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    Penny stock produces flash in the pan with biz rejig, but books do not inspire

    Synopsis

    This particular stock has climbed some 950 per cent in just eight months.

    Invest-5---GettyGetty Images
    A closer look at the business showed the company recently entered a new, niche business segment, which could be the reason why the stock is on a high.
    Penny stocks are super risky bets. And they often show a flash in the pan to draw investors only to drop soon after leaving investors trapped.

    Yet, there have also been instances when smaller businesses have suddenly got things right and ended up scripting a big value creation story.

    If you have looked at return charts of penny stocks recently, this particular stock is bound to have caught your attention, as it has climbed some 950 per cent in just eight months. The company is Vikas Proppant & Granite, formerly known as Vikas Granaries. The scrip traded at Rs 8.70 on March 7 rising from Rs 0.80 on July 6, 2018.

    A closer look at the business showed the company recently entered a new, niche business segment, which could be the reason why the stock is on a high.

    The company with Rs 450 crore market capitalisation recently entered proppants manufacturing business. Proppant is used in “fracking” or hydraulic fracturing in petroleum production, the same process in which guar bean is used to create a gel-like ingredient to thicken the fracturing fluid, which suspends “frac sand” and carries it to the cracked rock.

    Called the biggest 21st century innovation in oil mining, fracking led to a huge surge in demand for guar seeds in India in recent years for use in US shale gas production. Vikas Granaries, formerly known as Adarsh Derivatives, has been in the guar gum industry for a long time now and runs a 4,050-tonne capacity guar powder plant close to Kandla.

    The company forayed into proppants last June. Proppants are in high demand worldwide, including the US, which imports much of it from China. There is good demand in India too, as oil drillers like ONGC and others are importing it currently.

    The shift appears to be working. For the nine months ended December 2018, the company saw net profit soar to Rs 32.90 crore against a net loss of Rs 1.36 crore posted for the same period last year.

    The promoters held a very small stake in the company till recently, but their recent behaviour suggests a bullish outlook for the business. They increased holding to 24.70 per cent as of December 2018 from 6.35 per cent at the end of September quarter. Holdings of other investors declined to 75.30 per cent from 93.65 per cent during the same period. There is no FII or DII holding in the company, and there in no brokerage coverage of the stock.

    With a debt-to-equity ratio of 1.5 times as of March 31, 2018, the balance sheet showed a lot stress in the bottom line as well top line in last few years. The company posted a net loss of Rs 1.10 crore in FY18 and Rs 13.80 crore in FY17. It posted ‘nil’ sales last year against Rs 3.12 crore in FY17. It reported a net loss of Rs 9 crore on gross sales of Rs 116.23 crore in FY16.

    Prior to that, Vikas Proppant reported profits in the Rs 0.40- 21.80 crore range between FY10 and FY15. Gross sales jumped to Rs 292.71 crore in FY15 from Rs 115.90 crore in FY10. One needs to look at management commentaries and financials before taking any position.

    Bajrang Dass Aggarwal, Kamini Jindal, and Bimla Devi Jindal are the promoters of the company. They are also directors at Vikas WSP, another guar gum powder manufacturer, whose shares traded in Rs 10-14 range during last eight months.

    The promoters held 17.86 per cent in Vikas WSP as of December 2018 against 18.78 per cent at the end of September 2018. Public holding in the company increased to 82.14 per cent from 81.22 per cent during the same period.

    Vikas WSP last February consolidated its guar gum polymers business under one roof even as Vikas Granaries decided to completely exit the guar gum polymers business to focus on granite mining and proppants manufacturing.

    (Disclaimer: The stock mentioned in the article is for information purpose only. Consult your financial adviser before taking any position.)



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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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