5 penny stocks undergoing dramatic change. It’s time to track them

These companies identify new emerging trends and establish a foothold in a particular segment. By doing so, they disrupt legacy companies and offer value which were not available until then.

For instance, check out this WhatsApp forward I received the other day.

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In recent years, there has been a rapid shift towards the businesses of companies. This means that many companies who were previously using traditional methods have had to change their business model to embrace new technologies, or risk losing market share to more nimble competitors.

Penny stocks are also seeing this shift occur, with some stocks rising as a result.

Last month, we wrote to you about the five smallcap stocks that are undergoing dramatic change.

In today’s article, we look at five penny stocks undergoing a dramatic change. These changes can be positive or negative but either way, they’re happening.

Read on to find out why these penny stocks are worth tracking.

#1 RattanIndia Enterprises

First on the list is RattanIndia Enterprises.

This is an exciting company to track as the firm is involved in not one, but three hot megatrends in India – drone, EV, and fintech.

In the drone segment, RattanIndia Enterprises initially made an investment in US-based Matternet, the world’s most extensive urban drone logistics platform. At the time of investment, it announced the formation of an Indian subsidiary to kickstart the drone business in India.

Today, it has a wholly owned subsidiary NeoSky, which has a drone business in India. Neosky covers multiple segments and makes defence drones, consumer drones, etc. It develops a cutting-edge drone system, focusing on industry applications in India.

In May this year, RattanIndia through Neosky, acquired 60% stake in drone company Throttle Aerospace Systems. The acquisition was aimed at providing NeoSky full 360 degree drone solutions to customers.

In the electric vehicle (EV) segment, it has exposure through an EV startup – Revolt Motors.

Earlier in 2021, RattanIndia had infused ₹1.5 bn in Revolt Motors to acquire a 43% stake in the startup. In October 2022, it increased the stake to 100%.

In the fintech space, RattanIndia has its own fintech platform – BankSe. It’s a one-stop tech-driven financial solutions provider, to analyse multiple life-stage and financial parameters of customers.

BankSe is in the process of tying-up with a majority of banks by March 2023. It currently has an arrangement with 21 banks and financial firms to offer loan products.

Now, if you dig a little deeper and check the company’s financials, you’ll find that it had no sales to report until the second half of financial 2020-21. Moreover, at the end of September 2021, the company had ₹150 m of net debt, up from none a year ago.

What’s got investors excited is the company’s foray into new-age businesses. Despite being devoid of revenues and profits, the company’s foray into new age tech has helped keep it insulated from negative sentiment.

It remains to be seen what kind of contribution these three segments offer.

#2 Bodal Chemicals

Next on the list we have Bodal Chemicals.

The company is India’s leading integrated dyestuff company and is the largest domestic manufacturer of dye intermediates.

What makes this company an exciting play is the technological upgradation at the recently acquired Siel Chemical Complex.

In financial year 2021, Bodal acquired Siel Chemical Complex for ₹1.5 bn which was a unit of Mawana Sugars. Siel Chemicals is one of the largest players in chlor alkali segment in North India with a reputed client base.

Bodal is currently in the process of upgrading the technology of the plant which will result in reduction in power costs and increase in production capacity. The expected completion date is as soon as December 2022.

Apart from this, Bodal Chemicals is also setting upa greenfield project in Gujarat to diversify into specialty benzene downstream products and expand its sulfuric acid and derivatives division.

This will reduce dependence on the dyestuff segment and also enable the company to expand clients in the pharma and agrochemical sectors.

In the past five years, the company’s revenue has grown at a CAGR of 12%. Bodal also has a history of reporting decent profits having posted regular profits since 2014.

The company has taken on some debt on its books this year but it’s well manageable with debt-to-equity ratio coming in at 0.64x.

#3 MIC Electronics

Next on the list is MIC Electronics.

MIC Electronics is a global leader in the design, development & manufacturing of LED video displays, high-end electronic and telecommunication equipment and development of telecom software since 1988.

The company tasted success in initial years post listing on the stock markets. However, the recent journey has been more than painful for investors in MIC Electronics. Since 2016, the company has posted back to back losses in each year till 2021. Even prior to that, the record isn’t very clean.

In 2022, it became profitable as it saw a sharp rise in revenues.

While one should of course stay away from stocks which have a history of posting repeated losses, MIC Electronics could possibly emerge as a beneficiary of the EV megatrend.

This year, in May 2022, the company announced that it’s looking to enter the domestic EV ecosystem this year and plans to revitalise its existing business lines. The company will manufacture all kinds of EV batteries, including Li-ion batteries, once it enters the space.

It’s currently in talks with a few existing players in the domestic market to expand into areas like EV charging and servicing, among other allied areas. The company is expecting revenues of ₹450-600 m by end of this year.

Apart from the EV segment, the company will scale up the LED display boards and railway segment.

#4 Arvind

Fourth on the list is a garments & apparel company, which has exposure to various other segments.

Arvindis the flagship company of the Ahmedabad-based Lalbhai group, which was founded by the Late Kasturbhai Lalbhai in 1931.

It’s one of India’s leading vertically integrated textile companies with presence of more than eight decades in the industry. The company is one of the largest denim and woven fabric manufacturers.

Arvind is one of the biggest beneficiaries of China plus one strategy. Global textile brands are gradually diversifying their supply chain as part of the strategy, which has resulted in increased exports for Indian textile companies like Arvind.

Apart from that, the company has exposure to real estate business, which received some traction this year. As per its annual report, Arvind owns 525,000 square yard free-hold land in Gandhinagar district, near Ahmedabad. Arvind has decided to monetise the land by developing part of it.

For this, it has given the development rights to its group entity Arvind Smartspaces.

Once the project is developed and bookings resume, Arvind plans to utilise proceeds to reduce debt. As of March 2022, Arvind has total debt amounting to ₹17.6 bn.

Over the past five years, Arvind’s revenues have grown at a CAGR of 3% while it became profitable in 2022 after reporting a loss in 2021.

#5 ISMT

Fifth on the list is ISMT, the largest seamless tubes manufacturers in India.

ISMT’s operations are integrated so that the company manufactures steel required for production of seamless tubes. It procures steel from external sources.

A big change for the company was the change in management control, which makes it an exciting company to track.

In March 2022, Kirloskar Ferrous took over the management control of ISMT by acquiring 51.3% stake. Kirloskar Ferrous is part of the Pune-based Kirloskar Group. It’s one of the leading players in pig iron and ferrous casting segment.

A major change for ISMT was that Kirloskar cleared off all the dues of ISMT and brought ISMT’s net worth in the positive. Thus, ISMT became eligible to participate in the tenders of various public sector undertaking (PSU) companies.

With the acquisition of ISMT, Kirloskar will integrate its iron ore business with seamless tubes at a consolidated level and diversify the current product portfolio. It’s a win-win for both companies.

ISMT also became profitable this year as it saw a 73% rise in topline in 2022. Prior to this, ISMT had a history of reporting losses for nine consecutive fiscals.

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The promoter pledging stands at NIL at present, down from over 95% two quarters ago.

Performance and comparative analysis of these companies

Here’s a table showing the share price performance of these penny stocks and other important metrics.

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Conclusion

It’s hard to find a company that doesn’t change over time.

Some changes can be good, some can be bad. But when you’re buying or selling stocks, the changes can mean big gains or equally big losses on your investments.

Before investing in any company, make sure you study the fundamentals and growth prospects thoroughly. Check whether thestock is undervaluedas those make for the best investment.

Happy Investing.

Disclaimer:This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com