Top 5 Cash Rich Penny Stocks to Add to Your Watchlist

Alfred Rappaport, a famous economist, rightly said, 'Profits are an opinion, cash is a fact'.

This statement highlights the essential difference between profits and cash flow in a business context.

For a business to be successful, it must have sufficient cash at all times for its expenses. Without it, the company's operations could come to a standstill.

Cash-rich companies can withstand an economic downturn and tough competition. Having sufficient cash flows gives them the flexibility to make strategic investments to expand their business at any given point of time.

We previously wrote articles on cash-rich mid-cap stocks and cash-rich small-cap stocks.

In this article, we'll take a look at cash-rich penny stocks.

Although penny stocks are considered risky investments, they also present a unique opportunity for growth when backed by strong fundamentals.

These five penny stocks have high cash balances, low debt, and strong growth prospects.

Take a look...

#1 Shyam Century Ferrous

First on the list is Shyam Century Ferrous.

The company is engaged in manufacturing ferro alloys such as ferro silicon, which is a main raw material in stainless steel and enhances brightness.

It also manufactures silico manganese and other ferro alloys and recently ventured into power generation.

As of March 2023, the company's cash and bank balance stood at Rs 1.04 billion (bn), which is almost 25% of its market capitalisation of Rs 4.1 bn.

Significant improvement in profits due to the availability of power at a competitive cost has helped the company maintain a high cash balance.

With such a high cash balance, the company announced a buyback of Rs 280 million (m) and also paid its first dividend in the financial year 2023.

The company has zero debt and has no plans to take any debt in the near future.

Shyam Century Ferrous has an unutilised production capacity, which will help the company increase its production as the demand for steel goes up.

This indicates there are no immediate capacity expansion plans for the company, which leaves enough cash for operations and dividend payments.

It also has healthy financials, with revenue growing at a CAGR (compound annual growth rate) of 7% in the last five years due to high production on account of the growing demand for steel.

The net profit also grew at a CAGR of 20%, driven by the company's ability to secure power, a key raw material, at a low rate.

Shyam Century Ferrous (2018-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue (Rs m)	1,344	891	1,357	2,125	1,882
Revenue Growth (%)		-33.7%	52.3%	56.6%	-11.4%
Net Profit (Rs m)	105	0	28	569	266
Net Profit Margin (%)	7.9%	0.0%	2.2%	27.4%	14.7%
Return on Equity (%)	7.0%	0.0%	2.4%	32.5%	16.6%
Return on Capital Employed (%)	10.6%	0.2%	1.8%	44.0%	23.0%

Data Source: Equitymaster

Going forward, the favourable demand for steel will drive its revenue and profit growth in the medium term.

To know more, check out Shyam Century Ferrous' financial factsheet and latest quarterly results.

#2 SPL Industries

Second on the list is SPL Industries.

The company manufactures and exports knitted fabric and knitted garments to several countries, including USA, UK, Canada, Mexico, Germany, Netherlands, Japan, and Middle East countries.

As of March 2023, the company's cash and bank balance stood at Rs 358.2 m, which is 19.1% of its market capitalisation of Rs 1.8 bn.

Healthy growth in revenue and interest income from fixed deposits resulted in higher cashflows.

In the last three years, the company's revenue has grown at a CAGR of 37.1%, driven by higher volumes. The net profit also grew by a CAGR of 20.5% despite inflation.

The company's ROE and ROCE stand at 12.7% and 18.2%, respectively.

SPL Industries earns the majority of its revenue from trading and hence doesn't require a lot of capital at the moment. As a result, the company has maintained a debt-free status.

The company largely benefits from a growing population, rising per capita income, and government initiatives such as the Product Linked Incentive (PLI) scheme and PM Mega Integrated Textile Region and Apparel (PM MITRA) parks.

SPL Industries is also expanding its product category with greater emphasis on sustainability and enhancing its scale of operations to improve its revenue and profits.

SPL Industries (2018-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue (Rs m)	1,597	1,868	1,157	2,079	2,984
Revenue Growth (%)		17.0%	-38.1%	79.7%	43.5%
Net Profit (Rs m)	272	313	136	211	238
Net Profit Margin (%)	17.3%	17.5%	12.3%	10.7%	8.4%
Return on Equity (%)	27.8%	24.3%	9.5%	12.9%	12.7%
Return on Capital Employed (%)	28.8%	24.5%	13.1%	18.0%	18.2%

Data Source: Equitymaster

To know more, check out SPL Industries' financial factsheet and latest quarterly results.

#3 Radiant Cash Management Services

Next on the list is Radiant Cash Management Services.

The company is engaged in the business of retail cash management for banks, financial institutions, and organised retail and e-commerce companies in India.

Being a market leader in cash management services, it has one of the largest networks, with over 66,000 touchpoints serving over 13,000 pin codes across India.

As of March 2023, the company's cash and bank balance stood at Rs 1.7 bn, which is 17.7% of its market capitalisation of Rs 9.6 bn.

Given its asset-light model of operating business, the company didn't make any significant investments in physical assets, which helped the company maintain a high cash balance.

With a high cash balance, the company is able to invest significantly in technology to optimise its operations without taking any debt.

The company built a mobile application for end-to-end reconciliation, created API integration with a few clients so that they could get real-time data from the company for cash management, and implemented OTP and QR code scans during cash pickup and delivery.

The usage of cash is very high in India despite the growing share of plastic money. It believes that the cash management services industry is still underpenetrated and has a huge opportunity to grow as people from tier 2 and 3 cities are opening bank accounts.

Hence, the company is investing in strengthening its geographical and technological footprints and adding more adjusted businesses, like digital cash solutions, to its service offerings.

