Article

5 Multi-bagger stocks for the next 5-years

23 Sep 2020 Nikita Bhoota

Most of the investors would have stayed away from equity markets this year as the market started tumbling and entered a bear phase on account of covid19 outbreak across the world. However, the Sensex and Nifty jumped ~51% and ~52% respectively from March 2020 lows to September 16, 2020 supported by the huge global liquidity and coordinated efforts by countries across the globe to fight coronavirus (Covid-19) pandemic. Additionally, the changes in the norms for multi cap funds by the market regulator SEBI is witnessing huge buying in the midcap and small cap stocks. However, the rally in midcap and small cap index may be for short period of time as the fund managers have to reshuffle their multi cap funds portfolio.

Some of the investors may think to liquidate their portfolio to take the advantage of rise in the markets. Additionally, investors may also fear that the increase of covid cases and delay in finding out the vaccine to cure covid19 disease will drag the market sooner or later. However, investors can consider to add quality stocks in their portfolio to earn superior returns in the long run.

Thus, based on the positive outlook, future growth prospects, and management pedigree of the companies, we have selected the below 5 stocks that could be likely multi-baggers over the period of next 5-years.  

Quess Corp

The earnings should improve QoQ as lockdowns are lifted and the festive season draws closer. In Workforce Management (WFM) the company has witnessed planned downsizing across almost one of every two clients, management hope that the worst is likely behind, with customers downsizing up to 10-15%, on an average, during the lockdown. However, the management expect the trend of headcount decline to turn around by the start of the festive season. Further, Management remains positive on the medium-term prospects of the Operating Asset Management (OAM) segment and anticipate market share gains for Quess, as the industry witnesses a “flight-to-quality”. We expect revenue, EBITDA and PAT CAGR of 2.5%,3.7% and 14.3% respectively over FY20-22E. The stock is currently trading at 36.1x FY21EPS. 

Year

Revenue (Rs cr)

OPM (%)

Pre-Exceptional PAT (Rs Cr)

EPS (Rs)

PE (x)

FY20

10,991

6.0

254

17.2

25.8

FY21E

10,270

5.8

181

12.2

36.1

FY22E

11,545

6.1

332

22.4

19.7

Source: 5paisa Research

Gujarat Gas (GGA’S)

GGAS is a key beneficiary of NGT/Gujarat HC order, to ban usage of coal gasification in the Morbi region – resultantly, sales of gas have more than doubled in Morbi in FY20. Further, GGAS is an inverse play on LNG prices and an outlook of weak LNG prices augurs well for the company’s volume growth.   GGAS is well placed within the CGD space, given the scope for geographical expansion, as it owns licences to distribute gas in 40 cities. This gives long term earnings growth visibility. We expect PAT CAGR of 5% over FY20-22E driven by volume growth and margin expansion. Stock trades at 23.5x FY21E (at a discount to IGL).

Year

Revenue (Rs cr)

OPM (%)

Pre-Exceptional PAT (Rs Cr)

EPS (Rs)

PE (x)

FY20

10,300

16.0

1,203

17.5

17.4

FY21E

9,108

17.9

890

12.9

23.5

FY22E

11,800

18.5

1,327

19.3

15.8

Source: 5 Paisa Research

Exide Industries

Exide Industries, a duopoly player, stands to benefit from auto replacement demand recovery as it is less discretionary in nature (difficult to postpone). Similarly, the OE segment should also normalise soon, emerging opportunities (solar and e-rickshaws), cost control & minimal capex, and softer lead prices should benefit the company. However, the company will face short term challenges due to slowdown in the economy due to spread of Covid19. Thus, we see marginal revenue CAGR of 3.3% over FY20-22E. We expect Ebitda margin to normalise in upcoming quarters, as volumes revert to pre-Covid levels and production ramps up in sync with sales. The stock is currently trading at 23.5x FY21EPS.
 

