5 Multi-bagger Stocks for the next 5 years

Nikita Bhoota

30 Aug 2017

Equity markets have touched a new high this year Nifty has crossed the 10,000 mark for the first time in history. It is hard to find a multi-bagger stock which will give you exceptional returns in such an expensive market. A multi-bagger stock is the one which multiplies the invested capital in a period of 3-5 years. However, if an Investor selects a stock for investment based on strong earning visibility, unique product portfolio and decent management, it could deliver substantial returns in the years to come. Based on the fundamentals of the company, we believe below mentioned stocks could be potential multi-baggers in the coming years.


HUDCO

HUDCO, a wholly-owned government entity has an outstanding loan portfolio of Rs 39,661 cr as on FY17, which can be divided into– Urban Infrastructure Finance (69.4%) and Housing Finance (30.6%). HUDCO’s 90.9% of the loan portfolio comprises of loans to state governments and rest to the private sector. We expect HUDCO’s housing loan portfolio to register 15.5% CAGR over FY17-FY19E on account of its plans to revive its retail home finance portfolio by covering Credit Linked Subsidy Scheme (CLSS) of affordable housing under Pradhan Mantri Awas Yojana. The company’s urban infrastructure loan book is also estimated to grow at 8.5% CAGR over FY17-19E supported by Government’s focus on strengthening infrastructure. Net NPA is expected to decline to 1.1% from 1.15% in FY17 as HUDCO has stopped sanctioning loans to the private sector since FY14 in order to curb rising NPAs. We estimate PAT CAGR of 15% over FY17-FY19E.

Year

NII(Rscr)

NetProfit(Rscr)

EPS(Rs)

PE(x)

BVPS(Rs)

P/BV(x)

FY17

1,523

842

4.2

19

45.8

1.7

FY18E

1,800

902

4.5

17

50.3

1.6

FY19E

2,083

1,115

5.6

14

55.9

1.4

Source:5paisa Research


CESC

CESC is a flagship company of the Sanjiv Goenka RPG Group. It is the only distributor of power in Kolkata. It distributes power to ~2.9 million consumers in Kolkata and Howrah, West Bengal. CESC’s main business is power generation and distribution (64% of sales) followed by real estate (21%), Retail (12%) and IT. CESC operates 1.1m sq ft retail area across India through its subsidiary Spencer Retail. The company has announced the demerger of CESC into four entities- power, distribution, retail and IT & Mall. All the four businesses are expected to be listed w.e.f. Oct 1, 2017. We believe that the demerger decision is beneficial for CESC as each business has varied risk, return and working capital needs. Additionally, the demerger will benefit the investors from value unlocking in each of the businesses. We expect revenue CAGR of 14% over FY17-FY19E. This is because CESC’s short-term PPA with Maharashtra discom to supply power from its Chandrapur plant (300 MW) has the potential to be converted into a long term PPA agreement. Besides, new distribution franchisees (3 in Rajasthan) and its plans to add 0.2mn square feet retail space over the next 2 years will aid revenue growth. We expect EBITDA CAGR of 14% over FY17-FY19E due to entry in high margin apparel business (brand-“2Bme”). Additionally, new distribution business in Rajasthan will contribute to EBITDA by FY18E. We expect PAT CAGR of 20% over FY17-FY19E.

Year

NetSales(Rscr)

OPM(%)

NetProfit(Rscr)

EPS(Rs)

PE(x)

BVPS(Rs)

P/BV(x)

