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Showing posts with label Multibagger Recommendations. Show all posts
Showing posts with label Multibagger Recommendations. Show all posts

Wednesday, March 29, 2023

Hidden Gem Stock Report - March 2023 is Released

Dear Reader,

Hidden Gem - March 2023 research report was released on 26 March 2023 by our research team. Hidden Gem of March month is a small cap stock from chemical sector with total market capital of less than 500 crores.

As we know, India continues to be a high growth economy and a significant portion of this growth comes from manufacturing sector. We have identified multi-bagger investment opportunity of this month, which belongs to chemical industry and is expected to multiply its revenue by two times in next 3 to 4 years. Company is going through expansion by increasing capacity of existing facilities and is expected to perform well over next 2 to 3 years considering favourable demand outlook of its products and sector tailwinds.

Hidden Gem Stock of March 2023

Our Hidden Gem stock of March 2023 belongs to specialty chemical sector. The company offers good upside potential and is a great investment opportunity for medium to long term investors. 

Few facts which make this company a right investment candidate for long term:

1. More than 3 decades of experience with strong clientele from more than 20 countries is expected to augur well for the company over next 2 to 3 years.

2. Company offers a variety of products and is the market leader in its segment.

3. Company is increasing its capacity under ongoing expansion program by increasing capacity of existing facilities to meet growing domestic demands and also to tap opportunities in export markets.

4. As per management, company is on strong footing and will be able to utilize its additional capacity over next 3 years considering pick up in demand of its products in domestic market and increasing its penetration in export market.

5. Company has a DSIR (Department of Science and Industries Research) recognized R&D facility and offer superior quality products compared to competitors. Continuous focus on brand building and broadening its product portfolio is  expected to yield higher profits and lead to increase in EBITDA margins.

6. Company is a debt free company having cash surplus in books with strong balance sheet. 

7. The recent Capex (capital expenditure) for capacity expansion is done with internal accrual without raising any debt.

8. Management has rewarded share holders by paying regular dividends (healthy dividend payout of 20 to 30 percent of profits), dividend yield at current market price is around 2.

9. Last but not the least, stock is attractively priced at current valuations and offers good upside potential with limited downside risk in medium to long term.

Considering company’s plan to add additional capacities to drive revenue growth, favorable tailwinds for the sector due to anti dumping duty imposed by Govt to restrict cheap imports from China and attractive valuations, we find this company a good bet for long term investors. 

Get access to our Hidden Gem - March 2023 research report and invest small portion of your savings in it to get rewarded in long term. Subscribe to Hidden Gems annual subscription (10 to 12 monthly research reports) @ Rs. 14,000 and start investing systematically in fundamentally strong small cap companies. To know more about Saral Gyan annual subscription services and discounts available on combo packs, click here.

On activation of your Hidden Gems subscription, you will also receive our recently released Special Report - 5 Hidden Gems to Buy / Accumulate (Released on 29 Jan 2023) at no additional cost!

To know more about our Special Report - 5 Hidden Gems to Buy / Accumulateclick here!

In case of any queries or doubt, do not hesitate to write back to us.

Wish you happy & safe Investing!


Team - Saral Gyan

Monday, March 13, 2023

Do Not Miss Investing in Best of Hidden Gems & Value Picks

Dear Member,

The ongoing market correction is giving a good opportunity to long term investors to add good quality small and mid caps at attractive to reasonable valuations. The broader market which was looking expensive in 2021 is turning attractive once again after steep fall in stock prices over the last 18 months. In fact, as most of the stocks are available again at reasonable to attractive valuations after almost 2 years, we recently released our special reports to allow our members to make some lumpsum long term investments. 

BSE Mid Cap Index made all time high of 27,246 in Oct 2021 and later witnessed correction of -22.9% making low of 20,999 in Jun 2022. Currently, BSE Mid Cap Index is at 24,170 i.e. down by around 11% from its peak of Oct 2021, where as many mid cap stocks are down by 20% to 70% from their peak prices.

Similarly, BSE Small Cap Index all time high is of 31,304 (made in Jan 2022), later during correction it made low of 23,304 in Jun 2022 and was down by 25.7%. Today, BSE Small Cap Index closed at 27,372 and is down by nearly 13% from its peak of Jan 2022, where as many small cap stocks are down by 30% to 80% from their peak prices.

“The first rule of investment is ‘buy low and sell high’, but many people fear to buy low because of the fear of the stock dropping even lower. Then you may ask: ‘When is the time to buy low?’ The answer is: When there is maximum pessimism.”
Sir John Templeton

Special Report - 5 Value Picks to Buy / Accumulate - Released on 12 Feb 2023

Post significant correction in small and mid caps, we reviewed our past recommendations released under Value Picks of last 3 years and short listed 5 Value Picks stocks which offer good long term investment opportunity and have potential to give excellent returns on your investment during next 2 – 3 years. These stocks are covered in our Special Report - 5 Value Picks to Buy / Accumulate which we released on 12 Feb 2023.

While short listing 5 stocks under Value Picks, we evaluated each company on the basis of I-B-M-V-E-D parameters (Industry, Business, Management, Valuations, Earnings Growth & Debt Management) and rated every parameter using a rating scale – E,V,G,F,P (E=Excellent, V=Very Good, G=Good, F=Fair, P=Poor)

One of the important key to successful investing is to pick the right business at decent valuations. We finalized these 5 stocks with a long term view (2-3 years) and find them better over other Value Picks stocks in terms of valuations, earning visibility, debt management and integrity of promoters towards their business and interest of minority shareholders.

