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Wednesday, March 4, 2015

Strong Fundamentals are Key to Multibagger Returns

Dear Reader, 

Are you looking for a long-term winner — a multibagger stock? It is simple! Buy shares of a company with strong fundamentals and consistently high financial performance. 

To evaluate a company’s efficiency and the quality of its management, the two key financial ratios to be keenly observed are return on net worth (RoNW) and return on capital employed (RoCE). Besides, price-to-earnings ratio could be used to determine the market price of a company’s stock and to compare it with peers’ in the same sector. Price to book value measures the value of shareholder's ownership in the company. 

While earnings yield — the quotient of earnings per share divided by the share price — needs to be seen to compare directly against the returns offered by alternative investments such as interest on a bond or savings account, debt-to-equity ratio could measure a company’s financial leverage. A high debt-to-equity ratio generally means that a company has been aggressive in financing its growth with debt. This could result in volatile earnings because of additional interest expenses. 

TTK Prestige, a leader in the Indian kitchenware market, tops the list of multibaggers, with compound annual returns of 71 per cent in 10 years. In other words, Rs 1,450 invested in 2004 was valued at Rs 2.94 lakh on March 31, 2014. The company has benefited from market growth, driven by rising consumer spend, evolving lifestyle preferences and broad demographic trends. 

TTK’s product range and distribution have complemented the strong brand, helping it clock a revenue CAGR of 24 per cent in 10 years. The profit has grown at an even higher CAGR of 66 per cent, backed by its premium products and a debt-free status, from a debt-to-equity ratio of two in 2004. The efficiency and the quality of its management measured from consistently high RoNW and RoCE helped it become the most valuable company in the past decade. 

Titan Industries, the second in the league has made its investors 89 times richer, with its profit growing at 47 per cent CAGR. However, the top-class performance in the decade may cool a little in the coming years, as demand is expected to slow down, given the tough environment. Among other most valuable companies of the decade are Motherson Sumi (ranked third), followed by Coromandel International, Godrej Consumer, GMDC, SKF India, IndusInd Bank, Bajaj Finance and HDFC Bank.

While constant good financial performance by some companies has fetched handsome returns for their shareholders, some weak performers have underperformed the market, despite quality management and lower debt-to-equity ratio. For example, Hindustan Unilever has given below-par seven per cent annualised returns in 10 years, due to poor single-digit sales and profit CAGRs. Slowdown in growth has also hurt the market performance of some pharmaceutical firms like Dr Reddy’s Labs, Novartis and Ranbaxy.

Stock market investment runs in sector-specific cycles. According to reports of Morgan Stanley India, the stocks in a particular sector get bigger and give better returns as that sector gets popular. For example, between 2002 and 2007, realty, metals and capital goods companies topped the gainers’ list. The demand for housing and strong investment in capital goods and infrastructure projects saw Unitech, JSW Steel, Pantaloon Retail, Sesa Goa, Alstom T&D, Jubilant Life, Crompton Greaves, Siemens and Thermax emerge as top companies on the multibagger list.

Business Standard Research Bureau has analysed these trends through a study of top 200 stocks by market capitalisation with trading history of more than 10 years. There are 158 stocks that have outperformed the benchmark index with 10-year CAGR of more than 17.4 per cent each. Of these, as many as 99 stocks have been multibaggers — giving their stakeholders gains of over 10 times on investment made 10 years earlier, or annual average returns between 26.6 and 71 per cent. Of these, 59 have been long-term winners — the companies that have given very good high returns in 10 years as well as during the economic slowdown seen in last two years.

Among these 59 stocks, 10 have been consistent performers, that is, 20 per cent CAGR in sales and profit over the past decade as well as in last two consecutive years. These companies have recorded very high financial ratios, both RoNW and RoCE, and given strong earnings yield — significantly higher than the other prevailing investment avenues.

The consistent performers are from the sectors like auto ancillaries, banks, consumer durables, pharmaceuticals, housing finance, fertilisers, FMCG and mining. The dropdown list of 59 companies, too, has similar sectoral compositions, with additions from automobiles and capital goods.

