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  • Dec 19, 2022 - 10 Fundamentally Strong Penny Stocks to Watch Out for as 2023 Begins

10 Fundamentally Strong Penny Stocks to Watch Out for as 2023 Begins

Dec 19, 2022

10 Fundamentally Strong Penny Stocks to Watch Out for as 2023 Begins

When it comes to finding the best penny stocks, you have to look at the fundamentals.

There are a lot of things that can get in the way of your success. But having fundamentally strong stocks is one way an investor can get a good night's sleep without having to worry much.

As we move into a new year, finding the best penny stocks for 2023 remains a challenge for investors. Interest rates are rising across the board as the RBI and the US Fed try to control inflation by reducing demand in the economy.

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.

In this article, we'll go over 10 fundamentally strong penny stocks that could perform well as 2023 begins.

#1 Vardhman Acrylics

Listed only on the NSE, Vardhman Acrylics is engaged in the manufacture of acrylic fiber and is one of the leading manufacturers and suppliers.

The company is one of the top three players having an established installed capacity. These top three players hold around 90% of the total operational capacity in the domestic acrylic fiber industry.

It derives majority of its revenue (around 90%) from fiber and tow, and the remaining from trading of acrylonitrile.

In 2022 so far, the company's stock performance has remained subdued. This is because of the volatility in crude oil prices.

Acrylonitrile is a derivative of crude oil and is thus exposed to fluctuation in prices.

In 2022, acrylonitrile prices moved in tandem with crude prices and Vardhman's inability to pass on the increase in input cost affected its operating margin.

Financial Snapshot

Rs m, standalone FY18 FY19 FY20 FY21 FY22
Revenue 3,196.6 3,919.6 3,343.7 2,801.9 3,033.3
Growth (%) -5% 23% -15% -16% 8%
Operating Profit 520.5 525.7 533.8 630.5 232.4
OPM (%) 16% 13% 16% 23% 8%
Net Profit 385.7 344.9 462.7 429.2 145.6
NPM (%) 12% 9% 14% 15% 5%
Debt to Equity (x) - - - - 0.01
Dividend per share (Rs) 2.0 2.5 - - 25.0
Data Source: Ace Equity

Over the years, Vardhman Acrylics has reported steady revenues and has rewarded shareholders with hefty dividend. In 2022, it paid a dividend of Rs 25 per share while its current share price is a tad above Rs 50!

The company enjoys strong group synergies. The latest shareholding of Vardhman Acrylics shows that its promoter company Vardhman Textiles holds a 75% stake in it.

#2 Confidence Petroleum

Confidence Petroleum is engaged in manufacturing of LPG cylinders and is also a supplier of auto LPG in India. Further, the company also supplies packed LPG cylinders and is engaged in LPG bottling catering to industrial and commercial customers.

The Confidence group, being one of the largest private-sector industry players, has diversified business interests in the energy sector with significant presence in the LPG space.

After being severely hit by the pandemic, the company's performance started to improve towards the end of 2021 as its business reached pre-covid levels.

It saw a sharp rise in revenues on account of rising demand for oxygen on account of shortage.

Financial Snapshot

Rs m, standalone FY18 FY19 FY20 FY21 FY22
Revenue 5,736.4 8,733.4 9,857.9 7,799.8 12,779.7
Growth (%) 18% 52% 13% -21% 64%
Operating Profit 705.8 1,247.4 1,272.8 1,217.4 1,772.9
OPM (%) 12% 14% 13% 16% 14%
Net Profit 252.7 590.6 496.5 457.6 807.1
NPM (%) 4% 7% 5% 6% 6%
Debt to Equity (x) 0.3 0.2 0.2 0.2 0.13
Dividend per share (Rs) 0.1 0.1 - 0.1 0.1
Data Source: Ace Equity

The company has a lot of things planned for the coming two to three years where it plans to enter new domain and also increase partnership with reputed clients.

Through its subsidiaries, Confidence has already entered into CNG retailing segment and signed agreements to set up CNG units to increase the reach in various parts of the country.

It has also entered into an agreement with GAIL Gas Limited to set up 100 CNG stations on built and operate basis in Bengaluru over the next three years.

What's more, the group has plans to enter into CNG cylinder manufacturing business and is planning to set up a new plant near Nagpur. All of this should help streamline revenues from different sources.

