After the recent selloff in the domestic stock market, many domestic investors would be looking for stocks that could deliver strong returns going ahead. Based on its research on 10-bagger stocks in the US market, CLSA summed up core multibaggers traits in four points.
They include a sustainable revenue growth of at least 20 per cent compounded annually and a market cap above $200 million but below $20 billion i.e. shares under $20 dollar. The third trait it suggested for a 10-bagger is either the company is profitable or "intentionally unprofitable" due to aggressive reinvestment in growth. Lastly, it suggested the company must be concentrated in technology, especially platform technology. But, that is for the US market. The fact remains less than 1 per cent of stocks possess all four traits, CLSA admitted.
The foreign brokerage searched for potential multi-bagger stocks in Asia-Pac via a few screeners and asked its analysts about stocks they believe can at least double over the next 5 years. They came out with at least seven potential multibaggers.
To be sure, many domestic stocks such as Persistent Systems Ltd, Dixon Tech, Bharat Electronics (BEL), JSW Energy Ltd, Tata Power Company Ltd, Hindustan Aeronautics Ltd (HAL) and Varun Beverages Ltd (VBL), which jumped 500-1800 per cent in the past five years. Largecap stocks with over $20 billion m-cap and over 200 per cent returns in five years include HAL, BEL, Tata Motors, Bharti Airtel, Adani Ports, Mahindra & Mahindra and Varun Beverages.
CLSA said rapid and consistent revenue growth is the first predictor of 10-bagger stocks.
In a screener, CLSA listed out Asia Pacific companies with m-cap of over $5 billion and likely revenue growth of over 10 per cent over 2022-2026. They included Larsen & Toubro, M&M, Titan, Adani Ports, Avenue Supermarts (DMart), Zomato Ltd, VBL, Eicher Motors, TVS Motor and Max Healthcare India Ltd. Others included Apollo Hospitals, PB Fintech, Bharat Forge, Dixon and JSW Energy among others.
Companies with less than $5 billion m-cap but likely revenue growth of over 10 per cent included Kaynes, Sona BLW, Devyani, Sobha, Lemon Tree and Syrma SGS.
Potential multibaggers CLSA analyst Arun Kapoor suggested Max Financial, saying insurance in India has a long way to go in terms of penetration into a dramatically large total addressable market. The sector had regulatory ups and downs but that are largely behind, he said. CLSA has 'Outperform' rating and target price of Rs 1,280.
Kapoor said Bandhan Bank is a good evolution story on paper. The stock has gone from stock market darling to a dumpster fire.
"Meanwhile, the franchise has gone from a small lender, microfinance inclusion focused play to now a "universal bank". This stock has been one of the biggest laggards out there in the last 5-6 years gone through a tremendous amount of tempering by fire, and excessively beaten down now to a mere 0.8 times P/B now which valuation basically gives it a great positioning from a medium term perspective at this point," he said. CLSA has a target of Rs 220 on the stock.
Kapoor also likes DMart and has a target of Rs 5,360. It is one of CLSA's top picks in India consumer for an acceleration in store expansion. He cited a sharp pivot to private label to improve customer value in an inflationary environment and a faster scale-up of DMart Ready, the online retail business. DMart is in the midst of a senior management transition and investors will be looking for clarity on the priorities for the new CEO, he noted.
Kapoor also likes Indian Hotels. He said Indian Hotels is going towards a more capital efficient strategy and building a high ROCE managed assets stream for its lower tier brands. It is a very good operators with a demonstrated track record of delivering ROCEs over the years, he said. CLSA, however, doesn't cover this stock.
Lastly, Kapoor likes Nykaa. This is an out and out execution story. He said valuations are eye-popping, but the revenue trajectory is solid too. This stock has taken a breather from its IPO levels. Operating leverage is inset in the business model as it scales, he said.
Meanwhile, Sumit Jain of CLSA likes Persistent Systems. I believe Persistent Systems (PSYS IN) can easily more than double or probably 3 times in next 5 years. They are currently clocking $1.4 billion revenue with EBIT margin of 15 per cent. They have given a vision to reach $5 billion revenue by FY31 with further expansion in margins. Given such stocks can trade at 5-6X EV/Sales, we believe PSYS can be a $30 billion market cap stock by FY31. The last 5-year track record is another proof as far as execution is concerned for Persistent," he said.
CLSA salesperson Damian Dwerryhouse believes Zomato may not have bottomed out yet as the next two quarters are still impacted by the aggressive store rollout program impacting depreciation and staff costs.
"However, Zomato Quick Commerce arm Blinket should turn profitable again in the September Quarter and grow strongly from there. The Market TAM opportunity suggests this has multi-bagger potential," he said. CLSA published this report on February 21.