Top 5 Debt Free Penny Stocks with Solid Growth to Watch Out in 2024

In case you're not familiar, penny stocks are considered as the 'Wild West' of the stock market. These companies usually get very low volume in daily trading, less regulatory oversight, and are extremely prone to pump and dump schemes.

But the fact that they are small is what makes them attractive.

You see, investors cannot 10x their investment putting money into a blue-chip company since it's way too big to make big moves in a short period of time.

But this limitation is not applicable for penny stocks.

There are many examples of penny stocks growing by leaps and bounds in less than a year. The key is to look for the company's fundamentals and the underlying growth prospects.

Keeping that in mind, we bring to you the top five debt-free penny stocks with solid growth potential.

#1 Avonmore Capital & Management Services

First on the list is Avonmore Capital & Management Services.

It's a non-deposit taking non-banking financial company (NBFC) that provides loans and advances to corporations and sub-broker advisory services.

The company plays a key role in financial inclusion through last-mile funding and catering to customer segments that are difficult for banks to address.

Over the last ten years, the company has acquired several firms to grow its product offerings and strengthen its position in the market.

In the financial year 2023, it acquired Almondz Finanz for Rs 30 million (m). The company also bought back shares worth Rs 87 m in the same year.

All this has been achieved while maintaining zero debt.

Coming to its financial performance, the company's revenue has grown at a compound annual growth rate (CAGR) of 20.9%, driven by strong growth in interest income. The net profit also grew by a CAGR of 80.9% during the same period.

Its return on equity (RoE) improved from 4.7% to 44.3% in the last five years. The return on capital employed (RoCE) improved from 5.8% to 53.4% during the same period.

Shares of the company are currently trading at a price to earnings (P/E) and price to book value (P/B) multiple of 14.6x and 0.6x, respectively, whereas the industry average stands at 22.6x and 1.2x.

Avonmore Capital & Management Services Financials (2018-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue (Rs m)	830	731	720	872	2,148
Revenue Growth (%)		-11.90%	-1.50%	21.10%	146.30%
Net Profit (Rs m)	63	76	298	405	1,219
Net Profit Margin (%)	8.00%	11.10%	44.10%	48.30%	57.70%
Return on Equity (%)	4.70%	5.10%	17.20%	19.80%	44.30%
Return on Capital Employed (%)	5.80%	5.30%	19.30%	23.90%	53.40%

Data Source: Equitymaster

To know more, check out Avonmore Capital & Management Services' financial factsheet and latest quarterly results.

#2 Axita Cotton

Second on the list is a textile company, Axita Cotton.

It is engaged in manufacturing and exporting cotton yarn and fabrics.

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

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

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

Axita Cotton Financials (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 (%)	-	126.90%	27.70%	34.20%	-32.90%
Net Profit (Rs m)	5	4	37	154	170
Net Profit Margin (%)	0.20%	0.10%	0.60%	1.90%	3.10%
Return on Equity (%)	2.60%	2.00%	17.10%	42.50%	32.50%
Return on Capital Employed (%)	13.70%	19.30%	38.70%	60.70%	44.30%

Data Source: Equitymaster

Axita Cotton boats a high cash and bank balance of Rs 88 m. Being a debt-free company, in May 2023, it also announced a buyback of Rs 50.4 m to distribute its excess cashflows.

As of April 2023, the company's order book stood at Rs 273 m, and the company has enough capacity to accommodate this order without any further expansion.

Axita Cotton also announced a bonus issue of 1:3 on 23 November 2023. So, eligible shareholders will get one share for every three shares they hold.

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 are 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.

#3 Bhansali Engineering Polymers

Third on the list is Bhansali Engineering Polymers.

The company is engaged in manufacturing ABS resins, AES resins, ASA resins, SAN resins, and their alloys with other plastics.

Its products are used in home appliances, automobiles, electronics, healthcare and kitchenware.

The company has two manufacturing facilities with a total capacity of 137 thousand tonnes per annum.

It is planning to increase its capacity further to 200,000 tonnes per annum by December 2024 with an investment of Rs 5 billion (bn), which it plans to fund entirely through internal resources to retain its debt-free status.

Bhansali Engineering Polymers also has an in-house state-of-the-art research and development (R&D) facility where it is developing some important raw materials which it primarily imports from abroad.

This move also reduces the company's exposure to foreign currency fluctuations.

In the last five years, the company's revenue and net profit have grown at a CAGR of 2.5% and 24.1%, respectively.

The RoE and RoCE stand at 12.8x and 18.4x, respectively.