#3 Texmo Pipes & Products

Texmo Pipes & Products was incorporated on 3 July 2008. The company is engaged in manufacturing of PVC pipes, UPVC casing pipes, plumbing pipes, SWR pipes, HDPE pipes, permanently lubricated pipes and HDPE sprinkler pipes, moulded fittings, etc.

The company's manufacturing facility is located in Burhanpur, Madhya Pradesh.

Indian Railways, BSNL, Power Grid Corporation, Tata Power, and Siemens among others, are some of the company's clients.

In the past two years, the company undertook significant capex to increase its manufacturing capacity. This capex resulted in high utilisation and an improvement in realisations across categories.

Financial Snapshot

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenue 2,514.7 3,098.6 3,279.5 4,216.6 5,644.2
Growth (%) -16% 23% 6% 29% 34%
Operating Profit 163.2 183.3 234.3 297.8 363.7
OPM (%) 6% 6% 7% 7% 6%
Net Profit 1.6 29.7 39.4 108.3 142.3
NPM (%) 0% 1% 1% 3% 3%
Debt to Equity (x) 0.47 0.37 0.34 0.17 0.14
Dividend per share (Rs) - - - - -
Data Source: Ace Equity

The capacity addition was completed in the last quarter of 2022. The turnover is expected to remain strong on the back of this.

One key monitorable for the company would be crude derivatives, as crude oil is a key raw material for Texmo Pipes.

#4 Singer India

Singer India is one of the operating subsidiaries of Singer Asia, with other operating subsidiaries in Bangladesh and Sri Lanka. The company is engaged in the retailing of household consumer durable (HCD) products.

It's a leading marketer of sewing machines & small home appliances.

The company has two main segments - sewing products and home appliances. It has also adder more products over the years such as room cooler and water heater.

Over the years, the company has reported increasing revenues and profits on the back of diversification of its portfolio. The company entered the home appliances segment a few years ago to diversify from sewing machines.

The revenue generated from the appliances segment has been gradually increasing. In 2022, the sewing machine business contributed close to 68% to total revenues. This was 64% last year and 70% in the year prior to that.

Financial Snapshot

Rs m, standalone FY18 FY19 FY20 FY21 FY22
Revenue 4,215.0 4,829.8 4,511.7 4,145.3 4,529.8
Growth (%) 14% 15% -7% -8% 9%
Operating Profit 149.1 173.2 189.4 214.0 131.6
OPM (%) 4% 4% 4% 5% 3%
Net Profit 89.6 92.6 81.2 106.2 76.7
NPM (%) 2% 2% 2% 3% 2%
Debt to Equity (x) 0.24 0.38 0.27 0 0
Dividend per share (Rs) 0.8 0.8 - 1.0 1.0
Data Source: Ace Equity

Singer India has made big dividend payouts for the past couple of years with the exception of 2022.

#5 Shree Digvijay Cement

Shree Digvijay Cement is a pioneer in the cement business. The company's brands 'Kamal Cement' and 'Cement ka Sardar' are well-known name in the cement industry.

The company was incorporated in 1944 and manufactures cement at the coastal township of Digvijaygram in Jamnagar District of Gujarat.

In the past five years, the company has grown its revenue from Rs 4,133 million (m) to Rs 6,293 m as of March 2022. Similarly, profits have grown from Rs 133 m to Rs 553 m.

This results in a compounded annual growth rate (CAGR) of 9% and 33%, respectively.

Financial Snapshot

Rs m, standalone FY18 FY19 FY20 FY21 FY22
Revenue 4,133.5 4,364.6 4,698.5 5,028.2 6,293.4
Growth (%) 31% 6% 8% 7% 25%
Operating Profit 542.0 311.7 1,031.6 1,113.7 1,210.6
OPM (%) 13% 7% 22% 22% 19%
Net Profit 133.7 20.6 564.4 539.9 552.9
NPM (%) 3% 0% 12% 11% 9%
Debt to Equity (x) 0.11 0.18 0 0 0
Dividend per share (Rs) - - 1.5 2.5 3.5
Data Source: Ace Equity

Along with good dividend payouts, the company has also fared well on return ratios with return on equity (ROE) and return on capital (ROCE) coming in at 17.8% and 29% for financial year 2022.

In 2022, the company has also signed hybrid power contract for a capacity of 8.10 megawatts (MW) hybrid wind and solar power.