Year

Revenue (Rs cr)

OPM (%)

Pre-Exceptional PAT (Rs Cr)

EPS (Rs)

PE (x)

FY20

9,856

13.8

847

10.0

16.6

FY21E

8,658

13.3

597

7.0

23.5

FY22E

10,508

14.1

856

10.1

16.4

Source: 5paisa Research

SBI Life Insurance (SBI Life)

Aided by strong distribution, SBI Life, India’s largest private life insurer on an APE basis, is well placed to leverage this opportunity. SBILI’s distribution reach and customer base are enviable and have propelled it into becoming the largest private player in the space. Optimal-costs structure, SBI banca partnership and high agent productivity are key competitive advantages, apart from a massive under-penetrated customer base. SBILI’s product portfolio has changed composition over the years. While ULIPs were the key growth driver earlier, focus on protection is rising. This should result in structural expansion in margins.  SBI Life could show greater resilience against macro pressures vs. peers, helped by strong renewals. We forecast VNB Cagr of 11% over FY20-22E. The stock trades at 2.9X FY21E P/EV
 

Year

New Premuim Income (Rs Cr)

VNB (Rs Cr)

VNB margin (%)

Pre-Exceptional PAT (Rs Cr)

EV per share

P/EV (x)

FY20

40,324

2,010

18.7

1,422

263

3.3

FY21E

45,654

1,963

18.5

1,566

298

2.9

FY22E

54,424

2,495

20.3

1,960

343

2.5

Source: 5paisa Research

Sudarshan Chemicals (SCIL)

Having steadily gained market share and become the world’s 4th-largest colour pigment producer, SCIL is well-placed to continue rapid growth in the context of the imminent exit of its two largest global competitors (BASF and Clariant). The company’s low-cost manufacturing advantage, technical capabilities, wide product portfolio, growing client relationships, and environmental compliance are its key strengths. Input cost pressures, which impacted FY19 financials, are now fading.  SCIL has a capex plan worth Rs10bn for the next few years, which is expected to drive incremental revenues and ROCE. Capex will be oriented towards higher-value segments (high-performance pigments) with a superior margin profile.  We expect revenue, EBITDA and PAT CAGR of 9.8%, 18.1% and 23.2% over FY20-22E. The stock trades at 28.8 FY21EPS.

Year

Revenue (Rs cr)

OPM (%)

Pre-Exceptional PAT (Rs Cr)

EPS(Rs)

PE(x)

FY20

1,708

14.4

108

15.7

31.2

FY21E

1,702

15.3

117

17.0

28.8

FY22E

2,061

16.6

164

23.8

20.5

Source: 5paisa Research


 

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5 Multi-bagger stocks for the next 5-years

23 Sep 2020 Nikita Bhoota

Most of the investors would have stayed away from equity markets this year as the market started tumbling and entered a bear phase on account of covid19 outbreak across the world. However, the Sensex and Nifty jumped ~51% and ~52% respectively from March 2020 lows to September 16, 2020 supported by the huge global liquidity and coordinated efforts by countries across the globe to fight coronavirus (Covid-19) pandemic. Additionally, the changes in the norms for multi cap funds by the market regulator SEBI is witnessing huge buying in the midcap and small cap stocks. However, the rally in midcap and small cap index may be for short period of time as the fund managers have to reshuffle their multi cap funds portfolio.

Some of the investors may think to liquidate their portfolio to take the advantage of rise in the markets. Additionally, investors may also fear that the increase of covid cases and delay in finding out the vaccine to cure covid19 disease will drag the market sooner or later. However, investors can consider to add quality stocks in their portfolio to earn superior returns in the long run.

Thus, based on the positive outlook, future growth prospects, and management pedigree of the companies, we have selected the below 5 stocks that could be likely multi-baggers over the period of next 5-years.  

Quess Corp

The earnings should improve QoQ as lockdowns are lifted and the festive season draws closer. In Workforce Management (WFM) the company has witnessed planned downsizing across almost one of every two clients, management hope that the worst is likely behind, with customers downsizing up to 10-15%, on an average, during the lockdown. However, the management expect the trend of headcount decline to turn around by the start of the festive season. Further, Management remains positive on the medium-term prospects of the Operating Asset Management (OAM) segment and anticipate market share gains for Quess, as the industry witnesses a “flight-to-quality”. We expect revenue, EBITDA and PAT CAGR of 2.5%,3.7% and 14.3% respectively over FY20-22E. The stock is currently trading at 36.1x FY21EPS. 