The 5 Value Picks stocks which we finalized have a market capital in the range of 1800 crores to 9800 crores and seen a price correction between 20% to 65% from their peak (made is 2021 - 2022) without any major change in business fundamentals. We believe these stocks will outperform giving much better returns compared to broader indices in medium to long term. We advised our members to add these Value Picks in their portfolio with long term view. We suggested to start investing in these 5 Value Picks stocks with initial allocation of 1-2% and increase allocation gradually to 3-4% in staggered way in case stock prices of these companies falls by another 10% to 20% or more during ongoing market correction.
Important parameters which we looked into while finalizing stocks are as under:

1. Industry – Operating in Industry / sector which is expected to grow > 10% CAGR during next 3 years
2. Business – Leadership position in the business or one of its business segment in certain geography
3. Management – Prudent & trustworthy management keeping interest of minority share holders
4. Valuations – Reasonable / attractive valuations compared to peer group companies
5. Earnings – Consistent past performance & strong earning visibility with planned / recent expansion
6. Debt Management – Company is able to generate cash flows with low or reducing debt on books

If you wish to receive our Special Report - 5 Value Picks Stocks to Buy / Accumulate, you can subscribe to our Value Picks service

Special Report - 5 Hidden Gems to Buy / Accumulate - Released on 29 Jan 2023

We also released another Special Report - 5 Hidden Gems Stocks to Buy / Accumulate on 29 Jan 2023 covering small cap stocks. The 5 Hidden Gems stocks which covered in this report have a market capital below 700 crores and seen a price correction between 20% to 60% from their peak (made is 2021 - 2022). 

There is no major change in the business fundamentals of these companies, however stock price fell initially due to profit booking and later because of weak market sentiments. These stocks are expected to outperform giving much better returns in the long term. Hence, we suggested our members to add these stocks in their portfolio with long term view (2 to 3 years at least). We suggested our members to start investing in these 5 Hidden Gems stocks with initial allocation of 1-2% and increase allocation gradually to 3-4% in case of further fall in stock prices. Its always wise to accumulate stocks in staggered manner as stock prices remain weak during bear phase of the market and give good opportunities from time to time to accumulate them at lower levels.
Click here to know more about Special Report - 5 Hidden Gems to Buy / Accumulate. If you wish to receive Hidden Gems Special Report, you can opt for annual subscription of Hidden Gems service,

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 and Value Picks.

Moreover, if you have invested in stocks and believe that your investments are not performing well, subscribe to our Wealth-Builder service and get your portfolio reviewed by us. We will review fundamentals of the companies you are holding and guide you which stocks to hold and which to exit. We will also review your equity investments across sectors and companies to ensure that your portfolio allocation is right and outperforms major indices giving you better returns in medium to long term.

Start building your equity portfolio by making educated investment decisions, subscribe to our Hidden GemsValue PicksWealth-BuilderNano Champs annual subscription services.


Hidden GemsRs. 14,000
Value PicksRs. 8,000
15% @ 90 DaysRs. 5,000
Wealth-BuilderRs. 28,000
Combo 1: HG + VP + WB + 15%Rs. 55,000 44,000 (20% OFF)
Combo 2: HG + VP + 15%Rs. 27,000 22,000 (20% OFF)
Combo 3: HG + VPRs. 22,000 19,000 (14% OFF)
Combo 4: HG + 15%Rs. 19,000 17,000 (11% OFF)
Combo 5: VP + 15%Rs. 13,000 11,500 (11% OFF)




NANO CHAMPS – 1 YEAR  - Rs 12,000


NANO CHAMPS – 3 YEARS - Rs. 30,000


Click here to know more about our services and discounts applicable on combo packs.

Do write to us at in case of any queries, we will be delighted to assist you.

Team - Saral Gyan

Saturday, February 11, 2023

Kabra Extrusion Technik - Our 9-Bagger Stock in 4 Years

Dear Reader,

We are pleased to inform you that our Hidden Gem stock of Oct'18 - Kabra Extrusion Ltd (BSE Code: 524109, NSE Code: KABRAEXTRU) is a 9-Bagger stock for our Hidden Gems members in period of 4 years. 

Our team suggested Buy on Kabra Extrusion Technik Ltd as Hidden Gem stock at price of Rs. 72.15 on 30 Dec 2018. Kabra Extrusion Technik stock price made all time high of Rs. 645 recently and closed at Rs. 620 on Friday giving absolute returns of 760% i.e. almost 9 times returns in a period of 4 years against double digit returns of Sensex & Nifty in the same period.

We picked Kabra Extrusion Technik as Hidden Gem stock when the company's market capital was 230 crores, today its almost a 2,000 crore market cap company.

Below is the summary of Kabra Extrusion Technik Ltd shared by our team under Hidden Gem stock - Oct'18 report released on 30 Dec 2018.

1. Company  Background (As on 30 Dec 2018)

Kabra Extrusion Technik Ltd
Kabra Extrustion technik Ltd. is the flagship company of Kolsite group and one of the largest players in the plastic extrusion machinery known for its innovative offerings. The company specializes in providing plastic extrusion machinery for manufacturing pipes and films. It has two manufacturing locations in Daman. The plastic extrusion machinery industry’s prospects appear positive in the long term. 

The Kolsite group is known for being the pioneer of various technologically advanced plastic extrusion solutions. Kolsite group under its roof has 4 flagship companies dealing in different avenues like extrusion machinery, master batches, secondary packaging.

Kolsite group of companies: 

▪ Kabra Extrusion technik Limited (KET) 
▪ Plastiblends India Limited (PBI) 
▪ Maharashtra Plastic & Industries Limited (MPI) 
▪ Kolsite Corporation LLP – Agency Division (KCLLP) 

Kolsite Group commenced its operations in the year 1962 at a small factory in Tardeo that had a total area of 800 square feet. Mr. SV Kabra left his traditional business and ventured into the plastics Industry. In 1962, the industry was at a very nascent stage, and he decided venture into processing and while processing he faced various issues with the machinery which eventually encouraged him to manufacture machinery for plastic extrusion. 

The group entered into joint ventures with the Global players of this field to soon become a leader in Plastic Extrusion Machinery in India. Since then, the company is known for being the pioneers of various technologically advanced plastic extrusion plants. The group has completed 55 years of its existence.

