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5 Penny Stocks to Watch out for in 2023

Nov 22, 2022

5 Penny Stocks to Watch out for in 2023

When you buy penny stocks, the most important thing to know is whether or not it is fundamentally strong.

You want to see a company that has been around for a while and has a history of earnings growth, as well as decent profit margins.

Along with solid growth, you also need to see if the company is debt free or has manageable debt on its balance sheet.

Ideally, this strong company will be undervalued relative to its balance sheet. What this means is that the stock price usually hasn't increased as much as it should have because investors haven't realised its potential yet.

That's why it's a great opportunity to make gains greater than the broader market in the long term.

Regardless of whether you are new to the stock markets and want to start investing, or an experienced investor who wants to diversify into some other form of investments, penny stocks can be a great choice.

Today, we look at five penny stocks, well-positioned to offer growth in the long run. This penny stocks list for 2023 has companies which have shown consistency in revenues, profitability, dividend payout, and have manageable debt.

#1 Transformers and Rectifiers India (TRIL)

Incorporated in 1994, Transformers & Rectifiers has consolidated its position in the Indian transformer industry as a manufacturer of a wide range of transformers, which conform to the quality expectations of both the domestic and international market.

The company is present in wide ranges spanning power transformers, distribution transformers, furnace transformers, rectifier transformers, and shunt reactors. These have applications in power transmission and distribution, among other industrial sectors.

The company has three plants in the city of Ahmedabad.

TRIL's revenue saw a sharp rise in 2022 led by an increase in both realisation and volumes. This resulted in its profit almost doubling to Rs 139.9 million in the said year.

As of March 2022, the company has a debt to equity ratio of 0.91x. It has kept debt manageable over the years despite operating in a working capital-intensive industry.

As far as dividends are concerned, the company did not pay dividend between 2015-2020. But it was back to rewarding shareholders in 2021 and 2022 with dividend payout of 18.8% and 14.2%, respectively.

Financial Snapshot

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenue 7,157 8,554 7,010 7,421 11,583
Growth (%) -13% 20% -18% 6% 56%
Operating profit 713 731 672 781 839
OPM (%) 10% 9% 10% 11% 7%
Net profit 54 45 4 71 140
NPM (%) 1% 1% 0% 1% 1%
Total Debt 3,994 2,633 3,081 2,631 3,233
Debt to Equity (x) 1.21 0.78 0.92 0.77 0.91
Dividend Payout (%) 0 0 0 18.8 14.2
ROE (%) 2.0 1.5 0.3 2.3 4.1
Data Source: Ace Equity

As of March 2022, TRIL's orderbook stood at Rs 11.5 billion. A month ago, it was reported that the company received another two big orders from Indian companies.

With the recent order, the company's order book as on 18 October 2022 stands at Rs 15.2 bn, which should offer revenue visibility for 2023 at least.

To know more, check out Transformers and Rectifiers financial factsheet and its latest quarterly results.

#2 Jagran Prakashan

Jagran Prakashan (JPL) is India's leading media and communications group with its interests spanning across print, outdoor advertising, FM, activations, digital segment, etc. It's one of the largest media conglomerates in the country.

It's newspaper operations alone with 9 newspaper titles in 5 different languages, sweeping across 15 states with over 100 editions include some veritable titles as the world's largest read daily.

The company dominates the radio business with 39 radio channels, under the established Radio City brand.

2021 was a tough year for Jagran as demand for advertisements among other things were dampened. No one was willing to touch the sector with a ten-foot pole.

But the sector recovered in the next one year and Jagran too bounced back in style.

However, inflation and record high newsprint costs continue to impact the company's profitability.

As of March 2022, Jagran has a debt to equity ratio of 0.13x. It has had zero or minimum debt over the past six years.

As far as dividends are concerned, Jagran Prakashan did no pay dividends in 2020 and 2021 as it was recovering from pandemic. The record prior to that is sweet with dividend yields between 1.5% and 4%, for more than a decade.

For 2022, Jagran has already declared a dividend of Rs 4 per share which results in a yield of almost 6%.