As cement sector is seeing a pick-up in demand, Shri Digvijay could be a top growth contender from the broader space.

#6 NBCC (India)

NBCC India holds the status of Navratna CPSE and has emerged as the undisputed leader in the construction sector on the back of its capabilities, and timely deliveries.

NBCC's areas of operation encompass three primary segments namely project management consultancy (PMC), engineering procurement & construction (EPC) and real estate development.

The company also has a new business vertical named re-development of government properties. As these projects fetch higher margin, NBCC may undertake more of these in the future.

Despite operating in the highly working capital-intensive construction space, NBCC has been able to report stable revenues and its working capital cycle has remained moderate.

Financial Snapshot

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenue 84,470.9 99,429.7 80,870.7 69,534.1 76,906.1
Growth (%) 14% 18% -19% -14% 11%
Operating Profit 7,762.6 7,947.6 5,515.8 5,189.4 5,712.9
OPM (%) 9% 8% 7% 7% 7%
Net Profit 3,782.9 3,751.6 782.3 2,256.6 2,243.2
NPM (%) 4% 4% 1% 3% 3%
Debt to Equity (x) 0 0 0 0 0
Dividend per share (Rs) 0.8 0.7 0.1 0.5 0.5
Data Source: Ace Equity

Last month in an earnings call, the company's chairman and MD PK Gupta said that NBCC has entered in smart-city projects for the first time and secured a work of Rs 3.4 billion (bn) in Puducherry Smart City. Another work of Aligarh smart-city has been awarded at a cost of Rs 500 m.

NBCC is now planning to increase its presence in overseas markets by looking at nations such as Saudi Arabia, Malaysia, the Seychelles, and Mauritius.

For 2023, the company has ambitious goals of acquiring orders worth Rs 65 bn.

#7 Grauer & Weil (India)

Grauer & Weil (India) is engaged in manufacturing of entire range of metal finishing chemicals, as well as all types of equipment and plating plants made to international specifications and supplied to exacting standards the world over.

Further, it manufactures lubricants and is also in the business activities of paints.

It has a track record of over six decades in the electroplating business and continues to maintain leadership position in the domestic industry with around 30% market share.

As it is involved in so many segments, the company benefits from a well-diversified product portfolio.

In 2022, the company also forayed into the decorative paints segment.

Last year, all of its main segments saw a sharp recovery in demand. The main effect was seen in the automotive segment.

The uptick in demand for automobiles bodes well for the business. Besides, the rising demand for the irrigation, water supply and sanitation sectors are also key growth drivers for the corrosion and protection solutions segment.

Financial Snapshot

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenue 4,973.0 6,010.8 6,194.0 6,054.1 7,682.6
Growth (%) 15% 21% 3% -2% 27%
Operating Profit 1,081.8 1,174.1 1,090.9 1,156.3 1,271.8
OPM (%) 22% 20% 18% 19% 17%
Net Profit 637.8 638.7 758.4 688.1 787.7
NPM (%) 13% 11% 12% 11% 10%
Debt to Equity (x) 0.02 0.05 0.04 0.04 0.03
Dividend per share (Rs) 0.6 0.6 0.5 0.5 0.7
Data Source: Ace Equity

The company's leadership has enabled a smooth road to profitability. The total sales and net profit grew at a 4-year CAGR of 12.1% and 5.4%, respectively.

The ROE has also remained strong, averaging 14.7% over three years. The company has rewarded its investors well, sporting a three-year average dividend yield of 1.2%.

#8 Morepen Laboratories

Morepen Laboratories is engaged in the manufacturing and sale of APIs and bulk drugs, home diagnostics, formulations, and over the counter (OTC) products.

The company is currently focusing on new therapeutic areas of anti-diabetics and also investing its resources for development of products under anti-coagulant therapeutic category.

In the past 5 years, the company has growth its revenues and profits at a CAGR of 21% and 28% respectively.

Covid year was a good one for pharma companies and you can see the same effect on Morepen's financials.

Financial Snapshot

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenue 6,065.1 7,685.4 8,530.7 11,880.6 15,468.3
Growth (%) 2% 27% 11% 39% 30%
Operating Profit 684.5 711.9 780.0 1,305.8 1,567.7
OPM (%) 11% 9% 9% 11% 10%
Net Profit 295.9 288.5 335.8 970.9 1,016.8
NPM (%) 5% 4% 4% 8% 7%
Debt to Equity (x) 0.06 0.52 0.05 0.04 0.03
Dividend per share (Rs) - - - - -
Data Source: Ace Equity

In the latest earnings call, the company's management said they expect to increase profitability parameters in the next few quarters once the supply disruptions are normalised, which have resulted in increased input costs.

