Dear Reader, Are you looking for a long-term winner — a multibagger? It's 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, is one of the stock in the list of multibaggers, with compound annual returns of 58.5 per cent in 10 years. In other words, Rs 1,000 invested in 2005 is valued at Rs 1 lakh today. A 100-Bagger stock in 10 years. This is just one of the example, there are companies which have given much better returns than TTK Prestige during the same period. Do you know, Symphony has given compounded annual returns of astonishing 111.7% in last 10 years. Investment of Rs. 1000 in Symphony in 2005 is valued more than Rs. 18 lakhs today. Mind boggling, isn't it? It's a 1800-Bagger stock in last 10 years. These companies have turnaround their performance and hugely benefited from market growth driven by rising consumer spend, offering value added products with strong moat, 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 22 per cent in 10 years. The profit has grown at an even higher CAGR of 31 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, has made its investors 37 times richer in last 10 years, with its profit growing at 28 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 mid and large cap companies of the decade are Motherson Sumi, Coromandel International, Godrej Consumer, GMDC, SKF India, IndusInd Bank, Bajaj Finance and HDFC Bank.
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 drop down list of 59 companies, too, has similar sectoral compositions, with additions from automobiles and capital goods.
This clearly shows the merit in backing fundamentals over trying to time the market. Fundamentals are the most important; one has to analyse management credibility and capability, quality of the product, financial health and competitors’ position and then decide on whether to buy a stock. At the same time, when markets are not doing well, choice of high dividend paying companies and those with healthy cash balance helps. Hence, there is an element of market environment which needs to be considered.
Not everyone has the time and inclination to analyse stocks and be able to identify potential wealth creators. If that’s the case for you as well, don’t fret. Either identify above average funds or choose services of independent equity research firm and invest in good quality stocks yourself, that outperform the benchmark consistently over a period of 5-10 years and put your money at work. The strategy remains the same — identifying wealth creators and investing in them for long term.
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 1800% over a period of last 2 - 4 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 made all time high of Rs. 2950 this year and today closed at Rs. 1943 giving astonishing returns of 1140% to our members since Dec 2011. As on date, Cera is our 13-Bagger stock and no profit booking suggested by our team and we suggest our member to continue to hold this stock for long term. Moreover, we reiterated buy on Cera at price range of 400-450 and added it in our Wealth-Builder portfolio 2 years back.
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 made all time high of Rs. 515 and is closed at Rs. 411 today giving returns of 625% to our members since March 2012, recommended at price of Rs. 56 (2 bonus issues and 1 stock split adjusted price). Mayur Uniquoter is a 7-Bagger Stock for our members, no profit booking suggested by our team and we will continue to hold this stock.
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 93.5 for target of Rs 137 (bonus issue adjusted price) 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. 832 and today closed at Rs. 700 giving returns of 650% to our members, our 8-Bagger stock in period of 2.5 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. Recently stock price touched its all time high of Rs. 2380 and today closed at Rs. 2140 giving returns of 194% 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 suggested our members to stay invested in this stock for better returns in future.
5. Camlin Fine Sciences Ltd:Camlin Fine Sciences Ltd is one of theIndia'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 andUSA. 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 (2 stock split adjusted price, actual recommended price was Rs. 60), recently stock price touched its all time high of Rs. 129 and today closed at Rs. 94 giving returns of than 1465% to our members. Our 16-Bagger stock in 4 years, we recommended partial profit booking to our members by selling 50% of their holdings and keeping remaining quantity in their portfolio for long term.
There are other stocks also which have given returns in the range of 100% to 700% during last 3 years to our Hidden Gems and Value Picks members, the list includes Sri Adhikari Brothers, Wim Plast, De Nora, Super House, Indag Rubber, WPIL, Acrysil, Kovai Medical, Atul Auto, TCPL Packaging 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 Gems, Value Picks & Wealth-Builder. If you have patience and want to add extra power in your portfolio, start investing some portion of your savings in fundamentally strong small and mid cap companies - Hidden Gems & Value Picks. Time has shown that smart investors have made their fortune by investing in equities in long term. None other asset class can match giving you such extra ordinary returns. Yes, its important for you to invest in right set of companies at right price with medium to long term perspective. If you think to invest in stocks for period of 3 months or 6 months, we suggest you to stay out of stock market because you are not investing, you are betting on volatility of stock market which could be risky. Its our mission to ensure that you reap the best returns on your investment, our objective is not only to grow your investments at a healthy rate but also to protect your capital during market downturns. The stocks we reveal through Hidden Gems & Value Picks are companies that are either under-researched or not covered by other stock brokers and research firms. We keep on updating our subscribers on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook. On activation of your Hidden Gems subscription, you will receive Saral Gyan eBook - "How to Grow your Savings?" worth Rs. 599 at no additional cost! Wait! You will also receive our Special Report: 5 Stocks - 5 Baggers in 5 Years released on 3rd May'15 without any extra charges. To know more about our Special Report: 5 Stocks - 5 Baggers in 5 Years, click here! To know more about Saral Gyan annual subscription services and discounts available on combo packs, click here. In case of any queries or doubt, do not hesitate to write back to us. Wish you happy & safe Investing!
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