Investing in penny stocks often carries high-risk-high-reward opportunities. These stocks, typically trading at a low price per share, have the potential to deliver substantial returns if the underlying company undergoes a transformative journey.
Rama Steel Tubes (RSTL) is one such stock, that has witnessed an extraordinary rise in value, generating a 2600% return in just three years.
The company is one of the leading manufacturers of steel pipes, tubes & G.I. pipes in India, established in 1974. The company has a 20% export rate and a global presence in more than 16 countries.
It has a subsidiary in UAE and a step-down subsidiary in Nigeria, which have strengthened the company's presence in global markets, as per the company's website.
The shares of the company, which were trading at a mere ₹1.50 apiece three years ago, have skyrocketed to trade at the current market price of ₹40.50 apiece.
The company has been continuously striving to improve its performance by increasing sales, share of value-added products, fostering innovation to introduce new products and adopting cost optimisation measures on a continual basis.
On July 18, Rama Steel Tubes Limited (RSTL) took a significant step towards bolstering its operations and market presence by entering into a strategic Memorandum of Understanding (MoU) with one of the country's largest steel manufacturers, JSW Steel.
The MoU covers multiple aspects, including the procurement of Hot Rolled Coils (HRC) from JSW Steel, which will be used in the manufacturing of RSTL's steel tubes and pipes. Additionally, the company will act as an official distributor partner of JSW Steel for the distribution of HRC in the entire western region, enhancing its reach and market penetration.
Under the agreement, RSTL is set to procure 1,00,000 tonnes of HRC from JSW Steel on a pan-India basis, providing the company with greater control over its procurement process and supply chain while also achieving competitive raw material costs.
Furthermore, RSTL has entered into an agreement with JSW Steel Coated Products Limited to produce 2,00,000 tonnes per year of high-value, pre-galvanised pipes under the style and brand name "JSW Kalinga" specifically for the western region.
Meanwhile, foreign institutional investor Societe Generale picked up 60,00,000 shares in the company on July 18, 2023, at an average price of ₹38.17 apiece, as per exchange data. The total value of the investment was around ₹22.90 crore.
In its Q1FY24 business update, the company reported a significant surge in sales volume, reaching 48,437.69 tonnes during the April-June period. This represents an impressive growth rate of 62.36% compared to the sales volume of 29,833.96 tonnes recorded in the corresponding period of the previous year.
Looking at the company's net profit, it has shown a steady growth trend over the past three fiscal years. In FY21, the company recorded a net profit of ₹12 crore, and in the subsequent fiscal years of FY22 and FY23, the company achieved a net profit of ₹27 crore in each of these fiscal years.
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