5 Smallcap Stocks that Could Go Bust in 2024

The Indian share markets continued their good run in the latter half of 2023 as bulls staged a strong comeback from their 52-week lows and gave a glimmer of hope to investors as they enter the election year 2024.

Stocks from across the board rallied big time, especially smallcaps. Among pricey valuations and undervalued companies, there is a category of companies that struggled to survive this year.

These companies saw their revenue fall and losses increase and failed to repay their loan dues.

All these are red flags for a business, and it's best if investors stay away from companies that have all these characteristics.

Keeping that in mind, we bring to you the five smallcap stocks that could possibly go bust in 2024.

#1 Arshiya

First on the list is Arshiya.

The company is an integrated supply chain and logistics infrastructure solutions provider.

It is the largest private container train operator with pan-India operations and the only free zone developer operating two free trade warehousing zones (FTWZ).

The company also own the only private inland container depot (ICD) with six rail loop lines.

It offers services to various industries, including FMCG, pharma, renewable energy, metals, IT, and telecom.

Recently, the company defaulted on repayment of dues to lenders. The lenders have also started recovery proceedings, and some also classified the loans given to the company as Non-Performing Assets (NPAs).

The company's revenue has fallen at a compound annual growth rate (CAGR) of 12.4% in the last five years. It reported a net loss four times in the last five years. At the end of financial year 2023, the net loss stood at Rs 1.5 billion (bn).

There wasn't any improvement in the company's financials, even in the September 2023 quarter. The revenue grew slightly by 5% year-on-year (YOY), and the net loss expanded to 538 million (m).

Arshiya's promoter holding stands low at 25.8%, which has reduced from 48.1% in December 2020. Moreover, the promoters have pledged 100% of their shares.

There was also a change in the company's statutory and internal auditors after the previous auditors resigned.

In 2022, the NCLT Mumbai approved the demerger of Arshiya Limited and Arshiya Rail Infrastructure Limited, which will help the former focus on FTWZ business.

It remains to be seen how the company's business will fare after the demerger.

Arshiya Financials

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue (Rs m)	3,140	3,077	1,601	2,469	1,622
Revenue Growth (%)		-2.0%	-48.0%	54.2%	-34.3%
Net Profit (Rs m)	-2,676	-4,622	-2,032	4,312	-1,568
Net Profit Margin (%)	-92.5%	-156.9%	-142.3%	287.2%	-110.0%
Debt-to-equity ratio (x)	2.3	8.2	-4	0.6	0

Source: Equitymaster

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

#2 GTL Infrastructure

Second on the list is GTL infrastructure.

The company offers shared passive telecom infrastructure in India.

Its activities include building, owning, operating, and maintaining passive telecom infrastructure sites capable of hosting active network components of various technologies such as 2G, 3G, 4G, Internet of Things (IoT), and enterprise wireless networks.

Apart from infrastructure management, it also undertakes energy management services and delivers uninterrupted power to its customers on towers at predetermined costs.

GTL Infrastructure earns revenue from long-term contracts with wireless telecom operators.

Since 2011, the company has lost 12-14 telecom operators as customers due to the shutdown of their services or exiting their contracts with GTL Infrastructure. This resulted in the abandonment of over 14,000 towers, and the company lost over 65,000 tenancies.

Moreover, it didn't receive the contractual dues from its customers who failed to renew their contracts.

All this resulted in a fall in the company's revenue and profit. The revenue saw muted growth in the last five years, and the net loss expanded from Rs 15 bn to Rs 18 bn.

Its borrowings also increased, and it is unable to service its debt obligations on time.

Hence, one of the lenders filed before NCLT under the Insolvency and Bankruptcy Code 2016 to recover the dues.

The company plans to invest Rs 3 bn in capex for replacement and network upgrade of its towers. However, it is subject to approval from its lenders.

The promoter holding stands low at 3%, and the promoters have pledged 100% of their shares.

One of the non-independent and non-executive directors of GTL infrastructure also resigned last year.

Although the company plans to focus on stabilising its operations by focusing on reducing costs and adding capacities through incremental tenancies on towers, it remains to be seen how the company's business will fare in the medium term.

GTL Infrastructure Financials

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue (Rs m)	15,396	14,440	15,664	15,105	15,226
Revenue Growth (%)		-6.2%	8.5%	-3.6%	0.8%
Net Profit (Rs m)	-15,394	-18,635	-12,708	-14,747	-18,169
Net Profit Margin (%)	-102.6%	-131.5%	-90.1%	-100.8%	-124.6%
Debt-to-equity ratio (x)	0	0	0	0	0

Source: Equitymaster

To know more check out GTL Infrastructure's financial factsheet and latest quarterly results.

#3 A2Z Infra Engineering

Third on the list is A2Z Infra Engineering.

The company is engaged in the business of providing engineering and maintenance services to infrastructure projects for the telecom and energy sectors.

Some of its clients include NHPC, NTPC, Birla Sunlife, ICICI Prudential, Shopper's Stop, and Jammu Municipal Corporation.

It also has operations in Nepal, Uganda, and Tanzania.

The company has been facing acute liquidity problems due to delayed realisations of trade receivables and negative net worth.

To add to this, it has high accumulated losses amounting to Rs 1.2 bn in the financial year 2023.

In the last five years, the revenue fell by a CAGR of 15.5%. It has also reported a net loss four out of five times during the same period.