Year

Revenue (Rs cr)

OPM (%)

Pre-Exceptional PAT (Rs Cr)

EPS (Rs)

PE (x)

FY20

10,991

6.0

254

17.2

25.8

FY21E

10,270

5.8

181

12.2

36.1

FY22E

11,545

6.1

332

22.4

19.7

Source: 5paisa Research

Gujarat Gas (GGA’S)

GGAS is a key beneficiary of NGT/Gujarat HC order, to ban usage of coal gasification in the Morbi region – resultantly, sales of gas have more than doubled in Morbi in FY20. Further, GGAS is an inverse play on LNG prices and an outlook of weak LNG prices augurs well for the company’s volume growth.   GGAS is well placed within the CGD space, given the scope for geographical expansion, as it owns licences to distribute gas in 40 cities. This gives long term earnings growth visibility. We expect PAT CAGR of 5% over FY20-22E driven by volume growth and margin expansion. Stock trades at 23.5x FY21E (at a discount to IGL).

Year

Revenue (Rs cr)

OPM (%)

Pre-Exceptional PAT (Rs Cr)

EPS (Rs)

PE (x)

FY20

10,300

16.0

1,203

17.5

17.4

FY21E

9,108

17.9

890

12.9

23.5

FY22E

11,800

18.5

1,327

19.3

15.8

Source: 5 Paisa Research

Exide Industries

Exide Industries, a duopoly player, stands to benefit from auto replacement demand recovery as it is less discretionary in nature (difficult to postpone). Similarly, the OE segment should also normalise soon, emerging opportunities (solar and e-rickshaws), cost control & minimal capex, and softer lead prices should benefit the company. However, the company will face short term challenges due to slowdown in the economy due to spread of Covid19. Thus, we see marginal revenue CAGR of 3.3% over FY20-22E. We expect Ebitda margin to normalise in upcoming quarters, as volumes revert to pre-Covid levels and production ramps up in sync with sales. The stock is currently trading at 23.5x FY21EPS.
 

Year

Revenue (Rs cr)

OPM (%)

Pre-Exceptional PAT (Rs Cr)

EPS (Rs)

PE (x)

FY20

9,856

13.8

847

10.0

16.6

FY21E

8,658

13.3

597

7.0

23.5

FY22E

10,508

14.1

856

10.1

16.4

Source: 5paisa Research

SBI Life Insurance (SBI Life)

Aided by strong distribution, SBI Life, India’s largest private life insurer on an APE basis, is well placed to leverage this opportunity. SBILI’s distribution reach and customer base are enviable and have propelled it into becoming the largest private player in the space. Optimal-costs structure, SBI banca partnership and high agent productivity are key competitive advantages, apart from a massive under-penetrated customer base. SBILI’s product portfolio has changed composition over the years. While ULIPs were the key growth driver earlier, focus on protection is rising. This should result in structural expansion in margins.  SBI Life could show greater resilience against macro pressures vs. peers, helped by strong renewals. We forecast VNB Cagr of 11% over FY20-22E. The stock trades at 2.9X FY21E P/EV
 

Year

New Premuim Income (Rs Cr)

VNB (Rs Cr)

VNB margin (%)

Pre-Exceptional PAT (Rs Cr)

EV per share

P/EV (x)

FY20

40,324

2,010

18.7

1,422

263

3.3

FY21E

45,654

1,963

18.5

1,566

298

2.9

FY22E

54,424

2,495

20.3

1,960

343

2.5

Source: 5paisa Research

Sudarshan Chemicals (SCIL)

Having steadily gained market share and become the world’s 4th-largest colour pigment producer, SCIL is well-placed to continue rapid growth in the context of the imminent exit of its two largest global competitors (BASF and Clariant). The company’s low-cost manufacturing advantage, technical capabilities, wide product portfolio, growing client relationships, and environmental compliance are its key strengths. Input cost pressures, which impacted FY19 financials, are now fading.  SCIL has a capex plan worth Rs10bn for the next few years, which is expected to drive incremental revenues and ROCE. Capex will be oriented towards higher-value segments (high-performance pigments) with a superior margin profile.  We expect revenue, EBITDA and PAT CAGR of 9.8%, 18.1% and 23.2% over FY20-22E. The stock trades at 28.8 FY21EPS.

Year

Revenue (Rs cr)

OPM (%)

Pre-Exceptional PAT (Rs Cr)

EPS(Rs)

PE(x)

FY20

1,708

14.4

108

15.7

31.2

FY21E

1,702

15.3

117

17.0

28.8

FY22E

2,061

16.6

164

23.8

20.5

Source: 5paisa Research