Top 10 small-cap companies with rising promoter pledging this quarter

Promoter pledging is an important factor for stock market investors to analyse. But why? To understand, we need to look at the reasons behind promoters pledging their shares, typically as collateral to raise funds from financial institutions (similar to mortgaging a property for money).

Although it is not always negative, it can turn risky. Imagine if promoters fail to repay their dues. The lender might sell the pledged shares to recover their money, leading to a sharp decline in the stock price and dilution of promoter ownership. High pledged stakes pose significant risks and can signal poor management, which investors should view as a red flag.

Here' a look at few small-cap companies where promoters have significantly increased their pledged shares in the latest quarter. The percentage point increase in pledged shareholding is provided for better understanding, although the reasons for the management's decision might not always be disclosed. Note that the data is sourced from Tijori Finance.

Top 10 Small Caps with Rising Promoter Pledging

1. Kiri Industries

• Segment: Dyes & Pigments
• Promoter Pledging: Increased from 0.43% to 100% (+99.57 percentage points)
• Market Cap: ₹3,407 crore The company, operating in the dyes and pigments space, has seen a surge in promoter pledging. Investors should scrutinise the potential risks with the entire promoter holding now pledged.

2. Steel Exchange India

• Segment: Steel
• Promoter Pledging: Increased from 61.25% to 86.04% (+24.79 percentage points)
• Market Cap: ₹1,349 crore A player in the steel industry, the company has high promoter pledges. Investors must evaluate whether this is part of a strategic move or indicates financial stress.

3. India Cements

• Segment: Cement
• Promoter Pledging: Increased from 47.46% to 68.2% (+20.74 percentage points)
• Market Cap: ₹11,460 crore The prominent cement manufacturer reported a notable rise in promoter pledging during the latest quarter.

4. SpiceJet

• Segment: Passenger Services
• Promoter Pledging: Increased from 38.78% to 52.78% (+14 percentage points)
• Market Cap: ₹7,895 crore Operating in a challenging airline sector, the company’s rising promoter pledging suggests potential liquidity or funding issues.

5. Algonquin Fintech

• Segment: Finance
• Promoter Pledging: Increased from 26.59% to 35.65% (+9.06 percentage points)
• Market Cap: ₹1,026 crore A technology-driven trading firm, it deals in low-risk arbitrage and high-frequency trading. The moderate rise in pledging warrants investor attention.

6. Websol Energy Systems

• Segment: Electrical Components
• Promoter Pledging: Increased from 84.25% to 93.04% (+8.79 percentage points)
• Market Cap: ₹5,875 crore The company manufactures photovoltaic crystalline solar cells and related modules. Its high pledge levels call for a cautious evaluation.

7. Apollo Micro Systems

• Segment: Electrical Components
• Promoter Pledging: Increased from 17.45% to 25.3% (+7.85 percentage points)
• Market Cap: ₹3,119 crore Specialising in the design, development, and assembly of electronic systems, the company's pledge increase, though modest, needs monitoring.

8. Vadilal Industries

• Segment: FMCG
• Promoter Pledging: Increased from 0.04% to 7.57% (+7.53 percentage points)
• Market Cap: ₹3,012 crore The FMCG giant has a relatively low pledged shareholding, but the increase should be watched.

9. Wardwizard Innovations

• Segment: Two-Wheeler
• Promoter Pledging: Increased from 0.54% to 6.91% (+6.37 percentage points)
• Market Cap: ₹1,213 crore Focused on clean and green alternatives like Joy E-bikes, the company saw a rise in pledged shares.

10. Centrum Capital

• Segment: Asset Management
• Promoter Pledging: Increased from 27.4% to 33.22% (+5.82 percentage points)
• Market Cap: ₹1,539 crore Though the rise in pledging is modest, investors should consider the financial services sector's complexities.

Conclusion

Promoter pledging is a double-edged sword. While it may indicate financial stress, it could also support growth or expansion. Investors must assess the reasons behind rising pledges and evaluate the broader financial health of these companies before making decisions.