The company has global presence in ~90 countries. Kabra Extrusion technik has one of the largest sales & services network in India and equally efficient agencies in South Africa, Turkey, Middle East, South East Asia & Latin America. This helps the company to cater broader spectrum of clients and enhance its capabilities as a manufacturing company. 

Kabra Extrusion technik has 2 state-of-the manufacturing facilities with a combined area of about 83820 sq. m. These facilities consist of Administration Buildings, Govt. recognised in-house R & D Unit, Quality Testing Units, Machine Tool Equipment & Paint Shop. The company has one of the largest R & D team in the Plastics Machinery Industry with more than 45 dedicated engineers working in different areas of processing, manufacturing, application development, design, controls and automation.

Mr. SV Kabra is the Chairman and founder of the Kolsite Group of companies and has been the main driving force behind its growth over the last 54 years. In 2013, he was awarded with the Outstanding Achievement Award at Vinyl India 2013 conference for his pioneer work in the domestic plastic industry. He has been on the management & executive councils of many reputed plastics organizations in India. SV Kabra has done BA in Economics (Honours) from Mumbai University. 

Mr. SN Kabra is the co-founder of the Kolsite Group and Vice-Chairman and Managing Director of the company. He holds a degree in Mechanical Engineering and has strong techno-commercial experience. Since 1960s, he has been instrumental in defining company's strategies, business goals and overall development initiatives.

Global Plastic Industry Growth Outlook 

The global plastics industry is witnessing continuous shift of manufacturing bases to lowcost countries specifically India. This coupled with rise in the number of new manufacturing establishments are building India’s image as a prime driver of growth in the plastics industry.

The plastic pipe industry has registered a 15% growth and is likely to maintain the same growth rate in coming years. Within the industry, the organized plastic pipe segment is estimated at around 60%, and is likely to register even higher growth driven by shift from unorganized to organized segment and government focus on agriculture, micro-irrigation, low cost housing projects and pick up in infrastructure growth.

Moreover, packaging sector is one of the major consumers of plastics followed by agriculture and infrastructure. Flexible packaging has been the fastest growing sectors in the packaging industry over the past 10 years driven by changing lifestyle patterns of growing middle class and focus on convenience and sustainability. Further, this segment is expected to grow exponentially going ahead. 

Flexible packaging is the most economical format of packaging, preserving and distributing goods, beverages, pharmaceuticals and products demanding extended shelf life. Management highlighted that the global market for flexible packaging is expected to grow at an annual average rate of 3.4% during the 2015-2020 (over 20% in case of India) period reaching USD 248 million. Food packaging occupies over 70% of the world consumer flexible packaging market and is growing by 4.0% on average in volume terms.

Currently, while North America dominates the global flexible packaging market, however Asia Pacific is expected to catch up owing to increasing disposable incomes and rising demand and changing packaging trends in the end user segment. Significant increase in demand for beverages, packaged foods, pharmaceuticals and personal care products are the growth drivers in India and neighbouring countries.

2. Recent Developments (As on 30 Dec 2018)

i) Promoters increased stake in the company through open market purchase – Dec 2018

During Sept’18 quarter, promoters have increased their stake in the company by 0.4%. Promoters continue to increase their stake in Dec’18 quarter also through open market purchase. Refer to pdf file for  the details of transactions made by promoters since Aug’18.

ii) Kabra Extrusion technik & Battenfeld Cincinnati extend cooperation – Nov 2018

Kabra Extrusion technik Limited & Battenfeld Cincinnati, Germany (world’s leading extrusion machinery manufacturer) have announced further extension of their cooperation beyond 2026.

The two companies have been in partnership since 1983 and the existing technology agreement, valid until the year 2026 has been extended further by enlarging the scope and making it more comprehensive and inclusive. Gerold Schley – CEO and Dr. Henning Stieglitz – CTO of Battenfeld Cincinnati along with S V Kabra - Chairman and Anand Kabra Managing Director of Kabra Extrusion technik Ltd were in discussion for the last few months, on the ways to create a platform and understanding between the two companies, so that the cooperation extends beyond 2026 and is mutually beneficial to both the companies.

iii) Kabra Extrusiontechnik enters a strategic partnership with Unicor GmbH – Oct 2016

Kabra Extrusion technik Limited & Unicor GmbH entered into a strategic partnership to provide a fully integrated extrusion solutions for the Indian & global plastics corrugated pipe industry.

The collaboration plans to make corrugated pipe machines in India using Unicor expertise with Kabra Extrusion technik manufacturing capabilities to offer value for money solutions in India as well as other strategic markets. 

Unicor has unique expertise in providing customized solutions for customers. The company has been in business for over 30 years and enjoys Global leadership status with strong customer base in more than 50 countries. Unicor’s range of products include various types of machines for all applications – electrical, medical, automotive, water, sewer pipes etc. with pipe diameters from 3 mm until 2400 mm. Unicor’s products are extremely versatile, aimed at providing higher productivity and better energy efficiency. 

iv) Kabra Extrusion technik enters a joint venture with Extron Mecanor – Oct 2016

Kabra Extrusion technik Limited & Extron Mecanor inked a joint venture to provide a One Stop Shop approach to extrusion solutions for the global plastics processing industry.

Extron Mecanor from Finland is a pioneer in pipe socketing & belling solutions. Extron-Mecanor has unique expertise in providing customized solutions for customers. It has been in business for over 35 years and making sales in nearly 50 countries. Besides high quality machinery, they provide guaranteed after sales service and have expertise in working out the best solutions. Extron-Mecanor’s product range includes solutions for pipe belling and socketing, Pipe, rain gutter, profile packaging, and seal ring inserting.

