Penny Stock Royal India Stock Soars 2474% in 3 Years, Delivering Multibagger Returns for Investors

The stock of Royal India has seen an impressive rise, gaining 2474% over the past three years. It has consistently hit its 2 percent upper circuit since March 14, 2024. This year, the stock has only had negative returns in 12 sessions. In every month of this year, the stock has performed well. It increased by 45% in May, 47.5% in April, 39% in March, 49% in February, and 35.6% in January.

Over the last five years, the stock has given multibagger returns, rising 1518% from ₹1.48 in May 2019. In the past year alone, it has surged 508%, and it has risen 502% so far in 2024.

However, it’s important to note that the stock is currently trading under ESM: Stage 2 and GSM Stage 0.

What is ESM?

The Enhanced Surveillance Measure (ESM) is a system set up by the National Stock Exchange (NSE) in India to keep a closer watch on certain listed companies. This is done to protect investors and maintain market integrity.

• Stage I: Trading of securities is settled through a trade-for-trade mechanism with a price band of 5% or 2%.
• Stage II: Trading is allowed on all trading days under periodic call auctions with trade-for-trade settlement and a 2% price band. Earlier, this stage permitted trading only once a week.

What is GSM?

Graded Surveillance Measures (GSM) are used to control unrealistic price and demand increases in company stocks that do not match the company’s financial health and fundamentals. This system alerts investors about potential stock price manipulation.

The regulator uses these measures when they see unusual price swings, which may indicate that a company is acting as a “shell company” to inflate its stock price. This helps investors avoid stocks with irregular activities.

About the Firm

Royal India Corporation Limited is involved in the wholesale trading of gold bullion, plain gold jewelry, gold coins, and medallions in India. It was formerly known as Natraj Financial & Services Limited and changed its name to Royal India Corporation Limited in October 2006. The company was incorporated in 1984 and is based in Mumbai, India.

Earnings

In the December quarter (Q3FY24), the company reported a net loss of ₹3.74 crore, compared to a net profit of ₹4.94 crore in the same quarter last year. Its total income declined by 66.5% year-on-year to ₹9.86 crore from ₹29.49 crore in the same quarter last year. Sequentially, the company’s net loss increased from ₹1.57 crore in the September 2023 quarter (Q2FY24), but its revenue rose 67.4% from ₹5.89 crore in Q2FY24.

Brokerage View

According to ICICI Direct, a domestic brokerage house, Royal India Corporation has shown strong momentum, with its stock price consistently above short, medium, and long-term moving averages. The stock also hit a new 52-week high recently. The company has managed its assets well to generate profits, as shown by an improving Return on Assets (ROA) over the past two years.

However, the brokerage also pointed out some weaknesses:

• High-interest payments compared to earnings
• Decreased quarterly revenue and profit in recent results (year-on-year)
• Declining profits every quarter for the past two quarters

Investing in shares of small companies with low market capitalization can offer substantial gains due to their lower stock prices. However, this investment path comes with significant risks. These stocks often face limited liquidity, leading to fewer transactions compared to larger companies. They typically lack the rigorous financial reporting and oversight seen in larger corporations, making them susceptible to price manipulation and fraudulent activities.

The limited liquidity and reduced oversight result in increased volatility for small company stocks, heightening risks for investors. Therefore, conducting thorough research and implementing careful risk management strategies are essential to navigate the uncertainties associated with these stocks and mitigate potential losses.