Financial Snapshot

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenue 23,040 23,627 20,973 12,892 16,160
Growth (%) 1% 3% -11% -39% 25%
Operating profit 6,298 5,745 4,649 2,798 4,264
OPM (%) 27% 24% 22% 22% 26%
Net profit 3,110 2,742 2,809 783 2,169
NPM (%) 13% 12% 13% 6% 13%
Total Debt 1,478 4,064 2,252 2,683 2,770
Debt to Equity (x) 0.07 0.22 0.12 0.13 0.13
Dividend Payout (%) 30.0 37.8 0.0 0.0 0.0
ROE (%) 14.8 14.0 14.8 4.0 10.5
Data Source: Ace Equity

Recently, the company announced a share buyback for buying up to 46 million (m) equity shares aggregating Rs 3.5 bn.

The buyback price is set at Rs 75 per share.

To know more, check out Jagran's financial factsheet and its latest quarterly results.

#3 Ircon International

Ircon International is an Indian public sector construction company with specialisation in execution of railway projects on turnkey basis and otherwise.

After commencing business as a railway construction company, it diversified to roads, buildings, electrical substation and distribution, airport construction, commercial complexes, and metro rail works.

The company caters to both domestic and international markets.

2022 marked the best ever year for Ircon in terms of revenue which increased 38%.

The ongoing year will be even better as the company has reported good quarterly results so far. For the most recent September 2022 quarter, Ircon's net sales grew 50% while net profit surged 35%.

After marking its territory in the construction space, the company is now entering into engineering, procurement, and construction contracts in railways segment.

The effect of this is already visible in Ircon's share price in recent months.

As per estimates, India is on its way to construct more national highways and rail lines in the decade between 2015-2025 than it has cumulatively done between 1950 and 2015. Huge capex announcements have already been made and more are in the offing.

As far as debt is concerned, Ircon has a debt to equity ratio of 0.30x as of March 2022. Over the years, it has maintained its leverage and had zero debt in most years.

Ircon's dividend history is also quite sweet with yields ranging between 4-6% for the past 4 years. It has paid dividends since 1998.

Financial Snapshot

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenue 40,242 47,984 53,911 53,498 73,797
Growth (%) 31% 19% 12% -1% 38%
Operating profit 6,318 10,766 10,929 9,031 9,730
OPM (%) 16% 22% 20% 17% 13%
Net profit 4,087 4,501 4,853 3,911 5,923
NPM (%) 10% 9% 9% 7% 8%
Total Debt 32,000 30,765 - 3,309 13,990
Debt to Equity (x) 0.85 0.78 0.0 0.08 0.3
Dividend Payout (%) 47.1 45.0 46.0 36.1 39.7
ROE (%) 10.7 11.1 11.2 8.4 11.7
Data Source: Ace Equity

With orderbook piling up, there's a great chance Ircon's profit numbers can be sustained for quite some time to come.

#4 Gujarat Industries Power

Gujarat Industries Power was incorporated in 1985. The company has been promoted by leading Gujarat PSUs, namely Gujarat State Fertilizers (GSFC), Gujarat Alkalies and Chemicals (GACL), and Gujarat Urja Vikas (GUVNL).

The company is engaged in the business of electrical power generation with an installed generation capacity of 1,184.4 MW as of June 2022. It has a diversified portfolio of Thermal (Gas and Lignite), Wind, and Solar Power assets in the state of Gujarat.

In 2021, the company's topline and bottomline was impacted as some of its gas-based power plants remained non-operational.

Skip forward to 2022 and Gujarat Industries saw improvement in its renewable power plants and lignite division.

Historically, the company has had minimal debt on its book. As of March 2022, the debt to equity ratio was at a respectable 0.17x.

As far as dividends are concerned, Gujarat Industries has declared dividends since 1997. In its entire history, dividend yields have hardly slipped below 2%.

Dividend Paymaster

Year End Dividend % Dividend Yield % Dividend per Share (Rs)
31-Mar-2022 25.00 3.41 2.50
31-Mar-2021 27.00 3.57 2.70
31-Mar-2020 29.00 5.79 2.90
31-Mar-2019 29.00 4.07 2.90
31-Mar-2018 27.00 2.78 2.70
31-Mar-2017 27.00 2.61 2.70
31-Mar-2016 27.00 3.35 2.70
31-Mar-2015 25.00 2.94 2.50
31-Mar-2014 25.00 3.80 2.50
31-Mar-2013 25.00 3.37 2.50
31-Mar-2012 25.00 3.75 2.50
31-Mar-2011 25.00 2.70 2.50
31-Mar-2010 25.00 2.07 2.50
31-Mar-2009 22.00 4.71 2.20
Data Source: Ace Equity

Going forward, the company has huge capex planned for the renewable energy segment. In August last year, it commissioned a solar capacity addition capex followed by a capex for operational wind capacity.