3. Financial Performance (As on 30 Dec 2018)

Kabra Extrusion technik standalone net profit rose 663.87% in the Sept 2018 quarter 

Net profit of Kabra Extrusion technik rose 663.87% to Rs 9.09 crore in the quarter ended September 2018 as against Rs 1.19 crore during the previous quarter ended September 2017. Sales declined 9.94% to Rs 46.56 crore in the quarter ended September 2018 as against Rs 51.73 crore during the previous quarter ended September 2017. 

Kabra Extrusion technik reports standalone net loss of Rs 2.36 crore in the June 2018 quarter

Net Loss of Kabra Extrusion technik reported to Rs 2.36 crore in the quarter ended June 2018 as against net loss of Rs 2.33 crore during the previous quarter ended June 2017. Sales declined 8.05% to Rs 43.73 crore in the quarter ended June 2018 as against Rs 47.56 crore during the previous quarter ended June 2017.

Kabra Extrusion Technik Financial Performance

As per our estimates, the company will perform better over next 2 years with increase in Government spending with higher focus towards agriculture and infrastructure sector to boost rural growth

4. Peer Group Comparison (As on 30 Dec 2018)

Kabra Extrusion Technik Competitors

5. Key Concerns / Risks (As on 30 Dec 2018)

i) Domestic extrusion machinery segment is highly fragmented, characterized by presence of various small and micro players which limits pricing power. Therefore, the company is exposed to competition from domestic players and imported extrusion machinery. Also, the segment is technology-intensive and is susceptible to the risk of technological obsolescence. However, the same is mitigated partly through company’s technological tie-ups and collaboration with international players such as Battenfeld-cincinnati (Germany), Unicore Gmbh, Extron Mecanor, Penta Srl Italy. 

ii) The demand for extrusion machinery is linked to the capital expenditure (capex) programme of plastic products manufacturers. The performance of the company depends on the growth and demand in the end user industries i.e. plastic pipes, irrigation and agriculture pipes and flexible packaging and their capex cycle. Any slowdown or delay in the capex of these industries can have negative implications on the company’s business.

6. Saral Gyan Recommendation (As on 30 Dec 2018)

i) The plastic pipe industry has registered growth of ~15 percent and is likely to maintain the same growth rate in coming years. Within the industry, the organized plastic pipe segment is likely to register even higher growth driven by shift from unorganized to organized segment. Moreover, government focus on agriculture, micro-irrigation, low cost housing projects and pick up in infrastructure growth will augur well for overall demand of plastic pipes. Moreover, packaging film industry is also expected to grow at a healthy rate, driven by food industry, personal care and pharma products. Kabra Extrusion technik being the largest player in the plastic extrusion machinery with diversified product portfolio backed by strong management team is expected to be the direct beneficiary. 

ii) The company continued its focus on marketing activities and strengthening its agent network by participating in various trade fairs and exhibitions. It has made significant inroads in many new markets. During FY17-18, the company participated in exhibitions like PlastIndia, Plast Eurasia, Plastic & Rubber – Indonesia, Plast Alger, etc. to showcase its product portfolio to strengthen its geographical base as well as clientele. The company demonstrated live and launched Smart Faktory – A digital extrusion platform at PlastIndia show - 2018. Smart Faktory is a value adding part of production process, generates real customer benefits by exploring new opportunities from smart data to ensure real time control & decision for optimisation of product as well as operations.

iii) The company has also initiated effective steps to widen its products portfolio by entering into joint venture with M/s. Penta SRL, Italy. Joint venture company, Penta Auto Feeding India Ltd. has already started manufacturing and supply of auto feeding systems. The company has also undertaken manufacturing of belling machines through its subsidiary, Kabra Mecanor Belling Technik Pvt. Ltd., and manufacture corrugators with technology from Unicor GmbH, Germany. The company has also imported technology to manufacture flat-drip laterals extrusion lines from Metzerplas Industries Ltd., Israel. 

iv) The company has registered sales CAGR of 8.3%, profit CAGR of 18.9% with ROE of 11.3% over last 5 years. We expect company performance to improve going forward with increase in capex in micro-irrigation, low cost housing sector and pick up in infrastructure growth.
Kabra Extrusion Technik  Return Ratios
v) Kabra Extrusion technik has ventured into corrugated pipes with its collaboration with Unicor. Corrugated pipe is one of the fastest growing segments in the pipe industry considering its higher acceptance over cement pipes in sewage and drainage applications. The company has also introduced other new products like pipe extrusion lines for foam core pipes, co-rotating twin screw extruders and compounding machines and lines for lead free compounds and processing applications. Expansion of the product range across the value chain is expected to augur well for the company in medium to long term. 

vi) Kabra Extrusion technik through constant R&D and Innovation has introduced several products and solutions for the first time in the plastic extrusion industry since 1970. Moreover, the company is having global collaborations and technical tie ups with the leading companies in plastic industry, as Battenfeld-Cincinnati (GermanyAustria-USA), Penta SRL (Italy), Greiner (Austria), Unicor (Germany), Extron Mecanor (Finland). Long term partnerships with global suppliers for access to latest technology and to increase product offerings will support company to stay ahead of the competition. This is critical as technological obsolescence could be a key risk in the industry. 

vii) The company is serving business requirement of many reputed players in the plastic pipe and flexible packaging industry. Companies like Supreme Industries, Finolex Industries, Astral Poly Technik, Uflex, Ashirwad Pipes, Prince Pipes Systems etc are clients of Kabra Extrusion technik. As end industry grows with rise in demand and shift of business from unorganized to organized players, Kabra Extrusion technik with its diversified client base and strong execution track record is expected to grow as well. 

viii) As on Sept’18, promoter’s shareholding in the company is 57.09% without pledging of any shares. Promoters have increased their shareholding by 0.4% over last 6 months, increase in shareholding by promoters is positive indicating their confidence in future growth prospects of the company. Institutional shareholding in the company is low at 1.19%.
Kabra Extrusion Technik Promoter Shareholding
ix) The company is paying regular dividend to its shareholders. It paid dividend of Rs. 2 per share for FY2017-18. At current price, dividend yield is 2.78 percent. Moreover, the company has rewarded shareholders by issuing bonus share in the ratio of 1:1 in the year 2010. 

x) As per our estimates, Kabra Extrusion technik Ltd can deliver net profit of Rs. 23.45 crores in FY 2019-20 with annualized EPS of Rs. 7.35. At current price of 72.15, stock is available at forward P/E multiple of 9.8X based on FY19-20 earnings. Company’s valuation looks attractive considering expected increase in its profitability with rise in Govt spending towards improvement in rural infrastructure with focus on low cost housing and sanitary facilities. 

xi) On equity of Rs. 15.95 crore, the estimated annualized EPS for FY 19-20 works out to Rs. 7.35 and the Book Value per share is Rs. 73.19. At current market price of Rs. 72.15, stock price to book value is 0.99.

