Penny stock Gopala Polyplast surged over 17,000 percent in just 1 year. Let's look at the reasons behind the meteoric rise.
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Shares of penny stock Gopala Polyplast have generated multifold returns for investors in the last 1 year. The stock rose from its 52-week low of ₹4.51, hit on October 29, 2020, to ₹772 on BSE as on October 29, 2021, surging over 17,000 percent in this time period.
In comparison, the benchmark Sensex has risen 50 percent in the last 1 year and the BSE Smallcap index has gained nearly 90 percent.
The stock had hit its all-time high of ₹1,286.95 per share on the BSE on October 19, 2021, and has a market cap of ₹790 crore.
An investment of ₹1,00,000 in the stock at its 52-week low would have turned to ₹1.71 crore today.
While the stock has delivered multi-bagger returns to its investors, one must note that since penny stocks are extremely volatile, only investors with a high-risk appetite should invest a small weightage of their entire portfolio in such stocks. Penny stocks can also crash as rapidly as their rise.
The stock has hit its 5 percent upper circuit in 11 sessions in the past 1 month and its 5 percent lower circuit in 9 sessions this time.
About the firm
Founded in 1984, Gopala Polyplast is engaged in the production of plastic articles for the packaging of goods. The company manufactures woven sacks and woven fabric which are used for packaging in industries like foodgrains, cement, chemicals, fertilizer, sugar, etc.
The firm is majorly held by its promoters who own a 92.83 percent stake in the firm while only 7.17 percent stake is held by public shareholders. Public sector lender Bank of Baroda is the largest public shareholder which owns a 5 percent stake or 5.12 lakh shares in the firm. Meanwhile, FIIs own a 0.23 percent stake.
The firm reported a loss of around ₹2 crore in the June 2021 quarter as against a loss of ₹1,46 in the year-ago quarter. However, in the March 2021 quarter, the firm had posted a profit of ₹17 crore.
The loss in the June 2021 quarter rose despite a rise in revenue. It posted a revenue of ₹10.59 crore in the quarter under review versus nil revenue in the year-ago quarter due to COVID lockdown last year, as per the BSE filing.
Reasons for the recent surge
Due to major defaults on debts from banks and creditors, and financial crisis, the firm underwent the insolvency resolution process under the Insolvency and Bankruptcy Code (IBC) Law. Post that the Ahmedabad NCLT approved the resolution plan for the firm submitted by Plastene India in August 2020. The company's stock price has been on an uptrend since then.
Also, since the majority of the shares are held by the promoters and a very handful of shares are available for trading, the rise in demand for the stock with a scarce supply is a major reason behind the skyrocketing of shares.
The company also stated, "the new management has a robust and sustainable business model and is confident of the medium to long-term growth prospects in flexible packaging. The company’s businesses will continue to register healthy growth in revenue and margins."
While investors of the stock would be pretty pleased with the money it has made, the company has also been in the news for a number of wrong reasons. In December 2020, the CBI registered a case against the company of a bank fraud worth ₹72.55 crore on a complaint from the Bank of Baroda.
Hence, while the low liquidity in a stock like Gopala Polyplast led to its steep rally, one must be very careful and do proper research before buying a penny stock like this.
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