5 Best Steel Penny Stocks in India

At the top of the list of industries that propel the Indian economy, the steel sector shines as a foundational element. It's present in every nook and corner of industrial growth - be it automobiles, infrastructure, machinery - you name it, and steel is there.

Steel's utility spans multiple sectors, acting as both raw material and an intermediate product. Its significance can hardly be overstated when we consider that India stands as the world's second-largest steel producer and third-largest consumer.

A decade can dramatically alter an industry's trajectory, and steel in India is a testament to that. In 2012, India was a net importer of steel. Fast forward to today, the country has reversed its stance and emerged as a net exporter.

With national campaigns like 'Make in India' and 'Atmanirbhar Bharat,' India's ambition to evolve into a global manufacturing hub is clear. Steel is a pivotal player in this transformation.

Given this growth arc, investment opportunities are rife, particularly for risk-tolerant investors considering steel sector penny stocks.

These are shares of companies with a smaller marketcap and which often trade below Rs 100 per share or even Rs 50 per share.

In this article, we'll look at the best steel penny stocks in India and the potential growth that they present.

These stocks are sometimes considered risks owing to their volatility, low liquidity, and market sentiment shifts.

For this reason, we've applied some additional filters such as minimum ROCE and ROE, debt to equity below 1, good promoter holding, and fewer receivable days.

Let's take a look...

#1 Earthstahl & Alloys

First on this list is Earthstahl & Alloys.

The company is engaged in the business of manufacturing cast iron lumps and ductile iron pipe fittings.

Its manufacturing unit in Chhattisgarh is spread across an area of around 4.73 hectares of land.

The company came out with its IPO last year and raised Rs 130 million (m) at Rs 40 per share.

It listed at over 50% premium at Rs 63 and since listing, the stock has fallen around 14%, currently trading at Rs 54 per share.

Over the years, the company has maintained good return ratios and its revenues have more than doubled in the past five years.

The company also started paying dividends last year onwards.

Financial Snapshot

Rs m, standalone	FY20	FY21	FY22	FY23
Net Sales	317	241	489	918
Growth (%)	-	-24%	103%	88%
Operating Profit	28	66	136	128
OPM (%)	9%	27%	28%	14%
Net Profit	-3	27	75	75
Net Margin (%)	-1%	11%	15%	8%
ROE (%)	-6.7	42.2	65.6	29.6
ROCE (%)	6.2	23.5	47.8	27.6
Dividend (Rs)	0.0	0.0	0.0	0.5
Debt to Equity (x)	3.5	1.8	0.9	0.4

Data Source: Ace Equity

Going forward, the company could benefit from the growing demand of ductile pipes as the country's water supply system undergoes a major transition.

As of December 2023, promoters of the company hold over 73% stake in the company.

#2 Motherson Sumi Wiring

Next on this list is Motherson Sumi Wiring.

A joint venture between Sumitomo Wiring System and Motherson Group, Motherson Sumi Wiring is a market leader in the Indian wiring harness industry with a market share of over 40%.

The company was set up in FY22 as a result of the reorganization of Samvardhana Motherson International wherein the automotive wiring harness business for Indian OEMs was demerged from the parent company.

The company was listed in April 2022 at Rs 46 per share and it currently trades at Rs 73 per share. In the past one year, shares of the company have rallied over 40%.

Following good Q2 results owing to festive season, the third quarter was a crucial test for the company to see whether the demand stays intact. And sure enough, the company did not disappoint.

In the third quarter of FY24, the company reported its highest-ever quarterly revenue and EBITDA of Rs 21.2 billion (bn) and Rs 2.6 bn.

Net profit came in at Rs 1.7 bn, up 58% compared to last year's profit.

Motherson Sumi Wiring is a debt-free company and serves high growth industries including all powertrain requirements (ICE, electric, and hybrid among others).

Going by its trailing twelve months (TTM) earnings, the company could post the highest ever revenue and net profit for the current financial year.

Financial Snapshot

Rs m, standalone	FY21	FY22	FY23
Net Sales	39,377	56,350	70,574
Growth (%)	-	43%	25%
Operating Profit	5,767	7,603	8,037
OPM (%)	15%	13%	11%
Net Profit	3,962	4,107	4,870
Net Margin (%)	10%	7%	7%
ROE (%)	0.0	73.7	39.8
ROCE (%)	68.1	61.2	53.4
Dividend (Rs)	0.0	0.9	0.7
Debt to Equity (x)	-272.7	0.0	0.1

Data Source: Ace Equity

Last year, the company spent almost Rs 2 bn as part of the capex towards capacity enhancement.

While it derives majority of revenue from a single product, its dominant market position could still help improve profitability going forward.

As of December 2023, promoters of the company hold 61% in the company while FIIs and mutual funds hold 11% and 14%, respectively.

#3 Chaman Metallics

Third on this list is Chaman Metallics.

The company is part of the GS Group which is a manufacturer of ISI grade MS ingots and TMT bars.

Through its sponge iron business, the company caters to the metallic requirements of steel producers in selected geographies.

The company raised Rs 241.3 million (m) through its IPO and got listed on the SME NSE EMERGE platform in January 2023.

It was listed at Rs 64 per share, and it currently trades at Rs 99. In the past one year, it has rallied over 90%.

The company's IPO was subscribed nearly 197 times by investors.

Note that the company has recently initiated a massive capex plan across its segments.

Last year in August 2023, it received approval for building plan from Maharashtra Industrial Development Corporation (MIDC).

Over the years, it has seen an upsurge in revenue with margins rising owing to the integrated nature of its business.

