Up to 1,600% rise in 5 years! These 10 stocks have multibagger quality
Market veterans say good margin is one of the things multibagger stocks are made up of.
Last Updated: May 10, 2018, 12.14 PM ISTOriginal: May 10, 2018, 11.48 AM IST
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Phillips Carbon, Eicher Motors, Finolex Cables and Balkrishna Industries have at least two things in common: one, they are known multibaggers, and two, they have logged consistent rise in operating performance over the past few years.
At least 10 companies from BSE500 and BSE Midsmallcap Select index have reported a steady rise in PBIDT, or operating profit margin (OPM), in last four financial years.
And Dalal Street has rewarded these stocks handsomely.
Phillips Carbon, the country's largest carbon black maker, has seen its PBIDT margin expand for four consecutive years to 15.92 per cent in FY18 from 2.05 per cent in FY14. A financial ratio, OPM measures operational efficiency of a company.
ICICI Securities says the stock has more room on the upside given robust product demand, sound financials and prudent management pedigree. The brokerage has had a buy rating on the stock ever since it traded at Rs 35. It traded at Rs 245 on Thursday.
The company is focusing on increasing penetration in the non-rubber segment, which accounts for only 9 per cent of volumes and 12 per cent of revenues at present.
"PCBL has overcome the commodity tag in the past to shift to a more structurally sound manufacturing setup, producing key material for tyre, paints, plastics and ink industries,” the ICICI note said.
The stock has surged 1,632 per cent in last five years. With a capacity utilisation level above 90 per cent, the company is setting up a greenfield plant in Tamil Nadu and going for brownfield expansion in two of the existing plants that will raise capacity by 50 per cent to 7 lakh tonnes.
Shares of NOCIL, which is engaged in the rubber chemicals business, have surged 1,272 per cent in last five years. With ace investors Ashish Kacholia and Dolly Khanna as investors, this company has seen operating Ebitda climb 32.9 per cent compounded annually over FY15-FY18 while profits grew 43.8 per cent in the same period.
In last five years, PBIDT margins of the firm expanded to 28.93 per cent in FY18 from 11.99 per cent in FY14. Total debt declined from a high of Rs 147 crore in FY15 to Rs 5 crore in FY1.
Cable manufacturer Finolex Cables has grown margins steadily despite a rise in copper prices. The stock has climbed 1,200 per cent in last five years. The company follows the cash advance approach while selling products. This strategy helped it generate superior FCF/OCF ratio of more than 0.5 times during FY12-17. The company management expects to adhere to this strategy to generate higher free cash (Rs 1.5 billion in FY17) as well,” Edelweiss Securities said in a recent note.
The company plans savings in working capital and administration costs by rationalising depots post GST, Edelweiss Securities noted. Brokerage Sharekhan has a target of Rs 755 on the stock while Edelweiss Securities sees the stock at Rs 800 level.
Balkrishna Industries has seen operating profit margin expand to 36.59 per cent in FY17 from 17.26 per cent in FY12. Analysts expect its 60,000 mt carbon black plant to commence operations by FY19.
It may help the company expand margins by 1-1.5 per cent at full utilisation levels. The company's focus on radialisation, high exposure to off-road tyres (OTR) and savings in power and logistics costs -- Mundra port is only 60 km away -- will act as buffer for margins.
Eicher Motors, Gabriel India and JK Tyre are three other companies that have logged consistent rise in margins in last couple of years. Strong demand for Royal Enfield bikes and margin improvement have resulted in an 880 per cent rally in the stock in last five years.
Gabriel India has managed to expand margins through various cost reduction initiatives. Operating leverage from healthy volume growth and improvement in product mix are likely to aid the company's margins in the coming years.
Tyre maker JK Tyre is poised to see a pick-up in volume, while a reduction in manpower cost and steady input prices should help it improve performance, say analysts .
Among others, Bharat Forge, Goodyear India and Carborundum Universal have also been seeing consistent margin improvement, which has also boosted their share prices.
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