Ten Multibagger Stocks To Buy Now
Ashish Kapur of Invest Shoppe has recommended ten stock ideas which investors with long-term horizon can buy now. The stocks are at an inflection point presently. The stocks have the potential to turn multibaggers over the next few years.
(Basant Maheshwari’s stock recommendations)
Orient Bell is into manufacturing of non-Vitrified and Vitrified tiles as well as sanitary products. Orient Bell merged with Bell Ceramics in December 2010. Post this merger, Orient Bell has emerged as the only one in the industry to have plants in North, West and South of India. The merger has been a good opportunity and will enable the company to grow inorganically at a much faster pace.
The government’s thrust on improving sanitation system in India has provided a new growth opportunity to the Indian sanitary ware and ceramic tiles industry. According to ‘India Sanitary Ware Market Forecast & Opportunities, 2017’, in the coming years India will witness huge improvements in the sanitation level. The industry is already growing at a fast clip and it has huge potential due to under-penetration. The industry is likely to witness high growth for at least the next 20 years before it saturates. Over 60% of the Indian population does not have proper bathrooms and toilets, and in the remaining 40%, the share of the organized industry is negligible. Implementation of GST is likely to provide a major fillip to the earnings potential of organized players like Orient Bell.
Orient Bell has a track record of turning Bell around within first 15 months of acquisition which reflects the excellent management qualities. Also the company has been able to integrate the different brands of ‘Orient’ and ‘Bell’ into one i.e. ‘Orient Bell’.
The Valuation of Orient Bell is at a deep discount to its peers. The market cap of $19mn appears quite low given its stable revenues of around $100mn. Also, if we compare it with other peers, it remains quite attractive since it has one of the lowest P/S ratio and other relative valuation ratios. This company is available at a deep discount to the industry leaders. The relatively lower margin to its peers is set to improve as the company integrates operations of Bell, saves power costs due to a new gas pipeline, improves capacity utilization and adds higher value added products to its portfolio. Even if the leaders continue to enjoy better valuations, the gap is set to come down considerably as investors are now likely to start looking beyond the big companies.
RBL Bank has a diverse product portfolio, no legacy issues, highly capable management and low market share. RBL is expected to be a multi bagger stock idea. The management expects loan growth to be at a CAGR of ~35% over FY16-19. RBL Bank has stable/improving margins due to changing loan mix toward high-yielding loans, a sharp fall in cost of bulk deposits and improvement in the CD ratio. The strong balance sheet growth is expected to drive operating leverage for the bank. Asset quality remains flawless, with net stress loans of just 80bp. The Return on Assets will reach 1.3% by FY19. Credit growth in the country is likely to remain buoyant and show further traction going ahead. This augurs very well for well-managed banks like RBL.
Reliance Capital has a market capitalization of about Rs 13,000 crore. It is trading at a very attractive valuation. The sentiment for Reliance Capital has been negative for many years due to the overhang of the Anil Ambani (ADAG) group. Due to the pessimism around this group, the market is ignoring the many positives and the deep discount at which this stock is trading. It is trading at 0..8 x for FY18E forward P/ABV compared to more than 3x for a majority of other competitors like Cholamandalam, M&M Finance etc. Consolidation of the businesses of insurance and AMC in its subsidiaries and the robust growth of various segments of financial services businesses are the positive triggers going ahead.
Wonderla Holidays is one of the largest and most profitable parks in India.
Globally, most large amusement parks are loss-making. The expensive valuation (multiple of 23x of FY18E EPS) of Wonderla Holidays is justified, given its profitable operations, experienced management and significant opportunity for amusement parks growth in India.
Wonderla Holidays remain a growth and concept stock where even expensive valuation can justify given the tremendous opportunity (total footfall in India much less than that of Disney US).
Debt-free balance sheet and higher return ratios (RoIC of 37% in FY16) augur well for the stock.
VIP will benefit due to the shift from unorganised players to branded luggage, particularly in their entry-level brands. VIP is gaining market share and long-term drivers in the form of GST and higher sales via the banking channel envisaged to boost branded luggage sales. VIP’s margins are regularly expanding and management guidance suggests that the trend will continue. It has a wide range of luggage brands across different segments – Skybags, VIP lags Skybags, Aristocrat, Alfa and Carlton, supported by a robust marketing and distribution network. Also, “being the only listed player in the luggage market, it will enjoy a scarcity premium once the earnings visibility improves. VIP is continuously improving its perception amongst investors. VIP is available at around 14x FY 18 estimated EV/EBITDA. With improving market share, margins and Return on Assets, this is a key stock to have in your portfolio.
Future Enterprises provides infrastructure support for the retail operations of the Group and envisages being the retail infrastructure service provider for the industry. It has multiple investments in other group companies and non-core businesses / JVs which has current value of ~Rs 13000 crore, much more than the debt of Rs 4400 crore. It also has around ~Rs 600 crore lease rental income and ~Rs 200 crore manufacturing income. The EPS for 9 months FY17 is Rs 5 and the stock looks deeply undervalued.
The market cap of Rs 1,282 crore for Future Enterprises is just 34% of the revenue for FY17e with investment value of worth Rs 13000 crore.
Shakti Pumps is the pioneer and the largest player in India’s solar pumps segment. In FY 2016, solar pumps contributed ~12% to the top line and it forecasts to increase the revenue mix. Under the various government farm reforms, the Indian government intends to replace 20 million energy inefficient agricultural pumps and another 10 million diesel-driven agriculture pumps with energy efficient alternatives. Shakti Pumps asked KPMG to conduct a study to evaluate the economic feasibility to shift from traditional pumps to solar pumps from Govt, discoms and suppliers perspective.
Strides Shasun has strong growth led by regulated markets and market share improvement in key US products. Its fundamentals are improving. EM’s (18% of sales) grew 42% YoY (-4% QoQ) led by Africa (post inventory correction) despite impact of demonetization in India. Margins have expanded on exit from CRAMS business and improved revenue mix. The restructuring of ‘Strides Pharma’ with sharper focus on high margin business is the key positive trigger. Restructuring is also directed towards improving supply chain and front end towards a fully integrated formulations business in regulated markets (US & Australia), emerging markets (branded generics in India & Africa) and institutional business (ARV & antimalaria tenders) which would have superior margin profile, better asset turnover and healthy return on capital. All these efforts are already showing results.
Bharat Forge has strong focus on product innovation in globally scalable segments like aerospace, oil and gas, passenger cars, etc. There will be a significant ramp-up in profitability over the next 3-5 years. The forgings business of Bharat Forge is capital intensive. A prudent strategy of managing capital allocation and working capital has led Bharat Forge to maintain and improve its return ratios. Going ahead, the performance of Bharat Forge will improve from current levels and expect that standalone RoE, RoCE will trend upwards.
Mahindra Holidays has an annuity-based stable revenue with strong growth in net addition of members (~30%) YoY. It has a debt-free balance sheet with RoE of ~15-20%. Its valuations not expensive at ~12x of Fwd EBITDA.