Financial Snapshot

Rs m, standalone	FY20	FY21	FY22	FY23
Net Sales	580	1,406	1,849	2,276
Growth (%)	-	142%	32%	23%
Operating Profit	4	110	158	275
OPM (%)	1%	8%	9%	12%
Net Profit	37	52	82	171
Net Margin (%)	6%	4%	4%	8%
ROE (%)	15.7	20.0	24.5	29.8
ROCE (%)	-2.3	21.0	26.7	31.7
Dividend (Rs)	0.0	0.0	0.0	0.0
Debt to Equity (x)	0.8	0.5	0.7	0.3

Data Source: Ace Equity

As of December 2023, promoters hold over 60% in this NSE-only listed company.

#4 Rama Steel Tubes

Fourth on this list is Rama Steel Tubes.

The company is one of the leading manufacturers of steel pipes & tubes, rigid PVC & G.I. pipes and square section products in India.

As of FY23, it derives 70% of revenue from manufacturing products and the rest from trading.

The company was listed in August 2015 at Rs 3 per share and it has come a long way since then, currently trading at Rs 39 per share.

In the past one year, shares of the company have gone up by 15%.

In October 2023, Rama Steel's board approved the proposal for setting up a Plant at Raipur, Chhattisgarh with annual production capacity of up to 200,000 MT with capex of Rs 2.5 bn.

In the same month, it also approved the fund raising for an amount not exceeding Rs 5 bn.

In the past five years, the company's revenue has more than doubled while profit has grown over 3 times.

Financial Snapshot

Rs m, standalone	FY19	FY20	FY21	FY22	FY23
Net Sales	5,041	3,528	4,704	7,682	13,368
Growth (%)	34%	-30%	33%	63%	74%
Operating Profit	191	123	245	518	582
OPM (%)	4%	3%	5%	7%	4%
Net Profit	84	4	124	273	267
Net Margin (%)	2%	0.1%	3%	4%	2%
ROE (%)	7.2	-2.2	13.2	24.2	15.6
ROCE (%)	10.3	5.4	12.6	20.9	15.6
Dividend (Rs)	0.0	0.0	0.0	0.1	0.0
Debt to Equity (x)	1.0	1.0	0.9	1.1	0.9

Data Source: Ace Equity

Earlier this year in January 2024, the company's board approved issue of bonus shares in the proportion of 2:1.

Rama Steel is currently in the process of merging itself with Lepakshi Tubes, to bring in operational synergy and cost savings.

Going forward, the company's foray into high growth segments is expected to bode well. It is entering into segments like supply of steel pipes and tubes to city gas distribution companies and solar energy units.

As of December 2023, promoters hold over 57% stake in the company.

#5 KIC Metaliks

Last on this list is KIC Metaliks.

The company is a pig iron manufacturer in Eastern India. It also produces Portland slag cement which uses slag, a byproduct of the pig iron plant, as its raw material.

As of FY23, sale of pig iron contributes to majority of revenue.

With a market cap of Rs 1.8 bn, KIC Metaliks trades at Rs 52 per share.

In the past one year, shares of the company have gained 27%.

Post pandemic, the company received a major blow in 2021 when its capacity utilization of the pig iron plant declined to 50% due to deterioration in mini blast furnace productivity.

Since then, the plant was shut down and the company has spent almost two years to repair and renovate it.

The utilization of the plant is seen improving gradually and is expected to improve further.

In the past three years, the company has undertaken capacity expansion to improve margins, while its backward integration has helped optimize costs.

Financial Snapshot

Rs m, standalone	FY19	FY20	FY21	FY22	FY23
Net Sales	8,488	4,961	5,506	5,139	7,493
Growth (%)	50%	-42%	11%	-7%	46%
Operating Profit	614	324	339	884	557
OPM (%)	7%	7%	6%	17%	7%
Net Profit	317	83	105	386	185
Net Margin (%)	4%	2%	2%	8%	2%
ROE (%)	36.9	7.8	9.1	27.6	11.0
ROCE (%)	31.5	11.9	10.5	27.0	13.4
Dividend (Rs)	0.0	0.0	0.0	0.0	0.0
Debt to Equity (x)	0.9	1.0	1.1	1.0	0.7

Data Source: Ace Equity

Going forward, the completion of the plant refurbishment and steady sales demand for pig iron is expected to improve its performance in the medium term.

As of December 2023, promoters of the company hold around 66% stake in KIC Metalics.

Which Other Steel Sector Penny Stocks Should You Watch Out?

The above 5 names performed well on financial metrics and passed on various criteria.

However, there are several more players involved in this space that may not have very impressive numbers but may still get rewarded due to their strong growth prospects.

Here are few names that you could track:

• Ashirwad Steels & Industries Ltd.
• Bihar Sponge Iron Ltd.
• Incredible Industries Ltd.
• ISMT Ltd.
• Kanishk Steel Industries Ltd.
• Kritika Wires Ltd.
• Manaksia Steels Ltd.
• Metal Coatings (India) Ltd.
• National General Industries Ltd.
• Oil Country Tubular Ltd.
• Prakash Steelage Ltd.
• Rathi Bars Ltd.
• Rathi Steel & Power Ltd.
• Remi Edelstahl Tubulars Ltd.
• Scan Steels Ltd.
• Shree Steel Wire Ropes Ltd.
• Swastik Pipes Ltd.
• Tamilnadu Steel Tubes Ltd.
• Vaswani Industries Ltd.
• Zenith Steel Pipes & Industries Ltd.

For the entire list, check out the list of steel stocks in India on our website.

In Conclusion

Given the sector's critical role in India's burgeoning economy, the potential for exponential gains makes these penny stocks worth the attention.

However, the lure of high rewards often comes entangled with risks.

Penny stocks in the steel sector are typically volatile, have lower liquidity, and are susceptible to market sentiment shifts.

It is crucial for investors to engage in comprehensive due diligence before jumping in.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...