FY17

13,903

22.4

810

60.9

15

771.7

1.2

FY18E

16,939

22.4

1,004

75.5

12

864.2

1.1

FY19E

18,118

22.6

1,183

88.9

10

953.2

1.0

Source:5paisa research


KEC International Ltd

KEC International is a global infrastructure Engineering, Procurement & Construction (EPC) company. It has derived 80% of the revenue from transmission & distribution business (T&D), 12%- cables, 5% -railways and rest from solar and water segment in FY17. Based on geographies, 52% of the revenue was derived from overseas and remaining from domestic business in FY17. We expect revenue CAGR of 14% over FY17-FY19E on account of strong order book of Rs 13,500 cr at Q1FY18 end. PGCIL’s capex plan of Rs 24,000 cr in FY18E is positive for KEC’s T&D business as PGCIL is KEC’s largest customer (forms ~50% of the domestic revenue). Further, pickup in T&D spending in some states like Orissa, Jharkhand and UP SEB’s is also beneficial for the company. Increasing Government focus on electrification and decongestion will improve the railway business of KEC. We expect EBITDA CAGR of 15% due to good geographical mix and completion of loss-making projects in the railway business. The improved working capital efficiency of the company is expected to bring down its D/E ratio to 1.2x vs.1.6x currently. We expect PAT CAGR of 17% over FY17-FY19E.

Year

NetSales(Rscr)

OPM(%)

NetProfit(Rscr)

EPS(Rs)

PE(x)

BVPS(Rs)

P/BV(x)

FY17

8,584

9.5

304

11.8

25

61.7

4.8

FY18E

9,915

9.6

357

13.9

21

75.6

3.9

FY19E

11,203

9.7

415

16.1

18

91.7

3.2

Source:5paisa research


Mahanagar Gas Ltd (MGL)

MGL is a natural gas distributor and has a near-monopoly in supply of compressed natural gas (CNG) and piped natural gas (PNG) in Mumbai and its adjoining areas. It derived 76% revenue from CNG, followed by 14% from domestic PNG and ~10% from industrial PNG. We expect revenue CAGR of 9% as the company is expanding its operation in its monopoly areas. MGL will set up 20-25 CNG station in FY18E. Additionally, it also plans to add 1.4 lakh households in PNG business. Further, Government mandate to convert app based taxis to CNG will also drive the revenues. The ongoing and upcoming bids for new city gas distribution (CGD) and low penetration level in the operating areas provides scope for MGL to expand its business. We expect EBITDA CAGR of 11% over FY17-FY19E on account of lower gas prices. However, MGL, being the sole distributor can also pass on any increase in gas cost and protect its margins going forward. We expect PAT CAGR of 16% over FY17-FY19E.

Year

NetSales(Rscr)

OPM(%)

NetProfit(Rscr)

EPS(Rs)

PE(x)

BVPS(Rs)

P/BV(x)

FY17

2,239

28.7%

393

39.8

25

186.3

5.4

FY18E

2,499

31.0%

445

45.0

22

231.3

4.4

FY19E

2,686

30.0%

537

54.4

19

285.7

3.5

Source:5paisa research


Central Depository Services Ltd (CDSL)

CDSL is the leading securities depository in India with a market share of 43%. It offers dematerialization (DEMAT) services to Depository Participants (DPs) and other capital market intermediaries. It derived 35% of revenue from annual issue charges, transaction charges (21%), IPO and corporate action charges (12%), document storage charges (12%) and remaining 20% from other services in FY17. We estimate revenue CAGR of 14% over FY17-FY19E as under-penetration in stock market (2-3%) provides significant opportunity for CDSL to improve its market share. Further, it operates in duopoly market and its business has entry barriers in terms of regulatory restrictions, capitalization norms and long gestation period. The rising volume in capital markets and CDSL’s agreement with various education institutions to dematerialize the academic certificates of students will also improve the top line. We expect EBITDA CAGR of 16% over FY17-FY19E due to operating leverage as its fixed cost largely remains same because it mainly includes expenses on software development and employees. We expect PAT CAGR of 18% over FY17-FY19E.

