Best Multibagger Stocks 2017

Five Best Multibagger Stocks To Buy For 2017

Investors are always looking for the best multibagger stocks to buy. Normally, we look for stocks recommended by value investors like Porinju Veliyath and Dolly Khanna and Basant Maheshwari. Some stocks are also recommended by traders like Ashwani Gujral and Sudarshan Sukhani.

The stocks that are bought by investors should have good quality management and healthy prospects of growth. Also the tailwinds of the sector should be in favour of the stock in order for it to become a multibagger.

Five Multibagger stocks of the type recommended by Porinju Veliyath and Dolly Khanna

Buy Fiem Industries at CMP of Rs. 1089 for target price of Rs. 1,315

Why Fiem Industries is a good buy?

Fiem Industries is among the leading manufacturers of automobile lightings, signaling equipment and rear view mirror for two wheelers and four wheelers. It has also forayed in LED luminaires for indoor and outdoor applications and Integrated Passenger Information System with display and softwares for buses, metros and railways. It has 9 manufacturing units in India with diversified products base.

The performance of the LED segment of Fiem Industries has been encouraging. Revenue in H1FY17 came at Rs. 36.6 cr compared to Rs. 11 cr in H1FY16. The order book as on September, 2016 stood close to Rs. 56 cr. The company has already spent Rs. 102 cr in setting up the facility for LED lighting facilities. Fiem is expected to get more order inflow and LED business to report healthy growth in the coming years.

Technology License and Assistance Agreement with Aisan Industry Co. Ltd., Japan and Toyota Tsusho Corporation, Japan

Fiem Industries has signed a Technology License and Assistance Agreement with Aisan Industry Co. Ltd., Japan and Toyota Tsusho Corporation, Japan for manufacturing of Canister. Canister is an emission control system product, which will have huge market in India due to implementation of stricter emission norms from April, 2017. The company aims to supply the Canister to all its existing and new customers in two wheelers and three wheelers segments.

Joint Venture with Sukam Power Systems

Fiem Industries signed a Memorandum of Understanding with Sukam Power Systems in a bid to start a 50:50 Joint Venture Company in India for the purpose of selling and marketing LED lighting products under the brand name of ‘Sukam Fiem’. This strategic marketing venture will equip Fiem Industries with Sukam’s nationwide distribution network for the retail market and expand its presence in LED business. Outlook and valuation:

Fiem to report Revenue and Profit at CAGR of 18% and 23.5% respectively over FY16-FY19E

H2FY17 performance will get negatively impacted due to demonetization as it largely caters to the two wheelers industry. However it will continue to benefit from gradual recovery in demand from two wheeler industry from Q1FY18 and new orders from LED segment. The LED business offers superior margins as compared to the automotive parts business. LED Lights contributed to 11.5% of the top line sales in FY16, as against less than the 4% in FY15. The company has invested Rs. 102 Cr in their LED facilities and we expect it to generate healthy revenues in the coming years. A higher turnover from the LED segment will improve operational margins and will impact the bottom line directly. Thus, with advance technology, investment in LED business and tie ups with foreign and domestic firms, we expect Fiem to report Revenue and Profit at CAGR of 18% and 23.5% respectively over FY16-FY19E. At CMP of Rs. 1,089, it is trading at FY19E P/E of 13.2x.

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Buy APL Apollo Tubes Target Price Rs. 1,248

APL Apollo Tubes is a market leader in ERW pipes. It is the largest manufacturer of Electric resistance welded (ERW) pipes in India (Market size INR 300 bn/~7.5 mt) with a capacity of 1.3 mt and enjoys a market share of ~15% in domestic market ahead of Tata steel (6%), DP Jindal group (7%) and Surya Roshni (6%). It has a diversified product portfolio that includes MS black (22% of Revenues), Galvanised tubes (13% Revenues), Pre galvanized tubes (18% Revenues) and Hollow sections (48% Revenues). The domestic ERW pipe market to grow at a CAGR of ~9% over FY16-19E . The bulk of the growth will come from the construction and infra segments (airports, mall & prefabricated structures) using the structural pipes & demand from traditional applications (water supply, sewage and oil & gas). As pipes are the most convenient way for city gas distribution (CGD), increasing investment in the CGD segment and expanding CGD network will support steel pipe demand.

