There is something special about Granules India Ltd that has attracted all the savvy investors.
In an earlier post “What Is Granules India & How Does It Qualify As A Potential 100-Bagger Stock?” I pointed out that almost all the leading brokerages such as KR Choksey, Emkay, Anand Rathi, Centrum etc have recommended a strong buy of the stock.
Granules has lived up to the confidence reposed in it with a mind-boggling 859% return in two years and a 67% YOY return.
In fact, such is the charm of Granules India that even Basant Maheshwari, who professed an allergy to all Pharma stocks in his book, The Thoughtful Investor, did a somersault and strongly recommended Granules India for investment. Basant has given his customary clear-headed and confident analysis on why the stock is so alluring.
Of course, credit for putting Granules India firmly in our radar has to go to Motilal Oswal’s 19th Wealth Creation Study. The study recommends seven small cap stocks as potential 100-baggers. You can see the performance of the said seven stocks in this table.
|Stock||Price on 10.11.2014||Price on 28.08.2015||Return (%)|
*Adjusted for bonus, @Adjusted for split
The performance is somewhat disparate because while Tata Elxsi has given a magnificent three-digit return, Atul Auto and Suven Lifescience are virtually flat. However, the poor show by Atul Auto and Suven Lifescience appears to be a temporary set back. Nobody can dispute the potency of these stocks in the long run.
In the initiating coverage report for Granules India, Jehan Bhadha of Motilal Oswal has stuck to the tried and tested formula for finding winning stocks, namely, top-quality management team, small size, consistent growth in sales and profits and huge scale of opportunity. This is what Jehan Bhadha says in the concluding paragraph:
Valuations & View: In the past decade the company’s revenues and profits have grown at a CAGR of 23% & 33% while in the next three years (FY15-18E) we expect them to compound at 17% & 27% respectively. We expect the company’s EBITDA margins to improve from 16.1% in FY15 to 19.0% by FY18E and keep improving from thereon due to a change in business mix. We recommend to BUY Granules for a price target of INR 160 based on 20x Sep 2017E EPS, a 10% discount to midcap pharmaceutical players (being a B2B player), offering an upside of 40% from current levels.
Now, the big question is which of the seven stocks chosen by Motilal Oswal will be the first one to become a 100-Bagger? Any guesses?