#9 Orient Abrasives

Orient Abrasives was set up in technical collaboration with Karborundum, Bentueky, Czechoslovakia by the Rajgarhia group of industries as a venture to manufacture calcined and fused alumina products.

The company enjoys the position of being the largest producer of calcined and fused products in India.

Raw bauxite and calcined alumina are the key raw materials for the company, and it has integrated plants for the same at Bhatia, Jamnagar, and Bhuj in Gujarat.

In the past two financial years, the company has seen a decline in revenues and profits due to suspended operations at some of its plants because of non-availability of core materials.

Financial Snapshot

Rs m, standalone FY18 FY19 FY20 FY21 FY22
Revenue 3,235.2 3,129.7 3,458.5 3,021.7 2,583.1
Growth (%) 48% -3% 11% -13% -15%
Operating Profit 349.9 409.1 465.2 328.9 223.6
OPM (%) 11% 13% 13% 11% 9%
Net Profit 169.9 161.8 205.6 113.7 70.2
NPM (%) 5% 5% 6% 4% 3%
Debt to Equity (x) 0.31 0.37 0.23 0.13 0.15
Dividend per share (Rs) 0.3 0.3 0.2 0.2 0.2
Data Source: Ace Equity

The company has a rich dividend history and has paid dividends consistently since 2003. The payout though, has reduced over the years.

#10 Aarey Drugs

Last on the list we have Aarey Drugs.

The company is engaged in the manufacturing of drugs and intermediates such as metronidazole, metronidazole benzoate, methyl, and nitro imidazole. The therapeutic targets of its products are allergy, dermatology & infectious diseases.

The company primarily caters to the domestic markets and has an established relations with its customers & suppliers.

In 2021 and 2022, the company saw improvement in profitability as demand for pharma products increased due to the ongoing Covid-19 pandemic. The company further benefitted from the introduction of higher value products such as Albendazole, Nimesulide, Lumefantrine and Metronidazole, which are pain killers and anti-biotics.

Financial Snapshot

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenue 3,486.3 3,547.1 3,000.9 3,484.2 4,926.8
Growth (%) -12% 2% -15% 16% 41%
Operating Profit 108.2 122.2 99.2 116.7 140.5
OPM (%) 3% 3% 3% 3% 3%
Net Profit 61.8 65.4 57.9 65.1 65.5
NPM (%) 2% 2% 2% 2% 1%
Debt to Equity (x) 0.04 0.19 0.2 0.19 0.13
Dividend per share (Rs) - 0.1 - - -
Data Source: Ace Equity

How these penny stocks compare against each other

Here's a table comparing these 10 companies on other important metrics.

Comparative Analysis

Company ROE (%) ROCE (%) Latest EPS (Rs) TTM PE (x) TTM Price to book (x)
Vardhman Acrylics 4.8 5.8 2.9 19.3 1.9
Confidence Petroleum 14.9 19.5 2.4 32.5 3.6
Texmo Pipes 8.3 14.3 2.1 28.5 0.9
Singer India 12.9 18.4 1.5 36.1 5.3
Shri Digvijay Cement 17.8 28.8 3.0 23.5 3.3
NBCC 14.0 15.0 34.4 13.6 2.0
Grauer & Weil 14.4 19.4 4.3 21 3.2
Morepen Labs 21.8 24.9 1.1 29.2 2.2
Orient Abrasives 3.2 4.2 0.8 38.9 1.4
Aarey Drugs 6.3 9.9 1.6 23.1 0.8
Data Source: Ace Equity

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!

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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.


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.

Which are high quality penny stocks in India right now?

As per Equitymaster's Stock Screener, here is a list of high quality penny stocks in India right now...

Equitymaster requests your view! Post a comment on "10 Fundamentally Strong Penny Stocks to Watch Out for as 2023 Begins". Click here!

1 Responses to "10 Fundamentally Strong Penny Stocks to Watch Out for as 2023 Begins"


Jan 23, 2023

i want to invest long term of 3-5 years. pl suggest and guide me.

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