Significant competitive advantage due to pan India presence

APL is the only player to have pan India presence as it derives 44% of revenues from South, 27% from West and 20% from North. It has an extensive distribution network (2x compared to peers) of +400 distributors, 26 warehouses and over 10,000 retail networks across India. Growing successfully through capacity expansion: APL has been increasing its market share over last 5 years by expanding capacities. It has expanded capacity by 165% to 1.3 mt in last 5 years. It is expanding its capacity further to 2.0 mt which is likley to be completed Q1 FY18. It is setting up a greenfield plant with 200,000 tpa capacity at Raipur in Chhattisgarh. The company is also enhancing its capacity by another 500,000 tpa at its existing locations using the direct forming technology (DFT) to produce pipes for structurals. With new capacity at Raipur, the firm will target Central & East India markets where its presence is low. The volume CAGR of ~20% is expected over next 3-4 years as the capacity utilization improves.

Benefit to APL Apollo from Infrastructure push

APL is well placed to gain from expected recovery in demand owing to infrastructure push by the government. Timely capacity expansion along with plans of doubling the dealer network will help it capture growth opportunity.

Buy Castrol India Ltd for target price of Rs. 483

Castrol is trading at 22.2x CY18E EPS. It has good prospects, cash rich and debt-free status, superior return ratios and high & consistent dividend payouts.

Castrol India Ltd (CIL) is one of the leading automotive and industrial lubricant manufacturing and marketing companies in India. It is 51% owned by Castrol Ltd, UK, a 100% subsidiary of British Petroleum group. With over 1.05 lacs retail outlets, CIL derives ~88% of its sales volumes from the Automotive segment and commands market leadership (22.4% share) in the retail automotive lubricant segment.

The Indian lubricant industry is set to witness a turnaround, led by anticipated revival in the Autos and GDP/IIP cycle. Auto sector is likely to witness a healthy growth in the medium to long term, led by falling interest rates, cooling inflation and revival in the Capex cycle. Personal mobility space is already witnessing healthy traction over the last few quarters, which is reflected in improved lubricant consumption. With leadership, strong brand recall and vast reach, CIL is comfortably placed to capitalize on the available opportunities.

Castrol managed to deliver a decent volume growth of 5% in 9MCY16. While in the near term, the growth could be impacted due to the Government’s recent currency demonetisation move (due to anticipated impact on Automobile sales), the growth will be back on track, as the demand is likely to resume once the cash crunch situation normalizes in 1-2 quarters. New launches, increasing presence in fast growing personal mobility space and sustained investments in A&P should help CIL report 7% volume growth over CY17-18E.

Castrol has a strong tie up with established OEMs like Maruti, Volkswagen, Tata Motors, Ford, JCB, Bosch, GM, Komatsu, Skoda, Audi etc. Castrol will continue strengthening its partnership with existing OEMs and enter into new partnerships as well, which should strengthen its brand positioning.

Structural levers like improved mix and operating leverage will help CIL report steady margin gains over the longer term. The near term negative impact of demonetisation on CIL’s financials could be more than anticipated earlier. Further, the recent OPEC agreement on production cuts is likely to limit the downside in crude oil and base oil prices and cap CIL’s margin gains.

Buy Wonderla Holidays for target price of Rs. 430

Wonderla Holidays Ltd is a leading amusement park operator. It operates three amusement parks at Kochi, Bengaluru and Hyderabad and one resort at Bengaluru. The company plans to add one more park in Chennai for which land clearance is still under progress. The footfalls will rise in tandem with increase in discretionary spends.

