Multibagger Stocks for 2019 and 2020

Multibagger stocks for 2019 and 2020

A multibagger is what every investor dreams of. In true sense, it is getting more than 100% returns from a stock. Usually, investors want these multibagger returns over 12-24 months. The chances of getting a multibagger are higher when the market is bullish (like 2013 to 2017). However, many times good stocks are available for fair value and this gives investors a good opportunity to invest. In this blog, we will discuss few multibagger stocks for 2019 and 2020.

Disclaimer: These stocks discussed in the “Multibagger Stocks for 2019 and 2020” are on our watchlist. But, as on the date of writing this blog, none of the discussed stocks are a recommendation. We encourage all the readers to study these companies further to decide if it suits their risk profile.

Stock #1: Swaraj Engines Ltd.

We recently did a brief analysis of the company on our previous blog post.

Figure in Rs. Crore

Note:

After a dull FY14 to FY16 period, the tractor sales grew (and continue to grow) FY16 onwards. In this period, Swaraj Engines Ltd. has improved it’s EBITDA margin.

The tractor sales in India are expected to grow at ~ 6% p.a. over the next decade. The tractor penetration in India is just 13 per 1000 ha vs 32 per 1000 ha in developed market. As India moves towards more mechanized agriculture, tractor sales have a long runway of growth.

Positives:

  • Debt free, high dividend yield and free cash flow generating company
  • Has maintained string return ratios over the last decade
  • Increased capacity to 115,000 engines p.a. and expanding again to 135,000 p.a.
  • Swaraj tractors owned by Mahindra and Mahindra, which has a 42% market share of Indian tractor market
  • Tractor penetration in India is 13 per 1000 h.a. vs 32 per 1000 h.a. in developed markets

Key Risk Factors:

  • Has just one product and one client who is a related party
  • Heavy dependence on monsoon and policies of the Government
  • A PE Ratio of 21x is not cheap and ideal range should be a PE of < 15

Stock #2: VST Tillers and Tractors Ltd.

The next in our list of Multibagger stocks for 2019 is another agriculture sector company. VST Tillers and Tractors is into the business of making both tilllers and tractors. It stands to benefit from increased mechanization of agriculture in India. The stock has corrected by more than 45% from it’s peak.

Multibagger stocks for 2019

In Rs. Crores

Positives:

  • The company has lined up new launches in the > 30 HP tractor segment
  • Tiller sales to benefit from Government efforts to double farmer incomes by 2022
  • VST Tillers and Tractors Ltd. is a high asset turnover, free cash flow generating company
  • Although the industry is cyclical, the efficient working capital management and sound fundamentals help the company sail through slow years

Key Risk Factors:

  • The company’s revenues are heavily dependent on subsidies by the State Governments
  • VST Tillers and Tractors is losing market share in the tractor segment to other players
  • Slow years could see the PE slide down to 10x to 12x

Stock #3: PVR Ltd.

The number of people watching movies in multiplexes has grown exponentially over the last decade. Also, this growth is expected to continue (although slower) over the next decade as well.

Multibagger stocks for 2019

In Rs. Crores

Positives:

  • The company has constantly improved margins and return ratios over the last 5 years
  • PVR Ltd stands to benefit from the structural shift towards higher urbanization of masses and also from higher per capita spending
  • The management expects to add 90 screens in FY19 under the PVR Brand

Key Risk Factors:

  • The promoter’s (Bijli) name appeared in the Panama paper leaks raising red flags
  • The business is capital intensive and requires a lot of capex to increase presence
  • The management as relied on debt as internal accruals were not enough to expand
  • The Government policy on allowing outside food in multiplexes can crush revenues

Stock #4: Westlife Development

Westlife Development is a good investment for those bullish on the Quick Service Restaurant (QSR) space. The company operates McDonald’s restaurants in west and south India.

Multibagger stocks for 2019

In Rs. Crores

Positives:

  • QSR industry in India stands to benefit from more women in the workforce and higher spending by the masses
  • McDonalds is a low ticket restaurant and stands to benefit the most from increased spending
  • The appearance of delivery startups like Zomato, Siwggy and Uber Eats has helped these companies push up volume growth
  • After two tough years (FY15, FY16 and FY17), the QSR industry has improved performance in FY18 (as evident from the performance of other players like Jubilant Foodworks)
  • The management is targeting EBITDA margins of 14% to 15% which double of current margins

Key Risk Factors:

  • The management has been suspected of rigging stock price over the last decade
  • The company has low ROCE / ROE since FY13 and very companies manage to turn around from such a mess
  • The market currently expects a strong growth in revenues along with sharp rise in margins over the next 2-3 years. However, this confidence might go with just one bad quarter. In that case, there could be a sharp re-rating of the stock.
  • Local players flourishing due to delivery startups have lean business models and pose a threat to the branded QSRs.

Stock #5: Hexaware Technologies

Multibagger stocks for 2019

In Rs. Crores

Hexaware Technologies is a mid-cap IT company. Smaller IT firms are trying to use more automation to win clients from the legacy (read larger) IT companies. The stock has corrected ~ 43% from it’s peak within 4 months.

Positives:

  • The growth guidance in USD terms is 10% to 12%. The stock trades at a PE of 16.35
  • The company has a strong track record of generating high ROE and free cash flows
  • The company has a net cash of Rs 25 per share

Key Risk Factors:

  • The demand from large clients in USA (Mostly onshore) is strong but there are supply side issues. The supply issues stem from the US labour market conditions and visa issues.
  • A stronger rupee can hurt the bottom-line. However, this risk applies to every USD earning company.

So, these are our 5 Multibagger stocks for 2019 and 2020. We may or may not recommend them but we also have other fantastic stocks on our watchlist. Which companies from your watchlist have the potential to become Multibagger stocks for 2019?


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