Last Updated – Jan 23
Best Multibagger Stocks to Buy – Summary Table
|Sr. No||Company Name||BSE Scrip Code||NSE Symbol||CMP -Dec 30 2022||Rating||Industry|
|1||CCL Products||519600||CCL||533.9||1||Tea & Coffee|
|3||Kei Industries||517569||KEI||1479.1||1||Other Electrical Equip Product|
|4||Varun Beverages||540180||VBL||1,330.00||0.5||Non-alcoholic Beverages|
|6||JK Paper||532162||JKPAPER||413.25||0.5||Paper & Paper Products|
|7||Persistent||533179||PERSISTENT||3911.75||3||IT Consulting & Software|
|8||Balkrishna Industries||502355||BALKRISIND||2,138.50||0.5||Auto Tyres & Rubber Products|
|10||United Spirits||532432||MCDOWELL-N||883.4||0.5||Breweries & Distilleries|
Multibagger stocks are equity shares of a company which generate returns multiple times higher than its associated cost of acquisition. These stocks were first invented by Peter Lynch, published in his book ‘One Up on Wall Street’. These are essentially stocks that are undervalued and have strong fundamentals, thus presenting themselves as great investment options. A stock that doubles its price is called two-bagger while if the price grows 10-times, it would be called a 10-bagger. Thus, multibaggers are stocks whose prices have risen multiple times their initial investment values. Investors looking to build capital with decent risk appetite aim to get their hands on multibaggers. But the catch is- a multibagger is a multibagger only in hindsight. At first, it may look like a risky undertaking in an overstimulated market environment.
We are referring to multibaggers as stocks which multiply or provide avenues for phenomenal wealth creation. The wealth creation could happen over a long horizon of time through compounding gradually and necessitates a patient investor’s mindset. The reward for an investor from a multibagger bet is by putting serious capital at work. However, serious investing happens only when the investor has understood a company’ business model, risks to growth, market potential thoroughly and has invested at sane entry valuations, willing to wait for a business to grow its earnings in the future years.
A great example of a multibagger is HDFC Bank, which has completed 26 years in 2021 since its IPO in 1995. Without dividends reinvested, the stock has delivered a return of 25% CAGR, whereas with dividends reinvested it is 30% CAGR. An investment of 1 lac in that IPO is worth Rs 8 crore today, which means the price has grown 800 times, making it an 800-bagger. Some popular multibaggers in Indian stock markets in 2020 were Caplin Point Laboratories which returned 22,300 percent in ten years; La Opala RG rising 4500 percent in the previous decade; or Garware Technical Fibres that has returned 2600 percent in the last ten years.
Watch our video on best Multibagger Stocks
Multibagger Stocks – What should an investor look at while picking in this collection
Size of the company: The size of a company has a great deal to do with what you can expect to get out of the stock. How big is this company in which you have taken interest? Specific products aside, big companies don’t have big stock moves as they are already quite stable. In certain markets they perform well, but you can expect the biggest moves in smaller companies who are growing at a faster pace than their larger counterparts. You don’t buy a stock in a giant such as MRF to quadruple your money in two years. For a TCS to double or triple its size is a mammoth task in the foreseeable future.
Healthy Earnings Growth: A shareholder earns when the company makes profits. When you look at the earnings of a multibagger stock, you will typically find high growth in the earnings of the company due to its revenue growth model, profitability model and also capital allocation model.
High Margin Businesses: Another simple answer to the question – how to identify multibagger stocks is to look for businesses that have high margins. Usually, multibaggers command high margins either due to a lack of competition or some moat, some operational efficiency or because they command a leading position in the industry. Moreover, these stocks tend to have a sustained margin over time that doesn’t fluctuate every quarter or year.
Future Growth Potential: A company may not be able to make money if it doesn’t have a comprehensive range of products or services as the markets are very dynamic in the current scenario the world over. One of the characteristics of a multi-bagger stock is that the management is very vocal about its vision and is able to explain the steps being taken to achieve the same.
Competitive Advantage: This is one of the best ways to identify multibagger stocks in India. A company can stay in competition by offering better services and products as it grows. For example, Madras Rubber Factory (MRF Ltd as it is now known as) was started by a small town balloon toy manufacturer, and the company has been improvising its products and services as per the demand of the customers. This zeal to keep innovating and tweaking or diversifying their offering as per demand has given them a competitive edge over contemporaries and kept them going strong over the years. To spot whether a company possesses a competitive advantage, see how innovative they have been. You can do so by taking a look at the patents they have, how active their R&D wing is, and how frequently they launch innovative products and services.
Capability to expand free cash generation: Most important feature of sustainable multi-bagger stocks has been the ability to generate free cash flows consistently and the ability to grow them. Multi-bagger companies usually use their internal funds to expand or launch new products. These companies also tend to have lower debt levels against equity. These companies tend to generate free cash flow (which is computed as cash flow from operations minus purchase of fixed assets). This cash flow is to be used to fund future expansions or pay dividends.