Once the capex is completed, the company would double its operational capacity and majority of it would be renewable capacity.

Financial Snapshot

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenue 13,538 14,074 13,788 13,353 11,724
Growth (%) 3% 4% -2% -3% -12%
Operating profit 5,320 6,651 5,469 4,546 4,270
OPM (%) 39% 47% 40% 34% 36%
Net profit 2,445 1,764 2,480 1,798 1,713
NPM (%) 18% 13% 18% 13% 15%
Total Debt 6,166 5,728 4,473 4,749 5,193
Debt to Equity (x) 0.25 0.22 0.16 0.17 0.17
Dividend Payout (%) 16.7 24.9 17.7 22.7 22.1
ROE (%) 10.4 7.0 9.3 6.4 5.8
Data Source: Ace Equity

#5 National Aluminium (NALCO)

National Aluminium (NALCO) is a Navratna CPSE under Ministry of Mines. The company has integrated and diversified operations in mining, metal, and power segments.

NALCO is the first PSU in India to venture into international market in a big way with London Metal Exchange (LME) registration since May 1989.

As one of the largest integrated primary producers of aluminium in Asia, NALCO's presence encompasses the entire value chain - bauxite mining, alumina refining, aluminium smelting, power generation, and downstream products.

2022 marked the best ever year for the Odisha-based company. In FY22, NALCO registered the highest-ever revenues of Rs 141.8 bn and a record profit of Rs 29.5 bn.

The company's growth trajectory came to a halt recently where its Q2 results showed decline in margins and profitability. This was due to higher raw material costs which rose as much as 80% from last year.

NALCO is a debt free penny stock. It has had zero or minimal debt on its book over the years.

On the dividend front, NALCO has a long history of rewarding shareholders, having declared dividends since 1995.

It has maintained consistency of having yields above 5% for consecutive years. The dividend yield for NALCO has not dropped below 1% since 2011.

Financial Snapshot

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenue 95,095 114,993 84,718 89,558 141,808
Growth (%) 26% 21% -26% 6% 58%
Operating profit 16,971 32,184 7,618 19,294 48,146
OPM (%) 18% 28% 9% 22% 34%
Net profit 13,422 17,337 1,362 12,994 29,514
NPM (%) 14% 15% 2% 15% 21%
Total Debt 450 668 123 461 207
Debt to Equity (x) 0.0 0.01 0.0 0.0 0.0
Dividend Payout (%) 82.1 61.9 376.6 49.5 40.5
ROE (%) 13.0 16.5 1.4 12.6 25.4
Data Source: Ace Equity

In 2022, NALCO has been facing issues in the procurement of coal due to disruption in the global supply chains.

Aluminium prices have also remained extremely volatile, due to geopolitical issues the world has been dealing with.

Both these points will remain key monitorables. Until then, you can check out NALCO's financial factsheet and its latest quarterly results.

To conclude...

No one knows whether 2023 will be an easy year for the penny stock market. Or whether it will wreak havoc.

But there will be opportunities to make money. So make sure that you are prepared. Due diligence of any potential penny stock investment before parting with your hard-earned money should not be compromised.

We also recommend you watch the video below where Co-head of Research at Equitymaster shares his strategy for penny stock investing and three low-risk penny stocks for 2023.

Happy Penny Stock Investing!

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

Safe Stocks to Ride India's Lithium Megatrend

Lithium is the new oil. It is the key component of electric batteries.

There is a huge demand for electric batteries coming from the EV industry, large data centres, telecom companies, railways, power grid companies, and many other places.

So, in the coming years and decades, we could possibly see a sharp rally in the stocks of electric battery making companies.

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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...

Yash Vora

Yash Vora is a financial writer with the Microcap Millionaires team at Equitymaster. He has followed the stock markets right from his early college days. So, Yash has a keen eye for the big market movers. His clear and crisp writeups offer sharp insights on market moving stocks, fund flows, economic data and IPOs. When not looking at stocks, Yash loves a game of table tennis or chess.


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.

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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