Year

NetSales(Rscr)

OPM(%)

NetProfit(Rscr)

EPS(Rs)

PE(x)

BVPS(Rs)

P/BV(x)

FY17

146

54.1%

85

8.2

41

51.2

6.5

FY18E

228

55.0%

101

9.7

34

58.8

5.5

FY19E

364

56.0%

119

11.4

29

68.5

4.7

Source:5paisa research

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Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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5 Multi-bagger Stocks for the next 5 years

Nikita Bhoota

30 Aug 2017

Equity markets have touched a new high this year Nifty has crossed the 10,000 mark for the first time in history. It is hard to find a multi-bagger stock which will give you exceptional returns in such an expensive market. A multi-bagger stock is the one which multiplies the invested capital in a period of 3-5 years. However, if an Investor selects a stock for investment based on strong earning visibility, unique product portfolio and decent management, it could deliver substantial returns in the years to come. Based on the fundamentals of the company, we believe below mentioned stocks could be potential multi-baggers in the coming years.


HUDCO

HUDCO, a wholly-owned government entity has an outstanding loan portfolio of Rs 39,661 cr as on FY17, which can be divided into– Urban Infrastructure Finance (69.4%) and Housing Finance (30.6%). HUDCO’s 90.9% of the loan portfolio comprises of loans to state governments and rest to the private sector. We expect HUDCO’s housing loan portfolio to register 15.5% CAGR over FY17-FY19E on account of its plans to revive its retail home finance portfolio by covering Credit Linked Subsidy Scheme (CLSS) of affordable housing under Pradhan Mantri Awas Yojana. The company’s urban infrastructure loan book is also estimated to grow at 8.5% CAGR over FY17-19E supported by Government’s focus on strengthening infrastructure. Net NPA is expected to decline to 1.1% from 1.15% in FY17 as HUDCO has stopped sanctioning loans to the private sector since FY14 in order to curb rising NPAs. We estimate PAT CAGR of 15% over FY17-FY19E.

Year

NII(Rscr)

NetProfit(Rscr)

EPS(Rs)

PE(x)

BVPS(Rs)

P/BV(x)

FY17

1,523

842

4.2

19

45.8

1.7

FY18E

1,800

902

4.5

17

50.3

1.6

FY19E

2,083

1,115

5.6

14

55.9

1.4

Source:5paisa Research


CESC

CESC is a flagship company of the Sanjiv Goenka RPG Group. It is the only distributor of power in Kolkata. It distributes power to ~2.9 million consumers in Kolkata and Howrah, West Bengal. CESC’s main business is power generation and distribution (64% of sales) followed by real estate (21%), Retail (12%) and IT. CESC operates 1.1m sq ft retail area across India through its subsidiary Spencer Retail. The company has announced the demerger of CESC into four entities- power, distribution, retail and IT & Mall. All the four businesses are expected to be listed w.e.f. Oct 1, 2017. We believe that the demerger decision is beneficial for CESC as each business has varied risk, return and working capital needs. Additionally, the demerger will benefit the investors from value unlocking in each of the businesses. We expect revenue CAGR of 14% over FY17-FY19E. This is because CESC’s short-term PPA with Maharashtra discom to supply power from its Chandrapur plant (300 MW) has the potential to be converted into a long term PPA agreement. Besides, new distribution franchisees (3 in Rajasthan) and its plans to add 0.2mn square feet retail space over the next 2 years will aid revenue growth. We expect EBITDA CAGR of 14% over FY17-FY19E due to entry in high margin apparel business (brand-“2Bme”). Additionally, new distribution business in Rajasthan will contribute to EBITDA by FY18E. We expect PAT CAGR of 20% over FY17-FY19E.

Year

NetSales(Rscr)

OPM(%)

NetProfit(Rscr)

EPS(Rs)

PE(x)

BVPS(Rs)

P/BV(x)