Saral Gyan Wealth Creators (Since our Inception Year - 2010)
Saral Gyan was founded in the year 2010 with a vision to create wealth by investing in equities, our research team includes working professionals from different streams which are contributing to our success. Its dedication and passion of our team towards equities that make Saral Gyan one of the best independent equity research firm in identifying Hidden Gems (Unexplored Multibagger Small Cap Stocks) and Value Picks (Mid Caps with Plenty of Upside Potential) from small and mid cap space.
Below are few of the stocks which have excellent returns to our members in the range of 200% to 1600% over a period of last 2 - 3 years.
1. Cera Sanitaryware: Our equity analysts team identified Cera Sanitaryware in Dec 2011 and recommended our Hidden Gems members to invest in it at a price of Rs. 157. What made us to believe in Cera Sanitaryware as an investment opportunity was its superior products and potential to drive growth by expanding its reach to various geography of the country. Another important factor which impressed our team is significant increase in its market share by growing faster compared to well established competitors like HSIL in the same segment. 
Investment Returns: Stock of Cera Sanitaryware has recently made all time high of Rs. 2895 and currently trading at Rs. 2710 giving astonishing returns of 1625% to our members since Dec 2011. In last 3 years, Cera is our 17-Bagger stock and no profit booking suggested by our team and we continue to suggest our member to buy this stock at higher levels from our initial recommendation for long term. Moreover, we reiterated buy on Cera at price of 1800 at beginning of this year and added it in our Portfolio of 15 Small & Mid Caps of 2015.
Cera Sanitaryware Research Report: Click here to Download
2. Mayur Uniquoters: We recommended investment in Mayur Uniquoters at price of Rs. 56 (2 bonus issues and stock split adjusted price) in March 2012. Company is a market leader in the industry it operates, artificial leather industry offers great growth potential considering huge untapped market and its well accepted replacement products to original leather products. Company was in expansion spree with continuous rise in demand for its products and was distributing healthy interim dividends. Needless to say, nobody wants to kill animals to use their leather products. With continuous research and development, company offers more than 300 variety of artificial leather to its esteem clients like Ford, Chrysler, Hyundai, Nissan, Tata Motors, Maruti, Mahindra, Bata, Relaxo and many more.
Investment Returns: Mayur Uniquoter stock price has recently made all time high of Rs. 499 and currently trading at Rs. 449 giving returns of 700% to our members since March 2012, recommended at price of Rs. 56 (2 bonus issues and 1 stock split adjusted price, actual recommended price was Rs. 448). Mayur Uniquoter is our 8-Bagger stock for our members, no profit booking suggested by our team and we will continue to hold this stock. We recommended Mayur Uniquoters in Mar'12 and we were late in identifying this gem. If you would have invested in Mayur Uniquoters in Mar'09 i.e. 6 years back instead of 3 years, you would have a 150-Bagger stock in your portfolio. Hold your breadth! Its a fact that Rs. 1 lakh invested in Mayur Uniquoters in Mar'09 is worth Rs. 1 crores and 50 lakh today, that too excluding dividends paid by the company every year.
Mayur Uniquoter Research Report: Click here to Download
3. Aurobindo Pharma: Aurobindo Pharma Ltd is one of the largest generic suppliers under ARV contracts, with a 35% market share. The company enjoys high market share as it is fully integrated in all its products apart from having a larger product basket. Among peers, it was trading at a 22% discount to Ipca Laboratories and a 17% discount to Torrent Pharmaceuticals, though it had a stronger product pipeline.Aurobindo Pharma Ltd was also aiming to maintain 25 ANDA filings per year, which should see the product pipeline strengthening further. Its focus on margin would also help it strengthen the bottom line. Moreover, the USFDA clearance would be an immediate booster for the company. Considering all these factors, we recommended Aurobindo Pharma as there was good scope for re-rating of the stock looking at valuations among peer group companies and growth prospects. 
Investment Returns: Aurobindo Pharma was recommended in Jan' 2013 at price of 187 for target of Rs 275 which was achieved within 12 months, we informed our members to continue holding Aurobindo for long term. Recently stock price touched its all time high of Rs. 1275 and currently trading at Rs. 1070 giving returns of around 472% to our members in period of 1.5 years.

Aurobindo Pharma Research Report: Click here to Download
4. Kewal Kiran Clothing Ltd (KKCL): A company with experience of building strong brands since last 2 decades. As we know, strong brands offers huge competitive moat which yields to better operating and profit margins and help companies to own pricing power for their products. Our analysts missed Page Industries (owns right for selling Jockey in India and other Asian countries) and was looking for similar opportunity with justified valuations. KKCL owns brands like Killer and Lawman and is the only company from apparel industry which stands out in tough scenario with consistent profit when other companies like Provogue, V2 Retail were struggling due to high debt on books.  
Investment Returns: KKCL was recommended during Diwali in 2012 at price of 729 for target of Rs 990 and later again reiterated buy at Rs. 1050 for long term. Today, stock price is closed at 1860 and is giving returns of 155% to our members in 2.5 years. Fundamentals are intact, valuations are reasonable and company has strong brand building expertise in apparel industry, hence we suggest our members to stay invested in this stock for better returns in future.
Kewal Kiran Clothing Ltd (KKCL) Research Report: Click here to Download
5. Camlin Fine Sciences Ltd: Camlin Fine Sciences Ltd is one of the India's leading manufacturers and exporters of Bulk Drugs, Fine Chemicals and Food Grade products. The company manufactures active pharmaceutical ingredients (API's), food antioxidants and sweeteners. Company acquired subsidiary of Borregaard in March 2011 which was expected to help Camlin Fine Sciences in realizing better operating and profit margins in coming quarters. This acquisition ensured the easy availability of raw material Hydroquinone manufactured by Borregaard for Camlin Fine Sciences ltd. Company also introduced new products and continuously strengthening its marketing activities throughout Europe and USA. The scrip was trading at 4 X FY 2011-12 estimated earnings leaving good scope for stock price appreciation.

Investment Returns: We recommended Camlin Fine Sciences on 27th Mar'11 at Rs 6 (adjusted stock split price - actual recommended price was Rs. 60), recently stock price touched its all time high of Rs. 105 and currently trading at Rs. 95 giving returns of more than 1470% to our members. We recommended partial profit booking to our members by selling 50% of their holdings and keeping remaining quantity in their portfolio for long term.

Camlin Fine Sciences Research Report: Click here to Download
There are other stocks also which have given returns in the range of 100% to 800% during last 2 years to our Hidden Gems and Value Picks members, the list includes Wim Plast, De Nora, Super House, Indag Rubber, WPIL, Acrysil, Kovai Medical, Roto Pumps, Mindtree, Atul Auto, Sanghvi Movers etc. If you wish to invest in fundamentally strong small and mid cap companies which can give you far superior returns compared to major indices like Sensex or Nifty in long term and help you creating wealth, you can join our services like Hidden GemsValue Picks & Wealth-Builder.

Subscribe to Hidden Gems & Value Picks and start investing systematically. Avail attractive discounts by subscribing to our combo packsclick here for details. 

Do write to us in case of any queries, we will be delighted to assist you!
Team - Saral Gyan.