What Are Multibagger Stocks:
The term “multibagger” stock was made famous by Peter Lynch in his book “One up on Wall Street”. Peter Lynch talked of how a stock could becoming a “ten-bagger”, giving the investor a return of several times the investment made by him.
The term “multibagger” is consequently used to describe a stock that has given, or has the potential to give, the investor a multi-fold profit.
How To Find Multibagger Stocks:
Blue chip stocks can become multibaggers by the sheer magic of compounding over a long period of time. However, as popularly understood, investors are looking for “rocket stocks”, that can give multiple returns in a short period of time.
Such stocks are typically found amongst small-cap and mid-cap companies that are at the threshold of a breakout. A new product, for instance, that has received well in the market place and which can cause sales and profits to soar is one example. We can look at real life examples of multibagger stocks to understand what factors one should look for.
Risks of multibagger stocks:
The biggest risk is that one is buying stock in companies that are unproven, untested and whose promoters have no proven track record or credibility. One is proceeding to invest based on rumors and hearsay. One has no way to check whether the claims are correct or not. If you wait for the claims to be proved, then it may be too late because the share price may have doubled or tripled in the meanwhile. If you act on unconfirmed news, then you are taking a big risk if the claims turn out to be false.
Multibagger stock ideas & recommendations:
There are a number of stock analysts like S. P Tulsian, P. N. Vijay, Ashish Chugh and Aashish Tater who have made it their life mission to track multibagger stocks, also called “Hidden Gems”. Lets note some of their recommendations:
(i) Blue Star is the largest central air-conditioner company catering to commercial establishments, multiplexes and cold storages. It had a poor FY 2012 caused by one time write-off of bad contracts. For FY 2013, the EPS is expected to be Rs 12-13 with a net profit of Rs 90-100 crore. The stock price is expected to go back to Rs 275-300. The downside risk is minimal (S. P. Tulsian stock pick).
(ii) Godavari Power is an integrated manufacturer of steel. Its’ performance has consistent with an equity of about Rs 32 crore, sales of Rs 2,000 crore for FY 2012 and a PAT of about Rs 85 crore. The EPS is about Rs 26-27 and is expected to be Rs 30 in FY 2013. It has a liberal dividend payout policy of 25% for FY 2012. The valuations at a PE of 4 are quite reasonable compared to the average P/E of its peers of 7 & 8. Godavari Power also has a comfortable debt-equity ratio. The promoters are quite reputed and their holding is high at 65% (S. P. Tulsian stock pick).
(iii) India Glycol is the largest bio mono ethyl glycol, MEG maker in the world. Their raw material is molasses, which is a by product of the sugar mill. Because of the bumper crop seen for this sugar season, India Glycol will do very well. Its’ sales for the nine months is Rs 1,800 crore and the PAT tripled at Rs. 78 crores as compared to Rs 27 crore PAT for whole of FY11. The valuations are reasonable at a PE of about 4 – 5. India Glycol is expected to do well in FY 2013 as well because the price of the finished products is bullish because of rising crude prices. A price of Rs 175 can be expected in 6-9 months (S. P. Tulsian stock pick).
(iv) TTK Healthcare is a pharma and medical devices company with OTC products in the allopathy and ayurveda space. They also have strong presence in medical devices business. It is debt-free. While FY 2012 performance was subdued, with a growth of about 8-10% in sales, the profits have been flat. In FY 2013, TTK Healthcare is planning to increase its profitability in the medical device business and increase the returns. An EPS of Rs. 27-28 is expected in FY 2013 which may lead to a stock price of Rs 600 in the next six to nine months (S. P. Tulsian stock pick).
(v) Omkar Specialty is a specialty chemical stock engaged in manufacture of generics, APIs, veterinary drugs and specialty chemicals. It has grown with an aggressive inorganic growth route by acquiring LASA Labs. The acquisition enables Omkar Specilty to access the veterinary markets of Europe, Australia and New Zealand where the margins are high. Omkar also acquired Urudwa Chemicals for Rs 28 crore. Omkar’s performance in the last quarter was good with sales and profits rising 32% and 38% respectively. Omkar is expected to have a turnover of Rs 250 crore and EPS of Rs 11.5. The present valuations of Rs 79 which translates to a PE of 7 is attractive given the scope for growth (P. N. Vijay stock pick).
