Understanding Multibaggers (Part 1)
Issue #07 Different Characteristics
A) Change in Management
Management is one of the most important factors that drives corporate performance as also the perception (P/E) of a company
A competent management team is a must; it can be promoter driven or professional management
There have been many instances of change in management leading to a sharp turnaround in a company's performance – loss to profit, faster growth, tough decisions, etc
Improvement in performance also leads to a significant rerating of multiples, leading to possibilities of multi-bagger
Change in management can be – change in ownership, Private Equity takeover, new professional management (CEO)
Example: Tube Investments
The appointment of Mr. Vellayan Subbiah as Managing Director in August 2017 was a turning point, driving strong sales and PAT growth, leading to a stock re-rating.
The 2020 acquisition of CG Power accelerated expansion into new sectors like semiconductors and EVs.
Under new management, from FY18 to FY24, sales grew at a 22% CAGR, while PAT grew at a 49% CAGR. This led to a 57% CAGR increase in stock price, multiplying investors' money 15x.
Few other examples
Tata Motors – Natarajan Chandrasekaran (2017) → EV focus, JLR turnaround → 10x since 2020
Trent Ltd. – Noel Tata (2012) → Expansion of Westside, Zudio → 20x+ in a decade
CG Power – Murugappa Group (2020) → Governance reforms, deleveraging → 50x in 4 years
Eicher Motors – Siddhartha Lal (2006) → Royal Enfield revival → 100x+ (2006-2018)
Ashok Leyland – Vinod Dasari (2011) → Cost efficiency, exports → 10x (2011-2018)
JK Cement – New management (2010s) → White cement expansion → 15x in a decade
IDFC First Bank – V. Vaidyanathan (2018) → Retail banking focus → 8x since merger
Jubilant FoodWorks – Pratik Pota (2017) → Digital transformation → 8x (2017-2021)
Shree Cement – H. M. Bangur (2002) → Cost leadership, capacity expansion → 100x+ in 20 years
Dixon Technologies – Sunil Vachani (2010) → Contract manufacturing growth → 40x in a decade
Bajaj Finance – Sanjiv Bajaj (2008) → Retail lending expansion → 150x in 15 years
Pidilite Industries – Bharat Puri (2015) → Brand strengthening → 7x since 2015
Laurus Labs – Dr. Satyanarayana Chava (2016) → API & CDMO expansion → 20x in 7 years
KEI Industries – Anil Gupta (2000s) → Cables & global expansion → 50x in 15 years
B) Consistent Profit Growth
Some companies trade at lower valuation multiples because the market has historically ignored them.
However, if a company consistently delivers growth and profitable growth, the market eventually recognizes its value.
The stock price is driven by two key factors:
a) Earnings Per Share (EPS) and
b) Price-to-Earnings (PE) ratio,
where EPS reflects actual earnings, and PE represents investor perception.
When a company shows steady growth, investors gain confidence in its future potential. This visibility often leads to higher valuation multiples, increasing the stock price.
Over time, the power of compounding also comes into play, further enhancing returns. This combination of consistent earnings growth and improving valuation multiples is a reliable formula for identifying multi-bagger stocks.
Example: Polycab India Ltd
Polycab’s sales grew at an 18% CAGR from FY19-24, while its PAT consistently increased YoY, growing at 29% during the same period. Additionally, the stock price grew at a ~52% CAGR over FY19-24, multiplying investors' money by 8x (excluding dividends). This growth led to a re-rating of the stock from a 25x P/E to 45x P/E between April 2019 and March 2024. As of February 1, 2025, the stock trades at a 48x TTM P/E.
Few other examples
Bajaj Finance
Titan Company
Avenue Supermarts (DMart)
Marico
Dabur India
Asian Paints
TCS (Tata Consultancy Services)
Hindustan Unilever
Dr. Reddy’s Laboratories
PI Industries
Divi’s Laboratories
UltraTech Cement
C) Split in the Business of the Company
Few companies have multiple unrelated businesses in a single listed entity
A challenging business eats into the profits made by the other good business
Leads to lower reported profits as also dents the multiple
Splitting the company into different entities, each engaged in one business vertical has invariably led to improving valuations and multiples
The reported profits increase and the PE also improves
Example: AGI Greenpac Ltd
Date of Demerger: August 2019
Entities Formed:
AGI Greenpac Ltd: Retained manufacturing, focusing on glass containers, PET bottles, and packaging solutions.
Hindware Home Innovation Ltd (HHIL): Took over consumer product marketing and distribution.
Post-Demerger Developments:
Slump Sale (March 2022): AGI Greenpac transferred its building products division to Hindware Ltd (formerly Brilloca Ltd), retaining some land on lease.
Strategic Focus: AGI Greenpac now specializes in packaging, serving sectors like beverages, food, and pharma.
The demerger streamlined operations, boosting both companies' market positions. AGI Greenpac's stock surged 14x since the demerger.
Few other examples
Bajaj Finance & Bajaj Finserv – 2007-08
Larsen & Toubro (L&T) & L&T Technology Services, L&T Infotech – 2016
Max India & Max Financial Services – 2016
RPG Group - KEC International & CESC – 2017
Tata Chemicals & Tata Consumer Products – 2019
Crompton Greaves & CG Power & Industrial Solutions – 2015
JSW Steel & JSW Energy – 2010
D) Extra Ordinary or One-off Write offs
Few companies see some one-off expenses or write-offs impact their one or few year's profits
Though it is very obvious, markets do look at reported profits, depressing their market cap
Once these one-offs stop, the reported profits see a big jump
Multiples also rise leading to disproportionate returns from the stock
Similar instances can be in the form of a loss-making business being sold off or in the case of banks, loan loss provisions on advances given in earlier years, depressing the current year's profits
Example: Tanla Platforms Ltd
Company had one-off provisions for a few quarters
High w/offs via depreciation led to company reporting losses and depressing stock price
When depreciation normalized, there was a sharp increase in PAT and commensurate surge in stock price
E) Net Loss or Low Net Profit But Cash Profit
Spotting a turn-around early has been a very rewarding analysis
Companies that have faced a rough past but are emerging out of it invariably give very high returns to investors if identified early
First indication of turn-around is a net loss or smaller net profits, but sustainable higher cash profits
Many times this is accompanied by a reduction of debt despite a net loss as there is a significant cash profit and operating cash flow
Eventually the company starts to report good net profits and also benefits from lower interest due to a reduction in debt
Example: Tata Communication
From FY18-20 the company reported losses
However, made significant cash profit
Cash profit were used to pare down debt
Few other examples
Tata Motors
BHEL
Inox Wind Energy
Tejas Networks
Suzlon Energy
RateGain Travel Technologies
GE T&D India
Axis Bank
UPL
Oil and Natural Gas Corporation (ONGC)
Sun Pharmaceutical Industries
Piramal Pharma
Sunteck Realty
Let me know your thoughts! 📢
Much love,
Priyank
Source: Mr Sunil Singhania