Penny Stock Trap?: Why You Should Think Twice Before Investing in This 'Cheap' Bet

Many investors are drawn to Penny Stocks by the promise of quick gains and low entry prices. Dharan Infra-EPC Limited, formerly known as KBC Global Limited, is one such name that has caught attention. However, beneath its “affordable” price lies a string of red flags. The stock has plunged nearly 50 per cent on a year-to-date basis and dropped another 13.04% in just the past month. With nearly all shares held by the public, uncertainty loomed large, leaving investors questioning their next move amid rising doubts about potential risks and rewards.

In February 2024, the company changed it business from real estate construction to infrastructure and EPC operations. The company approved a 1:1 bonus share issue and changed its name to Dharan Infra-EPC Limited. In June 2025, it set up a wholly owned subsidiary, Dharan Infra Solar Private Limited, to enter the solar and hybrid energy solutions segment, citing India’s renewable energy potential and its aim to diversify its business portfolio.

Financial performance continues to worsen

For Q4 FY2025 ended March 31, 2025, Dharan reported consolidated revenue from operations of Rs 137.28 lakh, up from Rs 108.95 lakh in the previous quarter but sharply down from Rs 1,254.80 lakh a year earlier. The quarterly consolidated net loss was Rs 247.27 lakh, improving from a loss of Rs 2,002.70 lakh in Q3 FY2025 but still higher than the Rs 555.14 lakh loss in Q4 FY2024. Full-year FY2025 revenue fell to Rs 1,799.24 lakh from Rs 2,061.20 lakh in FY2024, with a net loss of Rs 3,833.75 lakh against Rs 3,657.47 lakh a year earlier. Operating cash flow also dropped significantly to Rs 1,669.80 lakh from Rs 6,841.21 lakh in FY2024, reflecting ongoing liquidity stress.

Red flags pe red flags, just like Sunny Deol said — ‘Tareek pe tareek!

The statutory audit report for FY2025 from Sharp Aarth & Co LLP carried a qualified opinion citing misuse of funds raised through foreign currency convertible bonds (FCCBs). Proceeds intended for African low-cost housing projects were transferred to subsidiaries in Ghana, Liberia, and Kenya, contravening FEMA regulations and RBI-approved use. The compounding application to the RBI was returned, with financial implications yet to be determined. 

The audit also highlighted delays in loan repayments, irregular statutory payments such as income tax, GST, and TDS — some overdue for more than a year — and unfiled income tax returns for two consecutive years. GST filings have been pending since December 2023.

Most construction sites remain non-operational, casting doubt on the company’s ability to continue as a going concern. Further concerns include potential liabilities from a corporate guarantee extended to Shree Sainath Land & Development (India) Private Limited, now in insolvency proceedings.

The FY2025 Secretarial Compliance Report by BYG & Associates identified widespread non-compliance with SEBI’s LODR regulations. Financial results for multiple quarters were filed late, leading to penalties from NSE and BSE. The shareholding pattern for June 2024 and corporate governance reports for December 2024 were delayed, while related-party transaction disclosures for September 2024 are still pending. Several board meetings lacked mandatory five-day advance notices. Shareholder approval was not obtained for the appointments of multiple directors, and promoter holdings remain frozen over unpaid fines. The board composition still does not meet SEBI requirements for independent directors, and issues like missing D&O insurance and unfilled board vacancies persist. On May 28, 2025, internal auditor M/s MGDS & Co. resigned, citing professional commitments, raising further concerns about internal controls.

Debt defaults have been an ongoing issue. As of June 30, 2025, Dharan’s outstanding bank loans stood at Rs 57.55 crore, with Rs 40.16 crore in default. Regulatory intervention escalated when, on July 3, 2025, NSE and BSE issued warning letters for the company’s failure to timely disclose such defaults, citing violations of SEBI’s LODR norms. The warnings noted that prior disclosures, such as one in August 2024, were made only after exchange intervention. On July 11, 2025, the company’s board acknowledged these warnings, and management admitted that the delays resulted from “inadvertent oversight.” A follow-up statement on July 15 promised corrective measures to ensure future compliance.

Following these warnings, Dharan filed detailed disclosures on July 17, 2025, outlining defaults for three consecutive quarters. For the quarter ended September 30, 2024, loans totalled Rs 71.49 crore with Rs 43.89 crore overdue. By December 31, 2024, loans had decreased to Rs 61.02 crore with Rs 41.52 crore overdue. As of March 31, 2025, total loans were Rs 59.55 crore, with Rs 40.48 crore still unpaid. These filings confirmed that defaults consistently exceeded Rs 40 crore across three quarters, demonstrating a persistent inability to meet debt obligations despite some reduction in overall borrowings.

While the company’s strategic diversification into renewable energy through Dharan Infra Solar and its historical order book of approximately Rs 260 crore might appear promising, its financial distress, regulatory penalties, and governance failures remain significant. The combination of repeated loan defaults, auditor qualifications, delayed disclosures, and fines from stock exchanges highlights structural weaknesses. 

For investors drawn to the stock’s low price, the risks are substantial. Until Dharan Infra-EPC demonstrates meaningful improvements in debt repayment, compliance, and operational performance, this “cheap” bet carries high risk and should be approached with caution.

Disclaimer: The article is for informational purposes only and not investment advice.