Top 5 high-quality penny stocks to add to your watchlist
9 min read 23 Mar 2023, 10:42 AM ISTWith so many options out there, it can be challenging to find high-quality penny stocks that are worth adding to your portfolio.
PremiumFor many investors, penny stocks are an attractive option due to their potential for high returns with a low initial investment. However, it can be challenging to find high-quality penny stocks that are worth adding to your portfolio.
What do we mean by high quality penny stocks?
Imagine companies with decent sales and profit growth over the past 10 years. Companies which have good return ratios and have shown consistency in their dividend payouts.
You want to see a company that has been around for a while and has a history of earnings growth, as well as decent profit margins.
So, keeping that in mind, we highlight the top five high quality penny stocks in India.
These stocks are shortlisted using Equitymaster powerful Indian stock screener.
#1 HUDCO
First on the list is HUDCO.
Housing & Urban Development Corporation (HUDCO)is a public limited company (Government of India undertaking). Being majorly owned by the centre, the company receives support in terms of board representation and access to low-cost funds.
The company is primarily engaged in the business of financing housing and urban development activities in the country.
Over the years, HUDCO has played a significant role in the implementation of its various initiatives in urban infrastructure and social housing projects.
The company’s exposure to urban infrastructure is rising in line with thegovernment's increased focus towards infrastructuredevelopment. This is a big plus for HUDCO, which sanctions loans under various infrastructure schemes.
Coming to its financials, for the year ended March 2022, HUDCO reported a standalone profit after tax of ₹17,166 million (m). This compares with 2021's profit of ₹15,786 m.
HUDCO's profitability was impacted in Covid years (2020 and 2021) but it improved in 2022 and reached pre-Covid levels.
For the nine months ended December 2022, HUDCO has reported a profit of ₹10,624 m.
Have a look at the table below which shows the company’s financial performance for the past five years.
HUDCO Financial Snapshot (2018-2022)
FY18 FY19 FY20 FY21 FY22 41,714 55,559 75,321 72,355 69,544 18% 33% 36% -4% -4% 37,089 49,390 70,281 70,004 68,864 89% 89% 93% 97% 99% 10,102 11,802 17,084 15,786 17,166 24% 21% 23% 22% 25% 3.65 5.45 4.98 4.62 4.25 10.57 11.29 14.67 12.37 12.41 8.86 8.44 9.72 9.45 9.16 ₹m, standalone Revenue Growth (%) Operating Profit OPM (%) Net Profit NPM (%) Debt to Equity (x) ROE (%) ROCE (%)
Data Source: Ace Equity
In March 2023, the company’s board announced plans to raise ₹180 billion (bn) as part of its fundraising exercise.
The company is also known for rewarding its shareholders by making large dividend payouts. HUDCO boasts of a high dividend yield of 7.9% on its current market price.
Since listing on the bourses in May 2017, HUDCO share price has fallen 38%.
HUDCO Share Price Since Listing
#2 PTC India
Next on the list is PTC India.
The company is regarded as a pioneer in developing power trading in India.
Over the years, the company has diversified its service offerings. It has recently forayed into the wind energy business by setting up a new company - PTC Energy Limited.
It is also exploring opportunities in green hydrogen, and battery energy storage systems.
Coming to its financials, PTC India has reported decent numbers over the years, despite growing competition within the sector.
PTC India Financial Snapshot (2018-2022)
196,394 151,551 181,008 183,455 168,564 28% -23% 19% 1% -8% 13,014 20,838 18,485 17,250 16,042 7% 14% 10% 9% 10% 2,000 4,253 3,676 4,487 5,062 1% 3% 2% 2% 3% 3.3 3.4 2.7 2.6 2.1 4.4 12.8 10.0 10.6 12.1 8.1 11.9 10.6 10.2 9.9 ₹m, consolidated FY18 FY19 FY20 FY21 FY22 Revenue Growth (%) Operating Profit OPM (%) Net Profit NPM (%) Debt to Equity (x) ROE (%) ROCE (%)
Data Source: Ace Equity
The company has beenconsistently paying dividendssince 2002. The stock's current dividend yield stands at 8.8%. This means that for every ₹100 invested in the company you earn a dividend of ₹8.8.