Considering secular growth opportunity in the agriculture and infrastructure industry with government focus on micro-irrigation, low cost housing projects and infrastructure development, double digit growth expected in flexible packaging industry driven by rising demand of packaged food products, personal care products and pharmaceuticals, company’s strong track record in installation and after sales service of plastic extrusion machinery, rich product portfolio, experienced management team with back up of global collaborations with the leading companies in plastic industry and and a debt free balance sheet, Saral Gyan team recommends “Buy” on Kabra Extrusion technik Ltd at current market price of Rs. 72.15 for target of Rs. 145 over a period of 12 to 24 months. 

Buying Strategy: 

▪ 80% at current market price of Rs. 72.15 
▪ 20% at price range of Rs. 55 – 60 (in case of correction in stock price) 

Portfolio Allocation: 3% of your equity portfolio 

To Read / Download Saral Gyan Hidden Gem - Oct'18 Research Report - Click Here

Kabra Extrusion Technik Ltd is 1 out of those 65 multibagger stocks which have given returns in the range of more 200% to 9900% returns to our subscribers in period of 3 to 10 years. Team of equity analysts at Saral Gyan put lot of efforts & smart work to identify Hidden Gems (Unexplored Multibagger Small Cap Stocks) and Value Picks (Mid Caps with Plenty of Upside Potential) which not only grow your capital at a healthy rate but also ensures to guide you to make lump sum investments during bear phase of the market so that you make maximum out of your investments during bull phase of the market.

Also Read : Hidden Gems SIP Returns of 395% Vs Small Cap Index returns of 181%

Nano Champs, Hidden Gems and Value Picks, we are providing you opportunities to invest in micro, small / mid cap stocks today. Infosys, Pantaloon, Dabur, Glenmark were the small cap stocks in past and today are the well known companies falling under mid and large cap space.

The stocks we reveal through Nano ChampsHidden Gems & Value Picks are companies that are either under-researched or not covered by other brokers and research firms. We keep on updating our subscribers on our past recommendations suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future growth outlook.

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 6 to 12 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.

Start building your equity portfolio by making educated investment decisions, subscribe to our Hidden GemsValue PicksWealth-BuilderNano Champs annual subscription services. Click here to know more about our services and discounts applicable on combo packs.

Do write to us at in case of any queries, we will be delighted to assist you.

Team - Saral Gyan

Tuesday, January 17, 2023

Why Share Price is Not Important while Buying Stocks?

Dear Reader,

Why is a stock that cost Rs. 50 cheaper than another stock priced at Rs. 10?

This question opens a point that often confuses beginning investors: The per-share price of a stock is thought to convey some sense of value relative to other stocks. Nothing could be farther from the truth.

In fact, except for its use in some calculations, the per-share price is virtually meaningless to investors doing fundamental analysis. If you follow the technical analysis route to stock selection, it’s a different story, but for now let’s stick with fundamental analysis.

The reason we aren’t concerned with per-share price is that it is always changing and, since each company has a different number of outstanding shares, it doesn’t give us a clue to the value of the company. For that number, we need the market capitalization or market cap number.

The market cap is found by multiplying the per-share price times the total number of outstanding shares. This number gives you the total value of the company or stated another way, what it would cost to buy the whole company on the open market.

Here’s an example:

Stock price: Rs. 50

Outstanding shares: 5 Crores 

Market cap: Rs. 50 x 50,000,000 = Rs. 250 Crores

To prove our opening sentence, look at this second example:

Stock price: Rs. 10

Outstanding shares: 30 Crores 

Market cap: Rs. 10 x 300,000,000 = Rs. 300 Crores

This is how you should look at these two companies for evaluation purposes. Their per-share prices tell you nothing by themselves.

What does market cap tell you?

First, it gives you a starting place for evaluation. When looking a stock, it should always be in a context. How does the company compare to others of a similar size in the same industry?

The market generally classifies stocks into three categories:

• Small Cap under Rs. 1000 Crores 

• Mid Cap Rs. 1000 - Rs. 10000 Crores

• Large Cap above Rs. 10000 Crores

Some analysts use different numbers and others add micro caps and mega caps, however the important point is to understand the value of comparing companies of similar size during your evaluation. You will also use market cap in your screens when looking for a certain size company to balance your portfolio. Don’t get hung up on the per-share price of a stock when making your evaluation. It really doesn't tell you much. Focus instead on the market cap to get a picture of the company’s value in the market place.

IMP Note: This article is written to safe-guard our readers who are new to stock market, and make them understand about the actual facts. We keep on receiving mails from our readers regarding the price range of stocks we covers under our Hidden Gems or Value Picks service. The misconception in mind of new investors is regarding the stock price, majority of them believe that if stock price is less, like below Rs. 50 or even below Rs. 10, changes of stock price appreciation is very high and they can buy more no. of shares rather than buying a limited no. of shares of high priced stock. 

We have a subscriber base covering almost all major states in India and from 20 other countries across globe. During the last 10 years we have interacted with several investors seeking multibagger return from stocks. 