Return ratios such as ROE and ROCE. Both these ratios are used to measure the efficiency with which a company can generate profits. These are important measures which should be compared with industry peers as well, to pick the best player. the trend of these ratios should be looked at to see if they are improving or not.
Mispriced opportunities: Business is grossly undervalued due to investor ignorance or being out of flavour. Ex. Some of the consumer stocks in 2007
Now let’s look at the potential multibagger stocks in our model portfolio.
Multibagger stocks – Detailed profile, pros and cons
CCL Products Ltd
CCL Products Ltd is in the business of converting raw coffee beans into instant coffee powder or granules. The company is the country’s largest coffee processor and a has a lot of top global private label coffee players as their clients.
A Strong player in a specialized industry:
Coffee processing involves expertise and specialized skills as the flavor & aroma needs to be maintained on every batch. This is unlike tea or other beverages. Not a lot of companies have been successful in maintaining this level of accuracy.
Strong Volume growth coupled with high capex promises sustainable growth:
The company has delivered an impressive volume growth of ~25% in Q2 as well. The management has maintained its volume and EBITDA growth guidance in the range of 20-25% in FY23. A strong growth in its domestic business, its new plant in Vietnam getting commissioned and a new order from international markets will support a sustainable volume growth.
Strong pricing power makes the margins less volatile:
The company follows the business model of entirely passing through the prices of green coffees to its customers. Therefore, any changes in the prices of coffee does not impact the company’s EBITDA. Further the company’s increasing value-added variants and high share of small packs are expected to enhance the margins going further.
CCL Products is a good proxy for the growing Coffee market in India. The company has its hands both on B2B and D2C coffee market both the segment has a lot of potential to expand. Fast growing capacity, higher share of value added, smaller packs, growing demand from international markets and growing of its private labels are key catalyst for the company in the medium term.
Federal Bank is a private-sector bank which is headquartered in the state of Kerela. The bank has operations in retail banking, wholesale banking, treasury operations & other banking services.
Credit Growth to sustain: In Q2FY23 the bank witnessed healthy advances growth of 19.4% YoY. Considering the systemic credit growth these levels of advances growth are sustainable. The Bank is also witnessing healthy traction in its gold loans which as of now form around 10% of its retail book. Growth going forward in this segment is positive for its net interest margins (NIM).
Still scope of NIM improvement: In Q2FY23 the NIM of the bank stood at 3.3% which reached a multi-quarter high. Out of its total loan book, 50% is linked to EBLR (repo or T bill linked) aiding the rate transmission rapidly. With higher credit growth, a gradual shift towards margin accretive loan book, and a high EBLR linked book the margin expansion could keep on witnessing a gradual rise.
Asset quality Stable: In the latest quarter Q2FY23, the bank’s GNPA and NNPA were at a multi-year low at 2.5% and 0.8% respectively. The provision coverage stood at 69%, while the Slippage ratio was at 1.3%. With the macro environment stabilizing the worst of the asset quality is behind us, no random shocks are expected in this segment.
Continued loan growth improvement, margin expansive product mix, stable asset quality, better digital capabilities & a helpful macro situation are strong tailwinds for the company. The market has appreciated the bank’s performance which has resulted in a good price appreciation of the stock. We believe the next leg of re-rating would take place with a sustained improvement in its quarterly performance.
KEI Industries was established in the year 1968. The company is the second largest player in the wires and cables segment. Its product portfolio ranges from housing wires to Extra high Voltage (EHV) cables.
Organized Players to gain market share:
The share of organized players in the Indian cables and wires stood at 57% in FY14 whereas it now stands at around 70%. Factors such as high spending on marketing, implementation of GST, better efficiency by branded players, and entry barriers in the EHV segment will aid the market share gain.
A stable customer profile that would ensure two-way growth:
The Company’s retail business stands at 41% whereas its institutional business at 49% & remaining 10% are exported in FY22. The Institutional business consists of EHV business & Engineering Procurement. The EHV cables are used in Metro rail, high-end Airports, Malls, factories etc. It is a proxy to infrastructure growth. Talking about its other segment the retail business where the company has increased focus. The retail business simply offers better margins and is working capital-light.
High Barriers to entry in the EHV segment:
KEI Industries are one of the few manufacturers of EHV cables about 220K Volts and also among the few globally that manufacture 400k Volts cables. Due to strict compliance and approvals, new players tend to take at least 8-10 years to enter this market.
KEI Industries appears to be standing at a sweet spot currently. The Sectorial tailwinds initiated by the government capex on infrastructure and manufacturing and an expected rise in private investments would aid its Institutional business. Further, the company’s focus on Retail would not only aid the top line but benefit the margins and improve its ROE profile
Varun Beverages Ltd
Varun Beverages (VBL) is the 2nd Largest franchisee of PepsiCo in the world. The company has been associated with PepsiCo since the 1990s and has a three-decade strategic partnership with them.