High losses have resulted in delays in the company's debt repayment.

In December 2022, it entered into a one-time settlement arranged with IDBI bank to settle its outstanding dues through a deferred consideration of Rs 235.8 m against a total outstanding of Rs 1.3 bn.

Many lenders have also filed applications with the NCLT Debt Recovery Tribunal and other courts to recover their dues from the company.

To add to this, the promoter holding stands low at 28.15%, and the promoters have pledged 100% of their shares.

A2Z Infra Engineering's performance saw a slight recovery in the September 2023 quarter.

However, timely repayment of dues along with improvement in liquidity position are the key factors to watch out for.

A2Z Infra Engineering Financials

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue (Rs m)	8,880	7,280	4,405	3,709	3,821
Revenue Growth (%)		-18.0%	-39.5%	-16%	3.0%
Net Profit (Rs m)	2,970	-2,768	-811	-1,798	-1,261
Net Profit Margin (%)	34.2%	-39.6%	-19.5%	-50.9%	-36.1%
Debt-to-equity ratio (x)	0.1	0	0	0	0.1

Source: Equitymaster

To know more, check out A2Z Infra Engineering's financial factsheet and latest quarterly results.

#4 Yaari Digital

Next on the list is Yaari Digital.

It is a digital platform that provides e-commerce services to individual resellers and small businesses.

Its online marketplace enables individuals to start their businesses via social networking channels such as WhatsApp, Facebook, and Instagram.

The company has two wholly-owned subsidiaries, namely Indiabulls Life Insurance and Indiabulls General Insurance, through which it plans to enter the insurance business and awaits final approval from the authorities.

Yaari Digital has been incurring continuous losses in the last three years. In the financial year 2023, it reported a profit of Rs 949 m, but it is primarily due to other income of Rs 1.8 bn.

The revenue also fell by a CAGR of 11.9% in the last five years, primarily due to a fall in sales from Rs 1.7 bn to Rs 1 m in five years.

In the last five quarters, the company reported zero revenue from sales, indicating a complete shutdown of its business.

To add to this, the promoter holding stands low at 27.5%, which fell from 43.2% in December 2020.

The company has a long-term debt of around Rs 2.1 bn.

It recently received a sanction of a loan worth Rs 5.9 bn and is in the process of disbursal from the lender.

If this loan is approved, the company can pay its debt obligations and also run its business to generate revenue.

Yaari Digital Financials

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue (Rs m)	3,496	3,480	2,472	225	1,859
Revenue Growth (%)		-0.5%	-29.0%	-90.9%	726.2%
Net Profit (Rs m)	781	-2,932	-877	-1,458	949
Net Profit Margin (%)	45.7%	-130.0%	52.0%	11478.0%	86227.0%
Debt-to-equity ratio (x)	0.2	0.1	0.2	-1.7	-1

Source: Equitymaster

To know more, check out Yaari Digital's financial factsheet and latest quarterly results.

#5 Nitco

Last on the list is Nitco.

The company is engaged in the manufacturing and selling of tiles.

Its product categories include ceramic, wall tiles, marble, Mosaico, wooden tiles, vitrified tiles, digital tiles, porcelain tiles, and natural stone tiles.

Nitco has over 50 retail outlets in India and has a dealer network of 432 direct and 1,980 sub-dealers.

It recently entered into the Kenyan market and established its first store there.

The company also believes in continuous innovation and has launched several new product categories to meet the needs of its customers.

In 2018, it restructured its debt to get an extended timeline to repay its dues.

However, despite restructuring, the company defaulted on repayment of term loan instalments. As of March 2023, the loan dues stand at Rs 6.6 bn.

In the last five years, the company's revenue has fallen at a CAGR of 8.2% and the net loss expanded from Rs 601 m to Rs 1.5 bn.

There was also a change in key personnel, including the auditors and chief financial officer, after they resigned last year.

The company is currently in the process of selling its entire stake in New Vardhman Vitrifies.

Only an improvement in sales and repayment of dues can help the company survive.

Nitco Financials

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue (Rs m)	5,965	4,693	3,301	4,181	3,882
Revenue Growth (%)		-21.3%	-29.7%	26.7%	-7.2%
Net Profit (Rs m)	-601	-722	-1,399	-1,261	-1,513
Net Profit Margin (%)	-10.1%	-15.7%	-42.8%	-30.7%	-39.4%
Debt-to-equity ratio (x)	7.9	8.7	-6.3	-1	-0.6

Source: Equitymaster

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

Investment Takeaway

The companies mentioned above are on the verge of going out of business.

Falling sales, accumulating losses, high debt, and promoter pledges are all red flags that we could see in them.

When you are investing in any company, look for these red flags. All these are warning bells indicating that you must stay away from such companies.

If you find such red flags in the companies that you have already invested in, then it's time you rethink your investments.

Here's a list of other companies with red flags...

Company	Revenue Growth (CAGR 3 years)	Profit Growth (CAGR 3 years)	Debt-to-Equity	Promoter Pledge
MIRC Electronics	13.2%	-287.4%	0.1	34.5%
Quint Digital	27.2%	-22.6%	0.0	32.9%
Mac Charles India	52.1%	187.1%	2.2	97.9%
Asian Hotels (North)	43.8%	-50.4%	4.9	100.0%

Source: Equitymaster

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...