A Smallcap Stock with Strong Insider Activity for Your Watchlist

2025 has begun on not such a great note...specially for smallcaps.

The benchmark index (BSE Smallcap) is down about 12% from its peak.

However, the pinch has been harder. A good number of smallcaps have corrected 20% and more.

As I wrote recently, this correction is not entirely unwarranted... and could just be the beginning.

For long term investors who have allocated well, this phase would eventually pass. And any near term correction could in fact offer an opportunity to buy quality stocks without overpaying for them.

But it is also the time when the recency bias may come in the way of effective decision making.

I'm seeing a lot of articles on the lines of... 'Stocks that are down x% from their 52-week high', apparently looking attractive with this correction.

A 52-week high, and fall from it, is not a credible metric for finding the intrinsic value of the company. Take such stock recommendations with a pinch of salt.

So what could be more meaningful clues?

In my last article, I spoke about open market purchases by the promoters. These stock purchases are carried out by insiders/promoters at prevailing market prices.

Insider buying action suggests confidence of the promoters in the business and the value it can generate overtime. For more details on it, click here.

However, this is not the only way insiders increase stake in the business or signal confidence.

Another corporate action that you could track is the preferential allotment. Here, a company issues shares or convertible securities (warrants) to a select group of investors.

This is different from IPO or FPO which could be time consuming, procedurally complex, and allows retail investors to participate.

Preferential issue/warrants is a way of infusing money in the company for the purpose of business advancement, to pay debt, and so on. Promoters have the option to participate in it, along with other strategic and institutional investors.

The issue price is on the basis of averages of high and low prices at which the stock has traded in recent weeks, as per regulatory guidelines.

In case of warrants, 25% of this price has to be paid upfront. The remaining 75% can be paid over next 1.5 years.

After this payment, the warrants convert to shares at the predetermined price, irrespective of what the future price is.

However, if the future price trades at a discount to warrant issue price, 75% may never get paid as it becomes an out of the money deal for warrant holder.

In such a case, the warrant may get expired without any conversion to stock. Further, the company loses the opportunity to receive the remaining 75% of the money.

In other words, it's like a call option. 25% is the premium promoter pays to have the option.

If the warrant is in the money (i.e. when the future stock price is higher than warrant allotment price), the promoters get to raise their stake at a much lesser cost.

They may even sell these shares at a higher price in the open market later on, making a clean profit while raising their stakes in the business.

If the warrant is not in the money (if the future stock price is less than the allotment price), the promoter ends up paying 25% without any personal benefit.

So how can retail investors use this to get insights and potentially benefit from this data?

Well, here is what I suggest.

Look for companies where the promoters are participating in the preferential issue.

The reason I'm focusing on promoters is because I believe they have better insights about the future potential of the business, than institutional or strategic investors.

Keep a track of the price at which the warrant is allotted. In a market correction, it is possible that retail investors will be able to catch this price in the open market.

And then dig deeper to assess if there is a potential investment opportunity.

A case in point is Suyog Telematics, a company in telecom industry that offers tower infrastructure solutions and is a beneficiary and enabler of 5G. It offers tower erection, fiber optics network solution and pole erection services.

As a passive telecommunication infrastructure provider, it builds and operates telecom towers and related assets, and provides/leases these assets on shared basis to telecommunication service providers.

It is registered as Infrastructure Provider Category-I (IP-I) with DoT (Department of Telecommunications). Its clients include telecom players like Airtel, Jio, Vodafone, and BSNL.

The company has ambitious plans to roll out towers in the coming months and years. Besides, it is looking at inorganic growth opportunities for geographic expansion in the areas where its presence is weak.

The revenue guidance for FY26 is Rs 3.2 bn, versus Rs 1.8 bn on a trailing 12-month basis. The debt to equity, margin and return ratio looks healthy.

As I write this, the stock is trading at a PE (price to earnings) multiple of 22 times.

Meeting these revenue targets will need funds. The capex estimate is Rs 4-4.5 bn in FY25 and in FY26.

To fund this, the board recently approved raising preferential capital wherein equity share/ warrants issue are priced at Rs 1,875 per share.

A total of Rs 2.7 bn is proposed to be raised. Over one third participation is proposed to be by the promoter group. At the current price of Rs 1,681 per share, the stock is trading at a discount to that proposed price.

The FY26 capex as per the management will be funded by debt and internal accruals.

While the opportunity looks good, there are some concerns as well. The business is likely to be capital intensive, and there is a risk of stretching of receivable days as the end industry has consolidated. Exposure to telecom sector makes it vulnerable to the sector health and regulations.

Further, the company generates around 50-60% revenues from Mumbai and Maharashtra - a regional concentration risk. This exposes company to any revision in rental agreement with customers or in long-term lease agreements with government agencies.

All in all, it looks like an interesting candidate for your watchlist. I would like to remind you this is not a recommendation. Use the insights in this article to keep a tab on potential opportunities.

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Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)