The consistency in dividend payments is on the back of PTC India's healthy cash & cash equivalents.
Consistent Dividends at a Growing Rate
Dividend Per Share (Rs) Dividend Yield (%) 7.80 9.47 7.50 9.61 5.50 14.25 4.00 5.44 4.00 4.59 3.00 3.23 2.50 3.92 2.20 2.72 2.00 2.96 1.60 2.69 Year Ending 31-Mar-22 31-Mar-21 31-Mar-20 31-Mar-19 31-Mar-18 31-Mar-17 31-Mar-16 31-Mar-15 31-Mar-14 31-Mar-13
Data Source: Equitymaster, Ace Equity
Dividend yield as per 31 March 2022
In March 2023, the company announced its collaboration with a Belgium based company to develop predictive solution for the Indian power market.
Since listing on the bourses in April 2004, shares of the company have gained 104%. In 2023 so far, PTC India shares are up 12%.
PTC India Share Price Since Listing
#3 Jagran Prakashan
Third on the list is Jagran Prakashan, a media conglomerate.
Jagran Prakashan initially started its business with printing and publishing newspapers and magazines. However, it has expanded its portfolio in the last few years to FM radio, outdoor and digital advertising, event management, and promotional marketing.
A few of the company's popular brands include Dainik Jagran, Mid-day, The Inquilab, and Radio City, among others.
As per the last available readership survey data,Dainik Jagranhad total readership of over 69 m, which is the highest amongst all newspapers in India.
After reeling under pressure in pandemic year, Jagran Prakashan's financial performance has significantly improved.
Financial Snapshot of Jagran Prakashan
FY18 FY19 FY20 FY21 FY22 23,040 23,627 20,973 12,892 16,160 1% 3% -11% -39% 25% 6,298 5,745 4,649 2,798 4,264 27% 24% 22% 22% 26% 3,110 2,742 2,809 783 2,169 13% 12% 13% 6% 13% 1,478 4,064 2,252 2,683 2,770 0.07 0.22 0.12 0.13 0.13 ₹m, consolidated Revenues Growth (%) Operating Profit OPM (%) Net Profit NPM (%) Total debt Debt to Equity (x)
Data Source: Ace Equity
If we go back to the pandemic days, it was clear the already affected print media industry had suffered a big blow due to lockdowns. Newspapers struggled as readership reduced along with advertisement revenues.
Along with this, thethreat of digitisationwas accelerating.
But big players like Jagran Prakashan took serious cost-cutting measures and hiked cover prices, among other initiatives. This cushioned the pandemic blow to some extent.
For the nine months ended December 2022, Jagran Prakashan has reported a profit of ₹1,733 m. Going by the trend, Jagran is set to surpass last year’s revenue and profit figures.
However, a big challenge for Jagran right now is soaring newsprint prices and high inflation. Newsprints account for around 30-35% of operational cost for some print media companies. In some cases, it's 50%!
Coming to distribution to shareholders, Jagran didn’t pay dividend in the years 2020, 2021 and 2022. For financial year ending March 2023, it paid an interim dividend of ₹4 per share in August 2022.
Instead of dividend, Jagran Prakashan focuses on buybacks as it is one of the companies which have conducted repeat buybacks.
Since listing on the bourses in February 2006, Jagran Prakashan shares have rallied 60%.
Jagran Prakashan Share Price Since Listing
#4 Gujarat Industries Power
Fourth on the list is Gujarat Industries Power (GIPCL).
The Vadodara-based public limited company is engaged in the business of power generation. It was incorporated in 1985 and is promoted by three leading Gujarat PSUs viz. GUVNL, Gujarat Alkalies, and Gujarat State Fertilisers.
It has a diversified portfolio of thermal (gas and lignite), wind and solar power plant assets in the state of Gujarat.