It was 17th Dec 2011, we recommended Cera Sanitaryware as Hidden Gem stock of the month at price of Rs 157, later it went up to Rs. 450 in period of 15 months. Based on strong quarterly numbers, attractive valuations and consistent performance, we recommended buy again in the range of 400-450 which was taken as a surprise by our members as we received several queries and feedback.

Below are some of the common queries of our subscribers which often lead them to opportunity losses.

1. How come a stock priced at Rs 450 can generate Multibagger returns?
2. Cera is almost 3 times moving from 170 to 450, why are you suggesting buy again?
3. Where is the room to generate Multibagger return from this level?
4. I don’t like such high-priced stock, please give me stocks priced below Rs. 100.
5. I want to buy more no. of shares, hence please recommend low price stocks below Rs. 10.

Cera Sanitaryware touched its life time high of Rs 6450 last year and currently trading around Rs. 5500, Cera is a 40-Bagger stock in 11 years from our initial recommendation and is a 12X stock from our reiterated buy at Rs. 450, which was not liked by our subscribers.

The story does not end here, there is a long way to go. Our suggested stocks is with a view-point of 1-3 years at least and not just 6-9 months. If fundamentals of the company are intact, we would not suggest our members to do profit booking or exit. Investors who stayed away just because of high price simply missed yet another opportunity. We held Cera for long term and suggested complete profit booking to our members in the stock around 3500 - 4000 levels in 2017.

There is a general misconception among the investors that high priced stocks can't generate multibagger returns. They often think that high-priced stocks are overvalued. In terms of valuation, a 50 rupees stock may not be cheaper than that of a 1000 rupees stock. There is no co-relation between the valuation and market price of a stock. To understand whether a company is small or large, you must look at market capital of the company and not at stock price. To judge valuation you must have to look at Price to earning ratio, Price to book ratio, Price to sales ratio etc.

Lets try to understand this with an example, Rajratan Global Wires share price was Rs. 54.77 on 30 Nov 2017 (stock split and bonus issue adjusted price, actual price was 639). Today the stock price is at Rs. 1225 giving absolute returns of 2137% i.e. more than 22 times within 5 years against double digit return of Sensex in the same period. 

We suggested Buy on Rajratan Global Wires at price of Rs. 639 under Hidden Gems service on 30 Nov 2017 and if any of our subscribers have not invested in the company thinking he/she can get only 15 shares by investing Rs. 10,000 has made a big mistake. Today those 15 shares have increased to 175 shares on account of bonus shares issued by the company in the ratio of 4:3 in 2019 and later stock split of 1 shares into 5 shares (face value of Rs. 10 to Rs 2 per share) in March 2022. And the current share price of Rs. 1225 is still very high for those who looks at low price stock. We advised partial profit booking in Rajratan Global Wires to our Hidden Gems recently at Rs. 1300, booking returns of 2270% (almost 24X) in period of 5 years.

There are many examples like above by which we can illustrate that there’s nothing called high price. Multibagger returns is not dependent on the current market price of a stock, so don't be afraid of investing in high priced stock. You need to look at fundamentals like future growth prospects of the company, PE ratio, PB ratio, ROE, ROCE, debt on books, cash reserves along with other parameters to judge a stock whether it is undervalued or overvalued. We agree with you that judging valuation is not an easy task. So, take expert’s advise when ever required.

Another misconception among investors is to buy more no. of shares. They often think that its better to buy more no. of shares of a low price scrip (ranging below Rs. 10 or say below Rs. 50) instead of buying less no. of shares of high priced stocks. They often think that low price stocks can generate multibagger return quickly. During last 5 years, we have reviewed existing portfolio of our members under our Wealth-Builder (an offline portfolio management service) subscription, we have noticed that many of their portfolio is filled with such low-priced stocks and most of those are in great loss because of poor fundamentals. You may think that a two rupees stock can easily generate multibagger returns even if it touch to Rs. 5 or 6. At the same time don’t forget that the same can even come down to Rs. 0 levels which can evaporate all your investment giving you 100% loss! In terms of valuation a two thousand rupees stock may not be expensive than that of a two rupees stock.

Lets try to understand this also with a simple example, Lanco Infratech was a well-known company from Infrastructure sector. At the beginning of 2010 the stock was around Rs 55. After 10 years, it was hovering at just Rs 1.30 and today its not operational any more. Those who purchased the stock during 2010 are in 100% loss! Rs. 1 lakh invested in Lanco Infratech in Jan 2010 was valued at merely Rs. 2,000 in 2020, a complete wealth-destroyer! Isn't it? Those who bought this stock at levels of Rs. 30 and later again at Rs. 10 or Rs. 5 to average out thinking that stock has came down from all time highs of Rs. 85 are still waiting to get their buying price back. There are many such stocks like Suzlon Energy, GMR Infra, GVK Power and Infrastructure etc which have continuously destroyed wealth of investors over a period of last 5 to 10 years.

We do not state that all low price stocks are wealth-destroyers, it all depends on the fundamentals of the company. So, do ensure that you check out the fundamentals and valuations while investing in stocks instead of looking at stock price. Please get out of the misconception that low priced stocks will fly high faster giving you extra-ordinary returns. Always remember that stock price is just a barometer, actual valuations of a company can be determined by its fundamentals.

If you wish to invest in fundamentally strong micro, 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.

The stocks we reveal through Hidden Gems & Value Picks are companies that either under-researched or not covered by other stock brokers and research firms. We keep on updating our members on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.

At Saral Gyan, team of equity analysts keep on evaluating small and mid cap stocks to explore the best Hidden Gems and Value Picks of stock market. Saral Gyan - Nano Champs, Hidden Gems and Value Picks are the micro, small and mid cap stocks with high probability to become multi-bagger stocks in future and a path for our investors to create wealth through equity investments in a long run.

Please write to us at / in case of any queries.