The Indian Carbonated Soft drink industry is majorly controlled by two players which are Coca-Cola (60% market share) & PepsiCo (30% market share). This industry is expected to compound at 8.8% to reach a size of around ~INR 1.5 trillion. Further, the per capita consumption of Carbonated drinks stands at around 22 liters which is way lower than that of peer countries like Vietnam (~70 litres) and the Philippines (~112 litres).
The company is also rapidly growing its other segments. The Sting Energy drink in a quick span of time already contributes 9.5% of its India’s volume business. It has grown by an impressive 31% YoY. Other segments like Fruit juice (Tropicana) & recently acquired Kurkure Puff manufacturing will keep the company’s growth rates in high digits.
The branding and the marketing of the company’s beverages are handled by Pepsi-Co. Whereas the distribution and supply chain is managed by VBL. The company has in total of 3 million outlets reach and a manufacturing facility in almost all states of India which aids in faster and deeper reach to the consumers. Therefore, the interesting thing to note is that the two most important factors essential in FMCG are being managed by companies that have developed expertise in it.
The two major challenges which were top-line growth and raw material inflation are now behind the company. The Bihar plant is running at full capacity and its benefit is expected to soon reflect in numbers. The company has reduced the weight of its PET Bottles. This essentially will help the company in lowering its dependence on Plastic (which in turn is crude dependent) and aid in margins going forward. The New segments Energy drinks and Fruit juice are expected to continue on their growth trajectory.
Syngene (established in 1993) as a Biocon subsidiary is India’s first Contract Research Organization (CRO) which expanded later to be an integrated service provider offering end-to-end drug discovery, development, and manufacturing services on a single platform (CRAMS).
In the past 4 years, Syngene’s revenue witnessed a 16% CAGR while the net profit witnessed a CAGR of 8% along with healthy return ratios. It is almost net debt free, with net cash to debt standing at Rs. 732.5 crores for March 2022. The company has integrated services catering to the discovery, development, and manufacturing of small and large molecules. Focus on increasing investments in research, with more investments in contract dedicated labs as the CDMO segment sees increased business. The company can expand in the CRAMS business, with further growth associated with the biologics segment.
With strong financials and sustainable margins, the company seems to be on a growth trajectory. The company management is aggressively investing in the CDMO space. It has strong management and the way of working which focuses on building long-lasting relations with its clients.
To conclude Multibagger stocks are great options for traders/investors to invest their money. However, before investing, you should gain adequate background knowledge about the companies offering multibagger stock since they can be risky bets and will vary from situation to situation. Sustaining these challenging Covid times can be a good litmus test for high-risk bets and if they survive, returns could grow multifold. Above all, you should be capable enough to identify the appropriate multibagger stocks where you can invest and invest at appropriate valuations. Also, don’t invest with an expectation that multibagger stocks will generate unrealistic returns in a short span of time. Patience would be key. While investing in these stocks it would be prudent to allocate a portion of your capital to these risky bets and therest to stable large cap stocks in order to diversify your risk.
In order to get exposure to the best Multibagger stocks, you need a total of Rs 13632.5 for the below-curated portfolio as on Dec 30, 2022.
|Sr. No||Company||CMP -Dec 30 2022||Quantity||Qty*CMP||Weightage|
A detailed table with various parameters for Best Multibagger Stocks to buy
|Sr. No||Company Name||BSE Scrip Code||NSE Symbol||CMP -Dec 30 2022||Rating||Industry||Market Capitilization (Rs crore)||Net Worth (Rs crore)||Price/Earnings||Dividend Yield (%)||Debt/Equity||Return on Equity (%)||Return on Capital Employed (%)||Operating Profit Margin (%)||Sales Growth- 3 years (%)||Profit Growth- 3 years (%)|
|1||CCL Products||519600||CCL||533.9||1||Tea & Coffee||7103||1343.0||32.1||0.92||0.6||17.5||15.6||22.6||10.6||9.68|
|3||Kei Industries||517569||KEI||1479.1||1||Other Electrical Equip Product||13344||2344.0||31.2||0.17||0.08||19.2||23.8||10.3||10.6||27.4|
|4||Varun Beverages||540180||VBL||1,330.00||0.5||Non-alcoholic Beverages||86494||4815.0||60.1||0.18||0.49||18.6||17.4||19.2||20||32.2|
|6||JK Paper||532162||JKPAPER||413.25||0.5||Paper & Paper Products||6993||3493.0||7.53||1.31||0.84||19||16||25.1||6.81||8.19|
|7||Persistent||533179||PERSISTENT||3911.75||3||IT Consulting & Software||5583||29965.0||37.1||0.8||0.21||21.5||26.3||16.8||19.3||26.8|
|8||Balkrishna Industries||502355||BALKRISIND||2,138.50||0.5||Auto Tyres & Rubber Products||41487||7594.0||29.6||0.75||0.42||21.90||23.8||24.2||16.8||23.4|
|10||United Spirits||532432||MCDOWELL-N||883.4||0.5||Breweries & Distilleries||64300||5772.0||57.4||0||0.1||19.8||24.2||16.6||1.31||11.6|
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