Bhansali Engineering Polymers Financials (2018-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue (Rs m)	10,125	9,193	10,697	11,686	11,462
Revenue Growth (%)	-	-9.20%	16.40%	9.20%	-1.90%
Net Profit (Rs m)	465	668	3,334	3,500	1,368
Net Profit Margin (%)	4.60%	7.30%	31.50%	30.40%	12.20%
Return on Equity (%)	15.60%	18.80%	48.90%	35.70%	12.80%
Return on Capital Employed (%)	26.30%	23.20%	65.50%	48.20%	18.40%

Data Source: Equitymaster

Bhansali Engineering Polymers largely benefits from the growing demand for electronics and automobiles.

To know more, check out Bhansali Engineering Polymers' financial factsheet and latest quarterly results.

#4 Menon Pistons

Next on the list is Menon Pistons.

The company is engaged in manufacturing components such as pistons, gudgeon pins, rings, and auto shafts for commercial vehicles, tractors, passenger cars, and heavy-duty vehicles.

Apart from supplying original equipment manufacturers (OEM), the company also has strong aftermarket sales, which fetches better margins.

In the last few years, the company acquired Lunar Enterprise and Rapid Machining Technologies for Rs 280 m to expand its product offering and increase its manufacturing capacity.

Despite investing in acquisitions, the company has managed to remain debt-free.

In the last five years, the revenue and net profit have grown at a CAGR of 10% and 18.2%, respectively, primarily driven by higher volumes and lower interest costs.

The RoE improved from 13% to 19.8%, whereas the RoCE improved from 18.6% to 31.1% during the same period.

Menon Pistons Financials (2018-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue (Rs m)	1,568	1,182	1,377	2,128	2,524
Revenue Growth (%)	-	-24.60%	16.50%	54.50%	18.60%
Net Profit (Rs m)	101	44	89	188	233
Net Profit Margin (%)	6.50%	3.70%	6.50%	8.80%	9.30%
Return on Equity (%)	13.00%	5.90%	10.70%	19.50%	19.80%
Return on Capital Employed (%)	18.60%	7.80%	14.70%	24.20%	31.10%

Data Source: Equitymaster

Menon Pistons pays consistent dividends to its shareholders. In the last five years, the dividend payout and dividend yield have averaged 37.9% and 3.2%, respectively.

The company's shares are trading below the industry average. The P/E and P/B currently stand at 14.5x and 2.8x, respectively, whereas the industry average P/E and P/Bv are 32x and 3.2x.

Going forward, the growing demand for automobiles will drive the company's revenue and net profit in the medium term.

To know more, check out Menon Pistons' financial factsheet and latest quarterly results.

#5 Pasupati Acrylon

Last on the list is Pasupati Acrylon.

The company manufactures acrylic fibre and polypropylene films. Its products are used in manufacturing sweaters, cardigans, shawls, blankets, and hosiery.

In the last three years, the company's revenue has grown at a CAGR of 17.6%, primarily due to repeat orders.

It has a long-standing relationship with its clients, which helped the company secure repeat orders.

The net profit stood at Rs 359 m as against Rs 274 m five years ago. Its RoE and RoCE stand at 11.4% and 16.5%, respectively, as of March 2023.

Pasupati Acrylon Financials (2018-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue (Rs m)	8,347	6,701	5,142	7,838	8,364
Revenue Growth (%)		-19.70%	-23.30%	52.40%	6.70%
Net Profit (Rs m)	274	131	430	459	359
Net Profit Margin (%)	3.30%	2.00%	8.50%	5.90%	4.30%
Return on Equity (%)	15.50%	6.90%	18.40%	16.40%	11.40%
Return on Capital Employed (%)	29.00%	13.40%	26.70%	23.30%	16.50%

Data Source: Equitymaster

Pasupati Acrylon is investing heavily in R&D to produce new products. It recently developed micro-denier fibre with a diameter of 0.9 denier, having excellent quality.

It has also collaborated with SNIA BPD of Italy, a world leader in the manufacture of acrylic fibre, to manufacture acrylic fibre.

Going forward, its technical collaborations, the government's policies to boost textile manufacturing, and the company's expansion plans will drive its growth in the medium term.

To know more, check out Pasupati Acrylon's financial factsheet and latest quarterly results.

So there you go... a ready list of fundamentally strong penny stocks for your 2024 watchlist.

It's important to prioritise stocks with strong fundamentals that demonstrate resilience and growth potential.

You can also check out the video version of this editorial on Equitymaster's YouTube channel.

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...