ATTRACTIVE EX-MULTIBAGGERS – MID, SMALL & MICROCAP STOCKS

By QUANT RESEARCH DESK Of Prabhudas Lilladher

Multi-baggers of the past from the mid, small & microcap universe that have corrected significantly from their 10 Year – High and are now bouncing back with strong fundamentals intact. Read our stock selection methodology to know more:

Methodology

Market Cap:

Micro, Small and Midcap companies trading at attractive valuations relative to their large cap peers, post the flight to safety driven large cap rally.

Listing Tenure:

Listed on NSE / BSE for at least 10 years ensuring evaluation of long term performance track record and business characteristics.

Peak Returns:

Stocks whose market capitalization has grown 5x or returned 400% in the last 10 years (from their Dec 2009 Prices to their All Time High Prices), to identify stocks that have been multi-baggers in the previous cycle and have corrected due to reduced risk appetite or other factors not related to long term fundamentals of the company.

Current Correction:

Companies that are trading at least 35% below their all-time high price achieved in the last 5 years.

Long term growth intact: To ensure companies have demonstrated growth on all fronts in the last decade and have substantially scaled up operations to remain on a growth trajectory in the longer term

Current Cash from Operations (CFO) > 0 & Current CFO/PAT > 40% (Non Finance companies): To identify companies with strong cash generation capacity that moves in tandem with profits.

Latest quarterly YoY EBITDA de-growth not more than -50%: To eliminate companies that are not able to maintain 50% of its Operating Profit in an economic slowdown, indicating deep cyclicality.

Latest 3Y Average ROCE > 10%: To identify companies that are able to generate at least the minimum Return to justify cost of capital.

Current Shares Pledge < 20%:

Companies with pledge higher than 20% put equity shareholders at risk of dumping by lenders in case of non-repayment of borrowings by promoter and hence must be avoided.

Current Promoter holdings > 35% (Non-Banking & Non-Finance Companies):
To ensure promoters are vested in the performance of the company and higher holding reflects promoter confidence in the business.

Current Interest Coverage:

To avoid companies that have chance of coming under severe financial stress, in situations where business earnings cannot comfortably cover repayment obligations. Interest Coverage is calculated using EBIT/Interest and NOT EBITDA/Interest, hence a more conservative approach

ØInterest Coverage > 2.5x (Non-Banking & Non-Finance Companies)

Current Sales > Rs. 100 Crores:
To ensure minimum scale & acceptance of products & services of the company in the markets.

ATTRACTIVE EX-MULTIBAGGERS  MID, SMALL & MICROCAPS

Multi-baggers of the past from the mid, small & microcap universe that have corrected significantly from their 10 Year – High and are now bouncing back with strong fundamentals intact. Read our stock selection methodology to know more:

Methodology

Market Cap:

Micro, Small and Midcap companies trading at attractive valuations relative to their large cap peers, post the flight to safety driven large cap rally.

Listing Tenure:

Listed on NSE / BSE for at least 10 years ensuring evaluation of long term performance track record and business characteristics.

Peak Returns:

Stocks whose market capitalization has grown 5x or returned 400% in the last 10 years (from their Dec 2009 Prices to their All Time High Prices), to identify stocks that have been multi-baggers in the previous cycle and have corrected due to reduced risk appetite or other factors not related to long term fundamentals of the company.

Current Correction:

Companies that are trading at least 35% below their all-time high price achieved in the last 5 years.

Long term growth intact: To ensure companies have demonstrated growth on all fronts in the last decade and have substantially scaled up operations to remain on a growth trajectory in the longer term

Current Cash from Operations (CFO) > 0 & Current CFO/PAT > 40% (Non Finance companies): To identify companies with strong cash generation capacity that moves in tandem with profits.

Latest quarterly YoY EBITDA de-growth not more than -50%: To eliminate companies that are not able to maintain 50% of its Operating Profit in an economic slowdown, indicating deep cyclicality.

Latest 3Y Average ROCE > 10%: To identify companies that are able to generate at least the minimum Return to justify cost of capital.

Current Shares Pledge < 20%:

Companies with pledge higher than 20% put equity shareholders at risk of dumping by lenders in case of non-repayment of borrowings by promoter and hence must be avoided.

Current Promoter holdings > 35% (Non-Banking & Non-Finance Companies):
To ensure promoters are vested in the performance of the company and higher holding reflects promoter confidence in the business.

Current Interest Coverage:

To avoid companies that have chance of coming under severe financial stress, in situations where business earnings cannot comfortably cover repayment obligations. Interest Coverage is calculated using EBIT/Interest and NOT EBITDA/Interest, hence a more conservative approach

ØInterest Coverage > 2.5x (Non-Banking & Non-Finance Companies)

Current Sales > Rs. 100 Crores:
To ensure minimum scale & acceptance of products & services of the company in the markets.