,325.3 14,962.9 9,838.5 11,974.1
OPM (%) 0.6% -0.5% -8.4% -34.3% 21.7%
Net Profit 3,109.4 2,737.2 2,808.8 781 2,165.5
Profit Margin (%) 13.5% 11.4% 13.2% 6% 13.2%
Total Debt 1,477.9 4,063.7 2,251.8 2,682.6 2,769.6
Debt to Equity (x) 0.1 0.2 0.1 0.1 0.1
Data Source: Ace Equity

Over the past one year, Jagran Prakashan share price has moved down from Rs 66.1 to Rs 58.0, registering a fall of around 12.3%.

Jagran Prakashan is one of the few penny stocks with a high promoter holding of 69.4%. The group has made concerted efforts to increase revenues amidst a challenging environment.

#4 Gujarat Pipavav

Promoted by APM Terminals, Gujarat Pipavav (GPPL) is India's first private sector post located in south-west Gujarat near Bhavnagar.

The company enjoys dominance in logistics due to its being an all-weather port and its strategic international maritime location that connects India with the Far East, on the one side, and West Asia, Africa, Europe, and the USA, on the other.

Gujarat Pipavav posted a revenue of Rs 7,435.4 m in the financial year 2021-22 registering a marginal growth of 1.4% from the previous financial year. The CAGR sales for the last 10 years stand at a steady 7%.

Net profit experienced a minor spike of 0.5% YoY. Profit CAGR recorded for the last decade stands at a consistent 13%.

Gujarat Pipavav has had virtually no debt on its books since the financial year 2015-16.

Dividend payouts of the company over the last 5 years average a dividend yield of 5% between 2017-18 and 2021-22.

Financial Snapshot of Gujarat Pipavav

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenues 6,489 7,019.8 7,353.7 7,334.6 7,435.4
Growth (%) -5% 8.2% 4.8% -0.3% 1.4%
Operating Profit 5,960.1 6,423 6,786.8 6,663.1 6,696.4
OPM (%) -6.1% 7.8% 5.7% -1.8% 0.5%
Net Profit 1,984.6 2,056.3 2,886 2,146 1,932.4
Profit Margin (%) 30.6% 29.3% 39.4% 29.3% 26%
Total Debt 0.00 0.00 0.00 0.00 0.00
Debt to Equity (x) 0.00 0.00 0.00 0.00 0.00
Data Source: Ace Equity

India's import-export volume has been growing at a steady pace of 4.3% annually. This puts Gujarat Pipavav with its strategic location and access to dedicated freight corridors, direct-port-delivery-direct-port-entry and expressway networks, on the brink of long term growth.

#5 Pudumjee Paper Products

Pudumjee Paper Products is engaged in the business of manufacturing specialty paper for wrapping and food grade packaging paper, household, and sanitary paper and oily products.

The company also manufactures hygiene products like bathroom rolls, kitchen towels, napkins, hand wash soaps and other hygiene products under the brand name 'Greenlime'.

Pudumjee Paper enjoys a healthy market leader position with a share of around 30% - 40% in the various sub-segments of the domestic specialty paper segment.

Pudumjee Paper's revenue recorded a 27.1% YoY jump in the financial year 2021-22 with sales coming in at Rs 5,552.6 m. The sales CAGR for the last five years is 2%.

The company's operating profit increased by 30.3% YoY during the fiscal. Net profit at Rs 345.3 m for the year grew by 15% YoY. Profit CAGR for 5 years stands at a healthy 14%.

The total debt of Pudumjee Paper during the financial year 2021-22 increased to Rs 707.7 m as compared to Rs 522.2 m last year. The debt to equity ratio stands at 0.2x.

The company has been consistent with its dividend payouts. The dividend yield for the financial year was 1.35% whereas the five year average is 1.2%.

Financial Snapshot of Pudumjee Paper Products

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenues 5,078.7 5,895.2 6,044.8 4,368.8 5,552.6
Growth (%) -6.6% 16.1% 2.5% -27.7% 27.1%
Operating Profit 2,495.2 2,694.5 3,240.5 2,534.5 3,191
OPM (%) 4.2% 8% 20.3% -21.8% 25.9%
Net Profit 191.5 167.4 272.1 300.3 345.3
Profit Margin (%) 3.8% 2.8% 4.5% 6.9% 6.2%
Total Debt 644.1 830.7 753.3 522.2 707.7
Debt to Equity (x) 0.3 0.3 0.3 0.2 0.2
Data Source: Ace Equity

Pudumjee Paper boasts of a strong promoter holding at 71%.

As an established pioneer in the speciality paper products segment, the company continues to invest in product innovation and aims to upgrade its portfolio mix with more value added products going forward.

Investing in Fundamentally Strong Penny Stocks

With inflation skyrocketing and uncertainty in the stock market at its highest, people are hesitant to invest in penny stocks.

Undoubtedly, this is the inherent risk that accompanies penny stocks and sticks out as a sore thumb.

However, the story is a little different for penny stocks that come with strong fundamentals.

They have a strong balance sheet. A healthy financial profile. And good future prospects. They also provide some cushion by regular dividend payouts.

The idea is to do your research and shortlist the ones that offer a viable investment opportunity for you.

Investing in penny stocks is no rocket science. It just requires practice with a healthy dose of caution.

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

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