Are low free-float stocks a good investment bet? Check out these 8 companies

It takes into account only those equity shares issued by the company which are readily available for trading in the market. DVR shares are not considered in the calculation of free-float market capitalization.

There have been many such cases in the Indian stock markets where a stock has increased the wealth of investors by more than 10 times due to low free float.

In today’s article, we look at eight stocks with a market cap of over $5 billion, low free float and high promoter holding.

#1 Dis India

Disa India is a leading equipment manufacturer with advanced foundry and surface preparation process technology.

It supplies complete foundry systems with sand mixers combining molding machines, sand plant equipment, surface preparation machines and environmental control systems across the country.

As of June 2021, the company has a total of 1.5 million shares outstanding. Out of this 74.82% shares are with the promoters!

The Indian foundry industry is the second largest industry in the world and Disa India has 70% market share in this segment.

The company has only a small equity base of 1.5 million shares. It is also completely debt free.

#2 Hindustan Urban Infra

Hindustan Urban Infrastructure, incorporated in 1959, is a venture of the Hindustan Group. It manufactures overhead conductors and electro-porcelain high tension insulators. It has a pan-India presence.

Power Grid Corp is its major customer, accounting for about 58% of the conductor business. It also sells conductors to T&D companies like Purvanchal Vidyut Vitran Nigam (PUVVNL) and EPC companies like L&T.

As of June 2021, the company held a total of 1.4 million shares, of which 74.9% are held by its promoters.

This leaves only 0.36 million shares for the public.

Despite the company reporting negative return on equity (ROE) for the past three consecutive years, its share price has skyrocketed.

Shares of Hindustan Urban Infra have gained over 500 per cent in the last one year alone.

#3 Tide Water Oil

Tide Water Oil Company is primarily engaged in the business of manufacturing and marketing of Lubricants.

The company has a total of 3.5 million shares outstanding as of June 2021. The promoter’s stake in this company is 57.28% or 1.99 million shares.

These shares outstanding recently more than doubled when the company split its face value. Earlier it had a total of 1.7 million shares.

Generally, a company plans to go for stock splits to make the shares more affordable to small retail investors and increase liquidity.

Let us tell you that this year there has been a great rise in the shares of the company. It touched a 52-week high ₹3,694 back in July 2021.

Currently, the shares of Tide Water Oil are trading at ₹1,987. Despite being down 50% from its peak, the stock is up 135% over the past year.

Tide Water Oil has been one of the leading players in the Indian lubricant industry. It manufactures and markets Veedol brand lubricants.

Its repertoire of automotive products includes engine oils for trucks, tractors, commercial vehicles, passenger cars and two/three wheelers.

#4 Tasty Bite Eatables

As of June 2021, Tasty Bite Eatables has a total of 2.56 million shares outstanding. Out of this, its promoter – Preferred Brand Foods India – holds about 74.23% shares.

As of June 2021 shareholding data, the remaining 25.77% of the holdings are held by individual shareholders (16.8%), foreign portfolio investors (3.4%) and others.

Tasty Bite is a leading brand in the natural, organic and ready-to-eat food category in North America. The consumer business has a range of ready-to-eat Indian and Asian entrées, ready-to-cook sauces, ready-to-eat organic rice and cereals.

It manufactures a number of products in these categories for other major brands in North America and the UK.

company is one of them high priced stocks Its shares hit a 52-week high in India ₹21,470.

Shares of Tasty Bite Eatables have outperformed the benchmark index with a gain of 65 per cent over the past one year.

#5 Vendette India

Wendt India has a total of 2m total shares outstanding as of June 2021.

Of this, 1.5 million shares, or 75%, are held by its promoters Carborundum Universal and Wendt GmbH, who hold 37.5% each.

This is only 0.5m shares available with the public.

Now out of this public shareholding, Mutual Fund (SBI Contra Fund) holds 3.09% stake in the company out of the total equity.

Very few people are eager to trade in the company’s shares because of its low average 52-week liquidity.

Wendt India is engaged in the business of Super Abrasives, Machine Tools and Precision Components.

The company has several advantages such as high pricing power as its business is able to withstand competitive pressures. It is also almost debt free.

#6 Stowake Industries

Stovac Industries is engaged in Textile Machinery & Consumables, Graphics Consumables and Galvanic business.

It is a technology and market leader in the rotary screen printing industry in India.

As of June 2021, the company had a total of 2.1 million shares outstanding, of which 71.06% is owned by the company’s promoters.

This leaves about 0.6m shares with the general public.

#7 nutritious

Poushak is India’s largest phosgene-based specialty chemicals manufacturer serving the pharma, agrochemical and performance industries.

It is part of the Alembic Group of companies based in Gujarat, India. Alembic is the oldest pharma company in India established in 1907.

It is one of the smallest companies to get permission to use the “Responsible Care” logo (RC) from the Chemical Council of India (ICC). Other companies in India that have this permission are big players or multinationals.

Coming to less equity, Paushak has a total of 3.1 million shares outstanding as of June 2021. Of this, the promoters hold around 2.1 million shares or 66.97%.

This leaves its public stake with only 1 million shares.

Well-known investor Ashish Kacholia holds 1.3% stake or 39,497 shares in the company. Most recently in June, he bought an additional 17,461 shares of the specialty chemicals company.

#8 Vardhman Holdings

Vardhman Holdings has a low equity base of 3.2 million shares as of June 2021.

Of this 2.4 million shares, or 74.9%, are owned by promoters, with only 0.8 million shares available to the public.

Vardhman Holdings is a holding company, primarily engaged in lending and investment activities.

The company’s shares have gained over 150 per cent in the past one year.

Other companies with low equity + high promoter holding

Apart from these, here are some other companies which have low equity shares outstanding and high promoter holding as of June 2021.

Can Low Free Float Companies Be Attractive Investments?

A common feature of companies with low free float is that their shares are not cheaply available.

All the above are available if you look at the current market price of the above shares. ₹1,000 per share.

Since these stocks have low liquidity, their share price rises rapidly. And if that stock makes headlines, the demand-supply mismatch literally drives up its price.

The sharp rally in Ruchi Soya shares due to low liquidity and the recent saga of Orchid Pharma could be a classic example of this.

In both of these cases, the number of shares available to public shareholders was very small, leading to a gain of up to 7,000% in a short period of time.

Another recent example might be Geeta renewable energy. The company’s shares skyrocketed 3,600% over the past 18 months, aided by a small free float of 1.1 million shares.

But not all low free float shares are eligible candidates for investment.

Since promoters hold a major share in these shares, they exercise control over the company and sometimes manipulate the stock prices.

Also, low-float stocks fall at the same rate as they have risen.

Historically, companies of larger free-float size have been considered more stable, while companies with smaller public exposure are more volatile.

Shares with a higher float usually have better governance as the promoter has less influence and the shareholders have more power to exercise their rights.

Therefore, before investing in such stocks, you should do your homework. Although fewer free float companies can be profitable, they can be equally risky.

Happy investment!

(This article is syndicated from) equitymaster.com)