The company also offers operation and maintenance (O&M) services, such as power plant services, and demineralisation (DM) water supply and laboratory testing services.
Coming to the company’s financials, due to non-operation of its gas power plant, the company reported muted numbers for 2022.
Even for 2023, the company has guided for flat growth due to capacity addition.
Gujarat Industries Power Financial Snapshot (2018-2022)
13,538 14,074 13,788 13,353 11,724 3% 4% -2% -3% -12% 5,320 6,651 5,469 4,546 4,270 39% 47% 40% 34% 36% 2,445 1,764 2,480 1,798 1,713 18% 13% 18% 13% 15% 0.3 0.2 0.2 0.2 0.2 10.4 7.0 9.3 6.4 5.8 13.1 9.0 11.2 9.2 8.0 ₹m, standalone FY18 FY19 FY20 FY21 FY22 Revenue Growth (%) Operating Profit OPM (%) Net Profit NPM (%) Debt to Equity (x) ROE (%) ROCE (%)
Data Source: Ace Equity
Coming to dividends, GIPCL has consistently declared dividends since 1997.
Going forward however, the company’s dividend payout might get reduced as it has a significant capex plan.
The company is developing the Khavda project in four phases. Capex for this is around ₹1-1.2 bn for 2023 and around ₹4-5 bn planned for next year.
All this should bode well in the long term. GIPCL is also exploring new business opportunities including foraying into green hydrogen space.
Since listing in 2000, shares of the company have gained 72%.
Gujarat Industries Share Price Since Listing
#5 Skipper
Last on this list is Skipper, a leading engineering products manufacturing company.
It is known for manufacturing transmission and distribution structures like towers and poles.
The company also manufactures polymers such as pipes and fittings and is trusted to execute infrastructure EPC projects.
In the last three years, the company's revenue and net profit declined mainly due to Covid-19. However, it managed to have a positive net margin.
Skipper Financial Snapshot (2018-2022)
20,737 18,709 13,905 15,815 17,071 25% -10% -26% 14% 8% 3,056 1,829 1,417 1,493 1,724 15% 10% 10% 9% 10% 1,178 312 413 214 251 6% 2% 3% 1% 1% 0.8 0.8 0.7 0.6 0.8 20.3 4.8 6.2 3.0 4.0 24.7 12.4 9.0 9.1 10.1 ₹m, consolidated FY18 FY19 FY20 FY21 FY22 Revenue Growth (%) Operating Profit OPM (%) Net Profit NPM (%) Debt to Equity (x) ROE (%) ROCE (%)
Data Source: Ace Equity
For the quarter ended December 2022, Skipper reported a revenue of ₹4.4 bn, up 11.1% YoY. Operating profit declined 13.9% while net profit declined 15.8%.
The profitability was impacted by rupee depreciation, leading to a loss of ₹44 m versus a gain of ₹69 m (YoY).
As of December 2022, its order book stood at ₹47 bn – the highest ever in company's history. As per the management, the bidding pipeline remains strong. The company is actively pursuing projects worth ₹52 bn on international front and about ₹31.2 bn on the domestic front.
Skipper recently secured its largest single order win from Bharat Sanchar Nigam Ltd (BSNL) for supply and erection of GBT Towers and subsequent O&M for 5 years, extendable to 5 more years.
Going forward, strong order book will drive revenue growth and the company is also expecting better profit margins.
The country’s focus on renewable energy, roll out of 4G and 5G networks (that need massive telecom infra to be set up - India needs around 800,000 additional towers to address digital growth and 5G roll out) and China plus one, are some of the trends that are acting as tailwinds in company's favour at present.
The company has also been paying dividends consistently.
Since listing in July 2014, Skipper share price has rallied 167%.
Skipper Share Price Since Listing
Snapshot of top high quality penny stocks from Equitymaster's Indian Stock Screener
Here's a quick view of the above companies based on their financials.
Please note that these parameters can be changed according to your selection criteria.
This will help you identify and eliminate stocks not meeting your requirements and emphasise those stocks well inside the metrics.
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