(vi) MBL Infrastructure is a highway contractor with order inflows of Rs 713 crore in FY 2012. Its’ order book stands at Rs 2,900 crore, which is close to three times revenue and its working capital requirement is 147 days compared to 200 or more of its peers, in the NHAI space. At Rs 179, the stock is attractive because it is about 3.5 times price earnings. MBL is growing at a rate of 20% and the stock price can be expected tpo grow at a CAGR of 20% in the next three years. The stock price is presently Rs. 162 and it is expected to touch Rs 275 in the next 12-15 months (P. N. Vijay stock pick).
(vii) ABC Bearings is likely to benefit because there has been huge destocking at the retail level and a cut in production cut. The bearing business is likely to do well in the near future. While FAG, SKF India and Timken are well priced, ABC Bearings’ valuations look reasonable. It has good supply chain agreements with leading players TAFE, Carraro etc and will have sales of about Rs 195 crore and Rs. 16-17 crores of profits after tax (PAT) for FY 2012-13. The market capitalisation is low at Rs 111 crore. The PE is reasonable at 7-7.5 times (50% discount to FAG & SKF) with a dividend yield of about 5.5-6% (Aashish Tater stock pick).
(viii) ING Vysya Bank is trading at less than 1.3 times its adjusted book value which is a steep discount to the large banks like HDFC Bank, Yes Bank, Axis Bank and ICICI. The gap is likely to be lowered given the 20% CAGR shown by ING Vysya. It has an expected growth rate of 25% in FY 2013, good asset base and good balance sheet. Its’ market cap is Rs 6,000 crore. Upto 43% of the equity is owned by the promoters. A large chunk is owned by institutions and large players. There is hardly any floating stock available for the retail investors. ING Vysya has a conservative target price of about Rs 470-475 which is a 20% + upside from the present price of Rs. 391 (Aashish Tater stock pick).
(ix) Vadilal Industries is the third largest ice-cream manufacturer in the country after Amul and Hindustan Unilever. Vadilal has recently undertaken an expansion project wherein the capacity of the plants has been increased from 2.25 lakh litres a day to 3.25 lakh litres. Its FY12 sales were about Rs 280 crore, up by 20% over FY11 and operating profit was about Rs 40 crore which was up by 14% and profit after tax was Rs 6.25 crore which was up by 23%. Vadilal has a small equity base of Rs 7.2 crore and an EPS of about Rs 8. The PE is not very high at 13. Vadilal has great prospects because of the enhanced capacity of processing icecream and the new product launches. It has about 170 ice-cream parlours operated on a franchise model and it plans to increase the number of parlours to Rs 250-300 in the northern part of India (Ashsih Chugh stock pick).
(x) Sanghvi Movers is the largest crane services company in India and the third larges crane services company in Asia and seventh largest crane owning company in the world. It has a wide range of cranes from 20 tonne to 800 tonne. Sanghvi Movers caters primarily to the industrial segment where it rents cranes for construction of steel plant, cement plant, wind power etc. It is also into logistics services business. Sanghvi Movers’ FY12 sales were Rs 450 crore which was up by 25% over the same period last year. EBITDA was Rs 340 crore again up by 25%. Profit after tax (PAT) was Rs 100 crore, which was up by 18%. The EBITDA margin was 75% and net profit margin was 23%. Sanghvi Movers’ valuations are cheap with a PE multiple of 4.5 in spite of the increase in revenues by 25%. The low valuations are because of the general gloom in the infra sector. At last year. It has defied what was happening in the industrial and infrastructure segment. At the current price of Rs 85 the negatives look discounted. Thanks to a dividend yield of 3.51%, the downside is protected and there is a chance of a 30-40% return over a period of one year (Ashsih Chugh stock pick).