Team - Saral Gyan

Wednesday, August 4, 2021

6 Important Rules for Picking Multibagger Stocks

Important Rules to follow while Picking Multibagger Stocks

multibagger stocks
During last decade post global financial crisis of 2009, there are numerous companies which have multiplied investor’s capital delivering super-duper multibagger returns. Similarly, there are plenty of companies which have destroyed investor’s capital to almost zero over last 10 years.

Hence, its important to know the basic criteria’s which make a company a right investment candidate with potential to multiply wealth in long term.

Rules to follow while Identifying Multibagger Stocks

Below are the 6 basic rules which we must follow to pick right companies having multibagger potential.

1. Quality management with high integrity

Alignment of management interest with minority shareholders is one of the key parameter. High standard of corporate governance ensures that company is not involved in any wrong doings. Proper and timely disclosures of shareholder related information by the companies build trust over time. Past track record of promoters, disclosures and dividend pay-out history can help us to check on this crucial parameter.

If the management is not honest, will they want to share the goodies with you? No, they will look for the first opportunity to siphon off the profits and pull the wool over your eyes. We have seen how the investors of LEEL Electricals have lost 95% of their capital over last 1 year due to personal enrichment of LEEL promoters by siphoning off company's profit from the sale of its consumer durable division to Havells.

2. High ROE & ROCE – Efficient use of capital

Return on Equity (ROE) measures a company's profitability by comparing its net income to shareholders equity (book value). ROE is a speed limit on self-funded growth (company's profit). That is, a company cant grow earnings faster than its ROE without raising cash by borrowing or selling more shares. For instance, a 15% ROE means that the company can’t grow earnings faster than 15% annually by relying only on profit to fuel growth. ROCE measures the overall returns for all stakeholders and is a relatively good measure of the overall efficiency of the company. A consistently low ROCE signifies that there is something inherently wrong with the business or the company.

Wealth creator stocks usually have very high ROE and the ROCE relative to the rest of the industry. Typically, companies with high ROCE and ROE would also be generating positive free cash flows consistently. Increasing ROE and ROCE every passing year with low / negligible debt on books is one of the key aspect in spotting multibagger stocks.

3. Low Debt and Free Cash Flows

Its important to learn the lesson from financial crisis of 2011 and now of 2019 that companies with high debt simply get slaughtered. While debt is not bad in case if the company is able to borrow at a lower rate and deploy it in its business at a higher rate as the operating leverage works in its favour, however excessive debt with high interest and repayment obligations can crunch the stock in times of downturn. So, as a long-term investment philosophy, it is best to steer clear of high-debt companies.

Recent episode of stock prices falling liking nine pins of ADAG companies (Reliance Power, Reliance Infra, Reliance Com, Reliance Capital), Essel group companies, Jain Irrigation etc indicates how unbearable high debt burden on books can destroy investors wealth in shortest span of time.

4. Asset Light Business Model - No High Capex Requirements

We know the demerits of investing in stocks like Suzlon & GMR Infra which have an insatiable appetite for more and more capital. To feed their perennial hunger, these companies dilute their equity by making FPOs, GDRs & FCCBs resulting in total destruction of shareholders wealth. This is the simple reason why we do not see multi-bagger opportunities from sectors like metals, infrastructure and utilities because of the capital intensive business model which leads to very high leverage and low return ratios.

Companies should be lean and mean requiring minimal capital but generating huge returns with free cash flows which can be used not only to reward shareholders but also to expand business in future. It is not necessary that company should be a zero-debt company as some amount of leverage can actually improve shareholders returns.

5. The Scale of Opportunity & Non-cyclical Business

Multi-bagger stocks are created because they are able to scale the opportunity rapidly. Titan Industries is a great example. In 2003-04, Titan was a small company with market capital of 500 crores. As on date, its a large cap with more than 1 lakh crores market cap. The fact that India is a booming marketplace of 132 crores consumers means that most products and services have a head start at trying to scale up their activities.

One key factor that creates value in the stock market is consistent growth across economic & market cycles. While markets values growth, it also pay higher premium on consistency in growth. Most of multi-baggers of past like Asian Paints, Titan, Page Industries, United Spirits, Marico, Aurobindo Pharma are typically high growth companies in non-cyclical businesses. It is extremely rare to find a multi-bagger in a typical commodity business like steel, aluminium or oil.

6. Valuations & Future Growth Prospects

Most investors are obsessed about valuations, refusing to buy any stock that is expensive. However, one must remember that expensive is a relative term. If a stock is compounding at 25% on an annual basis, paying a price to earning multiple (P/E ratio) of 30 may be very reasonable. A stock like Nestle or HUL, for instance, has always been expensive. However, a great company with an impeccable pedigree may not always be a good stock to buy. This could be due to the fact that most of the triggers are already in the price and future growth potential does not justify the valuations. The PEG ratio (which is PE ratio divided by sustainable growth) is a simple way to measure valuation relative to growth.

But it is equally important to consider other parameters like financial ratios and brands that the company has created which can go a long way in determining potential valuation. A particular company may look expensive to an investor who have a 2 years horizon but may be a screaming buy for investor who wish to hold it for next 5 to 7 years.

There is no guarantee that the above mentioned parameters would always help investors identify multi-baggers, but these parameters will surely help investors to invest in right set of companies and avoiding those which may end up being value destructors. Moreover, we can learn by following key traits of successful investors who have created enormous wealth in past.

Peter Lynch 2 Minutes Drill to Shortlist Potential Multibaggers

The key parameters involved in Peter Lynch’s ‘two minute drill’ are:

1. P/E Ratio: avoid stocks with excessively high P/E
2. Debt/Equity Ratio: should be low
3. Net Cash per Share: should be high
4. Dividend & Payout Ratio: should be adequate
5. Inventory levels: lower the better

Stay away from companies which are being actively tracked, followed & invested in by large institutional investors. News about buy back of shares or internal stakeholders increasing their stakes should be construed as positive.