Wonderla’s well planned expansion plan, deleveraged balance sheet, higher margins than the industry and owned ride manufacturing plant at Kochi gives an added advantage over its peers.

The amusement park industry is set to benefit from increasing discretionary spending. Wonderla will be the key beneficiary of higher spends on leisure and entertainment. The company witnessed CAGR of 2% & 13.7% footfalls and average ticket price increase over FY11-16. With the launch of new park in Hyderabad, footfalls are expected to increase, aiding healthy revenue growth.

The management plans to fund the capex of the new park planned in Chennai through internal cash accruals. The management plans to expand footprint in tier II cities by launching a park every 4 years.

Wonderla procures 30% of rides from its own manufacturing plant in Kochi. This results in lower lead time, cost effectiveness as well as lower maintenance cost. This gives the company an added advantage over its peers in terms of higher operating margin and better safety measures. Wonderla Holidays Ltd., with its 3 amusement parks at Kochi, Bengaluru and Hyderabad, is the bellwether of India’s amusement park industry. The company also owns a resort in Bengaluru.

The systematic approach of Wonderla towards increasing ATP will be another revenue growth lever. Healthy cash generation from matured parks, Kochi and Bengaluru, will be used to fund the capex of new parks. The earnings will be subdued in FY17E. However, with improvement in liquidity and spending sentiments, sales growth will resume in FY18E.

Rakesh Jhunjhunwala Latest Portfolio

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Buy Jain Irrigation Systems Ltd for target price of Rs. 104

Jain Irrigation Systems Ltd is India’s largest micro irrigation company. The company’s other business division includes agro processing, piping systems, PVC sheets, tissue culture and solar energy. The company has 30 manufacturing plants and presence in 120 countries across the globe. JISL has a strong network of over 8,600 dealers and distributors. The company has consistently delivered revenue growth in spite of macro economic challenges like drought and subdued demand in the past. Diversified business portfolio, dominant market share in micro irrigation and Piping business, foray into new segments like solar energy augurs well for JISL’s earnings growth trajectory.

JISL is a market leader in domestic MIS segment, among top 3 players in PVC & PE piping and the largest player in food processing in India. The company is poised to benefit from higher spends on MIS and food processing by the government. PVC and PE pipe industry growth will be another key revenue driver for JISL. The company has diluted its stake in food subsidiary JFFFL and raised Rs 804 Crs which will be used to reduce debt.

The PVC pipes and fittings market in India is projected to register strong growth of 17% CAGR over FY16-19E and is expected to reach Rs 39,100 Crs in FY19E as compared to Rs 24,000 Crs in FY16. India’s Irrigation demand is significant and the demand for quality PVC pipes remains firm. In terms of PE pipes, the government’s focus to improve infrastructure in the country will bring in incremental demand. Planned investment of Rs 13, 200 Crs shall provide ample opportunities for enormous demand for PE pipes. JISL will benefit from growth of PVC& PE pipes industry.

The global micro irrigation system market is one of the fastest growing segments of the global agricultural industry. In India, though fragmented, the industry is in a position to aid Governments programs like Prime Minister’s Krishi Sinchai Yojana (PMKSY). Almost 50% of the arable land in the country is still rain fed. The Government (Central and State) provides up to 50% capital subsidy for promoting the use of Micro Irrigation to farmers. JISL is a market leader in domestic Micro irrigation system market with over 50% market share and second largest worldwide. JISL will be a key beneficiary of higher spends on micro irrigation.

India has a strong and dynamic food processing sector playing a vital role in diversifying the agricultural sector, improving value addition opportunities and creating surplus food for agro- food products industry. The food industry, currently valued at Rs 2.5lac Crs and it is expected to grow at a CAGR of 18.8% to Rs 4.2lac Crs by 2018. The National policy aims to increase the percentage of food being processed in the country to 25% by 2025. JISL, being the largest player in food processing industry, will benefit from the Government’s drive to push industry growth.


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