2/27/2017 EightsimplecuesthatcantellyouifastockismultibaggerinthemakingTheEconomicTimes

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ArunThukral
MD&CEO,AxisSecuritiesLtd.

Thukralhasover23yearsofexperienceinthefinancialservicesindustry.Hehas
beenassociatedwithAxisBanksinceitsinception.Earlier,hewastheheadof
resources&strategicinitiativesatAxisBankTreasury.Heisacertifiedassociate
ofIndianInstituteofBankersAssociationandisacertifiedfinancialplanner.

Eightsimplecuesthatcantellyouifastockismultibaggerin
themaking
ETCONTRIBUTORSUpdated:Feb27,2017,11.49AMIST PostaComment

TheysayRomewasnotbuiltinaday.
RELATEDCOMPANIES EXPAND

Amultibaggerstockdoesnotmaterialiseinasnap. HeroMotoC

Forastocktomultiply,say10timesor100times,overtimeandgiveastoundingreturnsto EicherMoto
investors,itrequiresmultipledrivers.
AssemblyElections2017:
IsModionaroadtonowhereinUttarPradesh?
Amultibaggerideaisakintoabambootreeyoutakealittleseed,plantit,wateritand
fertiliseitforfiveyearsbeforethetreesproutsandgrows100feetinsixmonths.Allthese
fiveyears,thebambootreeformsandstrengthensitsrootsandgivesitallthatittakestobe
strongandsurviveforlong.

Multibaggersarestocksthatevolvegraduallytheywillnotgivereturnsimmediately,whenyouinvestinthem.Astructurallystrong
companywithgoodmanagementandfuturestrategycanpotentiallyevolveintoamultibaggerovertime.

So,whatreallymakesamultibagger?

Growingindustry:Thefirstcriteriaisthatawouldbemultibagger'stockoughttobeinasectorthatexhibitshighgrowthrateandthat
paceofgrowthshouldhavelongevitytolastfordecades.Thesourceofearningsshouldbeclearlydefined.HeroMotoCorpcameupwith
itsbikeswhenthemarketwaspredominatelycontrolledbythegovernmentlicencees.Theindustrywasmigratingfromscootersto
motorbikesandgrowingatdoubledigitsowingtoarisingmiddleclassandayoungpopulation.Thestockhasgivenstupendousreturns
overthepast33years.

Businessopportunity,scalability,sustainability:Ifthecompanyisoperatinginanindustrywithhugegrowthpotential,ithasgreat
future.Themarketcapitalisationisnotaconcernforsuchaninvestment.Hugebusinessopportunityalongwithscalabilityand
sustainabilityofacompanycancatapultastockintounimaginedlevels.Ifacompanywithanymarketcapitalisationbeitlargecap,
midcaporsmallcaphasthetailwindsoftremendousbusinessopportunity,itcanbecomeamultibagger.Example:theITindustryin
2000.

Qualityofmanagement:Investinginequitiesislikepartneringinabusiness.Onemustbeverychoosyaboutwhomheispartneringwith
whilemakinganequityinvestment.Thepromotersarepersonsresponsiblefordaytodaymanagementofthecompany.Ifthe
managementisvisionaryandethical,therearehighchancesthattheywilltakethebusinesstoplaces,thusmakingtheinvestmenta
multibagger.Corporategovernanceisofutmostimportanceasthebusinesswouldnotgrowwithoutgoodmanagement.

Economicmoat:Amultibaggercompanyshouldhavewhatiscalledmoati.e.anentrybarrierthatwouldpreventcompetitionfrom
encroachingthemarket.Itcanbeintheformofabrandimage,patentorIP.Thismoatgivesthecompanypricingpower,whichcanhelpit
protectmarginseveninadverseconditions.Ifthecompanyhasauniquebusinessmodeloranydisruptivebusinessmodelthatenablesit
tocapturemarketattheexpenseofitscompetitors,saythenewTeslacarsintheUS,therearehigherchancesofitbecominga
multibagger,ifspottedattherightprice.

http://economictimes.indiatimes.com/markets/stocks/news/eightsimplecuesthatcantellyouifastockismultibaggerinthemaking/printarticle/57370 1/2
2/27/2017 EightsimplecuesthatcantellyouifastockismultibaggerinthemakingTheEconomicTimes

Highreturnratios:Companieswithhighreturnratiosgenerategoodreturnsonthecapitalemployed.Oneshouldneverlookat
companiesthathavelowreturnratios.Moreover,returnratiosshouldbeshowinganincreasingtrendshouldnotbeflatorbeonafalling
trend.Goodreturnratiosalsoindicatethatacompanyisallocatingitscapitalefficiently.Ahighreturnratioisabindingrequirementfora
multibaggerstock.

Lowequitylevels:Companieswithhugeequityseldombecomemultibaggers.Itisoverownedbyinstitutionsandthereissufficient
suppliesateverypricerise.Companieswithsmallerequitieshavehigherchancesofbecomingmultibaggersbecauseofhighreturnratios,
especiallyRoE,andtheriseinEPSissharpwitheveryslightincreaseinprofit,exampleMRF.Alwayslookoutforcompanieswithalow
equitybasecoupledwithhighreturnratios.

Debtlevels:Debtfreecompaniesorthosehavingnegligibledebthavethecapabilityofcreatinghugewealth.Beingdebtfreeorminiscule
debtonthebooksenablesafastgrowingcompanytoploughinalmostalltheearningsforgrowthinsteadtopayingfordebtservicing.For
acompanythatisdebtfree,therevenuegrowthratewillpercolatedowntoearningsifithascontroloveritscosts.

Futureplans:Stockpricesareslavesofearnings.Anydevelopmentthatcanenhanceearningsofacompanycausessharepricetorise.
Solidexpansionplans,structuralchangesinbusinessmodelsandlaunchofnewproductscanhavematerialimpactontheshareprice
andareprimerequirementsforcreatingmultibaggers.Ifcombinedwithhugeopportunity,thenewplancanchangetheearningstrajectory
ofthecompany,makingitapossiblemultibagger.E.g.EicherMotorsatthetimeoflaunchofnewenginesforitsflagshipproduct.

Therightwaytospotmultibaggersistochoosecompanieswithsmallmarketcapalongwithlowinstitutionalholdingsandoperatinginthe
fastgrowingmarketsthatarelikelytogrowatamuchfasterpacethanthosewithlargermarketcap.Oncethecompanyisontheradarof
institutionsandfunds,themarketcapstartsgrowing.Hence,oneshouldbeonthelookoutforcompanieswithlowmarketcapandvery
highgrowthpotential.Astheysay,Catchthemyoung.

Afterinvestinginastock,oneshouldcloselymonitortheperformanceofthecompanyandregularlystudythequarterlyresultstocheckifit
isperformingonthedesignatedcourse.

Lastbutnottheleast,oneshouldhavetheconvictionandpatiencetoholdontoaninvestmenttillthetimeabusinessmaturesandthe
priceappreciationpotentialofthestockpetersdown.Thisishowthemultibaggerideasevolveovertime.

(ArunThukralisMD&CEOofAxisSecurities.ViewsexpressedinthisarticlearehisownanddonotrepresentthoseofETMarkets.com.
Pleaseconsultyourfinancialadviserbeforetakinganyinvestmentcallbasedonthecontentofthisarticle)

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http://economictimes.indiatimes.com/markets/stocks/news/eightsimplecuesthatcantellyouifastockismultibaggerinthemaking/printarticle/57370 2/2