Coming to its financials, the company's revenue and net profit grew by a CAGR of 16.8% and 24.6%, respectively, in the last three years. This is driven by growth across all its business segments.

The RoE and RoCE stand strong at 27.3% and 44.8%, respectively, at the end of the financial year 2023.

It also pays consistent dividends to its shareholders and has a dividend payout ratio and dividend yield of 51% and 3% as of March 2023.

Radiant Cash Management Services (2018-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue (Rs m)	2,231	2,518	2,242	2,870	3,575
Revenue Growth (%)		12.9%	-11.0%	28.0%	24.6%
Net Profit (Rs m)	250	365	324	382	627
Net Profit Margin (%)	11.3%	14.7%	14.6%	13.4%	17.7%
Return on Equity (%)	23.7%	30.5%	25.5%	27.3%	27.3%
Return on Capital Employed (%)	49.7%	55.3%	47.7%	52.8%	44.8%

Data Source: Equitymaster

To know more, check out Radiant Cash Management Services' financial factsheet and latest quarterly results.

#4 Shree Digvijay Cement Company

Fourth on the list is Shree Digvijay Cement.

The company is engaged in the business of manufacturing and sale of cement. It manufactures a range of products, including Portland pozzolana cement, OPC cement, SRPC cement, and oil well cement and sells it under the brand name 'Kamal'.

As of March 2023, the company had a cash and bank balance of Rs 1.08 bn, which is approximately 8% of its market capitalisation of Rs 12 bn.

A high cash balance is primarily due to multiple factors: high-interest income, high growth in revenue, and profits.

In 2020, when the demand for cement was low due to the pandemic, the company embarked on repairing its waste heat recovery system (WHRS), which helped the company improve its capacity utilisation rate and generate 31% of its power needs.

This helped the company improve its production and net profit and reduce its power expenses.

In the last five years, the revenue and net profit of the company grew by a CAGR of 10.7% and 94.3%, respectively.

The RoE and RoCE stand strong at 17.9% and 22.5% as of March 2023. It also pays consistent dividends and has a three-year average dividend payout of 85.7% and a dividend yield of 5.3%.

Shree Digvijay Cement Company (2018-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue (Rs m)	4,411	4,721	5,091	6,333	7,338
Revenue Growth (%)		7.0%	7.8%	24.4%	15.9%
Net Profit (Rs m)	21	564	540	553	581
Net Profit Margin (%)	0.5%	12.0%	10.7%	8.8%	8.0%
Return on Equity (%)	0.9%	20.5%	17.4%	17.8%	17.9%
Return on Capital Employed (%)	3.3%	28.4%	27.3%	28.8%	22.5%

Data Source: Equitymaster

The company recently acquired limestone deposit mines, which will sustain 20 years of the company's production requirements.

This could signal a possible expansion in capacity. It has enough resources (cash), and it is also debt-free, which gives it enough leverage to rely on debt.

Going forward, the growing demand for cement driven by infrastructure boost by the government will drive its revenue and net profit in the medium term.

To know more, check out Shree Digvijay Cement's financial factsheet and latest quarterly results.

#5 Axita Cotton

Last on the list is Axita Cotton, an Indian textile company.

It specialises in the manufacturing and exporting of cotton yarn and fabrics.

The company operates through two business segments: textile and trading. The textile segment involves the manufacturing and sale of cotton yarn and fabrics, while the trading segment deals with the trading of textiles and other related products.

It has a global presence and exports its products to over nine countries.

As of March 2023, the company has a cash and bank balance of Rs 88 m.

Being a debt-free company, it also announced a buyback of Rs 50.4 m to distribute its excess cashflows in May 2023.

The company has no plans to expand its capacity in the near future as it has a production capacity of 87,600 MTPA of seed cotton, enough to fulfil its current orders.

In the last five years, the revenue of the company grew by a CAGR of 21.2%, driven by higher demand for cotton. The net profit also grew at a whopping 102.4% (CAGR) during the same period.

Its RoE and RoCE stand strong at 32.5% and 44.3% respectively.

Axita Cotton (2018-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue (Rs m)	2,136	4,846	6,189	8,305	5,576
Revenue Growth (%)		126.9%	27.7%	34.2%	-32.9%
Net Profit (Rs m)	5	4	37	154	170
Net Profit Margin (%)	0.2%	0.1%	0.6%	1.9%	3.1%
Return on Equity (%)	2.6%	2.0%	17.1%	42.5%	32.5%
Return on Capital Employed (%)	13.7%	19.3%	38.7%	60.7%	44.3%

Data Source: Equitymaster

Measures such as the 100% FDI through the automatic route PLI scheme to encourage investments in man-made fibres (MMF) and PM Mitra Parks for capacity expansion is expected to give a boost to textile production in India.

Also, the government's aim to increase the size of the textile industry to Rs 40 trillion (tn) i.e., US$ 300 bn by 2030 up from Rs 8 tn (US$ 100 bn) in 2022 is expected to help Indian textile companies, including Axita Cotton, to compete better in global trade.

To know more, check out Axita Cotton's financial factsheet and latest quarterly results.

Should You Invest in Companies with high Cash Reserves?

Cash balance is an important parameter to look at when assessing a company. It's hard to manipulate the cash of a business, unlike its profits.

However, it shouldn't be the sole judging factor when you want to invest in a company.

You must look at other factors such as revenue growth, valuation, promoter holding, business model, impact of government policies, and corporate governance standards.

Since these are penny stocks, considering all these factors becomes even more important.

Since you're interested in cash-rich stocks, check out Equitymaster's Screener which has a separate set of screens for fundamental analysis.

Happy Investing!

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...