Companies with multiple growth engines

Hi,

As we all know, there are 2 factors which are largely responsible for share price performance of any company over the long term, i.e. valuation and EPS(earnings growth). If we can find some companies which are cheaper(15-20 P/E) and growing PAT at 25%+ rate, it might turn out to be big wealth creator.

Coming to PAT growth, they are 3 drivers for PAT growth: topline growth, margin expansion and debt reduction. If we have some company with all 3 triggers, PAT growth will be much higher than topline growth. And if by chance market re-rates it, share price performance will be way better than EPS growth.

I am trying to find such companies which can have all these triggers:

1. Revenue growth > 15%
2. Margin expansion
3. Debt reduction (not a must)
4. P/E < 15-20

I came across 3 companies where these triggers could be there:

1. Shankara building products: guidance of 25-30% topline growth, margin improvement (0.5-1% YoY),
   P/E lower than the 3yr and 5yr averages.
2. Talbros Automotive: guidance of group revenue of 2200Cr, margin of 15-16% by FY27 as export share
   will increase, P/E rerating already played since the time i started buying at P/E of 15.
3. Goodluck india: guidance of 5000Cr revenue by FY26, margin improvement as value added product
   share is increasing, debt reduction and P/E at 24 which is already played out but can be further re-rated.

We might not find companies with low P/E right now as market has run up a lot but this will help us in being ready with watchlist and as and when opportunity arrives, we can pounce on it.

I have used P/E as it’s easier to calculate expected returns from the P/E calculations. This won’t be applicable to banks and NBFCs.

Please correct if there are any mistakes and please give your suggestions. Thanks