Checks specific to Fast Growers:

1. The star product forms a majority of the company’s business.
2. Company’s success in more than one places to prove that expansion will work.
3. Still opportunity for penetration.
4. Stock is selling at its P/E ratio or near the growth rate.
5. Expansion is speeding up Or stable

One must judiciously walk the tightrope between the unquestioning belief that made the stock to be held for so long and the fear of the end from nose-diving prices due to a one-off bad year. The key is to always keep revisiting the story & ask some pertinent questions like ‘What would really keep them growing?’, ‘What is their next offering? or ‘Are their products & services still in vogue?’ It is here, that one must track the point of time when the phase 2 of the firm’s expansion comes to an end. This is usually the dead-end for organizations as success is difficult to be replicated. Unless, innovation happens, downfall is imminent & thus, an exit is necessary. P/E of these stocks is drummed up to unrealistically high levels by the madness of crowd towards the end. One must keep one’s eyes & ears open to signs, which mark the end of the road for these fast growers. A great case in point is Polaroid which had its P/E bid up to 50, only to be rendered obsolete later by new technologies.

A sure shot sign of a decline is a company which is everywhere! Such a company would simply find no place to expand any further. Sooner, rather than later, such a company would see its ‘Manhattans’ of earnings reduced to ‘plateaus’ of little or no growth, simply because no space is left to expand further.

1.The quarterly sales decline for existing stores.
2. New stores opening, though results are disappointing: weakening demand, over supply.
3. High level of attrition at the top level.
4. Company pitching heavily to institutional investors talking about what Peter Lynch calls ‘diversification’.
5. Stock trading at a P/E of 30 or more, when most optimistic estimates of earning growth are lower than 15-20%, thus, unable to justify the high price.

Fast Growers, which pay, are ephemeral & one misses them more often than not. It is a High Risk & High Gain Category of Stocks. One must remember along the classic risk & return principle, that when one loses, one loses big! So, if you are in the quest for magnificent returns, a Fast Grower can be your bet provided you know when to bid Goodbye!

Owning Multibagger Stocks which can multiply Investments in Future

The number of small-cap stocks is large and finding a quality stock that can give high returns over a long period is tough even for equity analysts. One reason is that such stocks usually have a short history and are not tracked by many analysts and brokerage houses. Then there are risks such as low liquidity, governance concerns and competition from larger players.

Scores of once small companies have over the years grown big, giving investors a 30-50 percent annual return over 10-15 years and creating fortunes for investors. However, more often than not, we find ourselves at the wrong side of the fence and regret our inability to spot such stocks on time.

Buying Strategy for Small Caps

1. Go for companies with low debt ratio (preferably less than one)

2. A high interest coverage ratio (above 3x) and a high return on equity are big advantages

3. Avoid companies with huge liabilities in the form of foreign currency convertible bonds / external commercial borrowings

4. Look at the quality of the management, its governance standards and how investor-friendly the company is.

5. Mid-cap and small-cap companies can be future market leaders, so be patient with your investments

Those who wish to invest in small-cap stocks should do so only if they have a long investment horizon and tolerance for volatility. Small-cap stocks suffer the steepest falls in a bear market and rise the most in a bull market. An investor should stay invested for at least three-five years to allow their portfolio to gain from at least one bull run. If you are looking for multibaggers, stock must have high growth rates along with expanding PE ratios. The price we pay for the stock is important as it will determine whether there is enough scope left for a PE expansion to take place. 

Benefits of Investing in Small Caps

1. Huge growth potential: The first and the most important advantage that a small cap stock gives you is their high growth potential. Since these are small companies they have great scope to rise as opposed to already large companies.

2. Low Valuations: Usually small cap stocks are available at lower valuations compared to mid & large caps. Hence, if you invest in good small cap companies at initial stage and wait for couple of years,  you will see price appreciation not only because of growth in top line and bottom line but also due to rerating which happens with increase in market capital of the company.

3. Early Entrance Advantage: Most of the fund house and institutions do not own small caps with low market cap due to less liquidity which make it difficult for them to own sufficient no. of shares. This gives retail investors an opportunity to be an early entrant to accumulate such companies shares. When company grows in market cap by delivering consistent growth and becomes more liquid, entry of fund houses and institutions push the share prices up giving maximum gains to early entrants.  

4. Under–Researched: Small cap stocks are often given the least attention by the analysts who are more interested in the large companies. Hence, they are often under - recognized and could be under-priced thus giving the investor the opportunity to benefit from these low prices.

5. Emerging Sectors: In a developing economy where there are several new business models and sectors emerging, the opportunity to pick new leaders can be hugely beneficial. Also the disruptive models in the new age is leading to more churn and faster growth amongst the nimble footed smaller companies.

Concerns while Investing in Small Caps

1. Risk: The first and the most important disadvantage a small cap stock is the high level of risk it exposes an investor to. If a small cap company has the potential to rise quickly, it even has the potential to fall. Owing to its small size, it may not be able to sustain itself thereby leading the investor into great loses. After all, the bigger the company, the harder it is for it to fall.

2. Volatility: Small cap stocks are also more volatile as compared to large cap stocks. This is mainly because they have limited reserves against hard times. Also, it in the event of an economic crisis or any change in the company administration could lead to investors dis-investing thereby leading to a fall in prices.

3. Liquidity: Since investing in small cap stocks is mainly a decision depending upon one’s ability to undertake risk, a small cap stock can often become illiquid. Hence, one should not depend upon them for an important life goal.

4. Lack of information: As opposed to a large cap company, the analysts do not spend enough time studying the small cap companies. Hence, there isn’t enough information available to the investor so that he can study the company and decide about it future prospects.

Be a disciplined investor who keep on investing in systematic way irrespective of market conditions and not an emotional investor who usually buy stocks during bull phase when stock prices are moving higher because of greed and sell them in panic during bear phase due to severe fall in stock prices, making mistake of buying high and selling low.

Wish you happy & safe Investing. 

Team - Saral Gyan