Why this penny stock has rocketed 10% as market takes a breather from pre-Diwali rally

Speciality chemicals producer Vikas Ecotech has always been a penny stock. The only time it showed some momentum to break out of the pack was when it rose to around Rs 20 level close to five years ago. It has been a downhill journey for the stock since then.

As a penny stock, especially one that usually trades with the share price in single digits or less than Rs 10, a movement of 2-5% is par for the course. On Thursday morning, however, Vikas Ecotech stock shot up 10% even as the rest of the market took a breather from the pre-Diwali rally.

Here’s why

The company that produces rubber-plastic compounds and additives used in agriculture, automotives, cables, electricals, hygiene & healthcare, polymers & packaging, textiles and footwear, came up with strong results for the quarter ended September 30.

With revenues shooting up to Rs 134 crore from Rs 74 crore in the same period a year ago, the topline also rose over 40% on a sequential basis.

At the same time the company’s net profit more than doubled on a sequential basis and shot up over five times compared to the same period last year to Rs 3.5 crore.

If the annualised numbers are generated from these quarterly figures the company seems set to move past its previous peak in FY18 when revenue was pegged at Rs 367 crore. However, it is unlikely to match the bottom-line numbers of that year where it generated a net profit at Rs 28.6 crore.

Nevertheless, with a market cap of around Rs 353 crore, the company seems to be valued conservatively given its latest earnings profile, assuming it maintains the trajectory or actually improves upon it.