FY17

13,903

22.4

810

60.9

15

771.7

1.2

FY18E

16,939

22.4

1,004

75.5

12

864.2

1.1

FY19E

18,118

22.6

1,183

88.9

10

953.2

1.0

Source:5paisa research


KEC International Ltd

KEC International is a global infrastructure Engineering, Procurement & Construction (EPC) company. It has derived 80% of the revenue from transmission & distribution business (T&D), 12%- cables, 5% -railways and rest from solar and water segment in FY17. Based on geographies, 52% of the revenue was derived from overseas and remaining from domestic business in FY17. We expect revenue CAGR of 14% over FY17-FY19E on account of strong order book of Rs 13,500 cr at Q1FY18 end. PGCIL’s capex plan of Rs 24,000 cr in FY18E is positive for KEC’s T&D business as PGCIL is KEC’s largest customer (forms ~50% of the domestic revenue). Further, pickup in T&D spending in some states like Orissa, Jharkhand and UP SEB’s is also beneficial for the company. Increasing Government focus on electrification and decongestion will improve the railway business of KEC. We expect EBITDA CAGR of 15% due to good geographical mix and completion of loss-making projects in the railway business. The improved working capital efficiency of the company is expected to bring down its D/E ratio to 1.2x vs.1.6x currently. We expect PAT CAGR of 17% over FY17-FY19E.

Year

NetSales(Rscr)

OPM(%)

NetProfit(Rscr)

EPS(Rs)

PE(x)

BVPS(Rs)

P/BV(x)

FY17

8,584

9.5

304

11.8

25

61.7

4.8

FY18E

9,915

9.6

357

13.9

21

75.6

3.9

FY19E

11,203

9.7

415

16.1

18

91.7

3.2

Source:5paisa research


Mahanagar Gas Ltd (MGL)

MGL is a natural gas distributor and has a near-monopoly in supply of compressed natural gas (CNG) and piped natural gas (PNG) in Mumbai and its adjoining areas. It derived 76% revenue from CNG, followed by 14% from domestic PNG and ~10% from industrial PNG. We expect revenue CAGR of 9% as the company is expanding its operation in its monopoly areas. MGL will set up 20-25 CNG station in FY18E. Additionally, it also plans to add 1.4 lakh households in PNG business. Further, Government mandate to convert app based taxis to CNG will also drive the revenues. The ongoing and upcoming bids for new city gas distribution (CGD) and low penetration level in the operating areas provides scope for MGL to expand its business. We expect EBITDA CAGR of 11% over FY17-FY19E on account of lower gas prices. However, MGL, being the sole distributor can also pass on any increase in gas cost and protect its margins going forward. We expect PAT CAGR of 16% over FY17-FY19E.

Year

NetSales(Rscr)

OPM(%)

NetProfit(Rscr)

EPS(Rs)

PE(x)

BVPS(Rs)

P/BV(x)

FY17

2,239

28.7%

393

39.8

25

186.3

5.4

FY18E

2,499

31.0%

445

45.0

22

231.3

4.4

FY19E

2,686

30.0%

537

54.4

19

285.7

3.5

Source:5paisa research


Central Depository Services Ltd (CDSL)

CDSL is the leading securities depository in India with a market share of 43%. It offers dematerialization (DEMAT) services to Depository Participants (DPs) and other capital market intermediaries. It derived 35% of revenue from annual issue charges, transaction charges (21%), IPO and corporate action charges (12%), document storage charges (12%) and remaining 20% from other services in FY17. We estimate revenue CAGR of 14% over FY17-FY19E as under-penetration in stock market (2-3%) provides significant opportunity for CDSL to improve its market share. Further, it operates in duopoly market and its business has entry barriers in terms of regulatory restrictions, capitalization norms and long gestation period. The rising volume in capital markets and CDSL’s agreement with various education institutions to dematerialize the academic certificates of students will also improve the top line. We expect EBITDA CAGR of 16% over FY17-FY19E due to operating leverage as its fixed cost largely remains same because it mainly includes expenses on software development and employees. We expect PAT CAGR of 18% over FY17-FY19E.

Year

NetSales(Rscr)

OPM(%)

NetProfit(Rscr)

EPS(Rs)

PE(x)

BVPS(Rs)

P/BV(x)

FY17

146

54.1%

85

8.2

41

51.2

6.5

FY18E

228

55.0%

101

9.7

34

58.8

5.5

FY19E

364

56.0%

119

11.4

29

68.5

4.7

Source:5paisa research

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