Multibagger Formula - City Invest Wisely

We wish there is something that straight forward answer to it, but its a never ending learning process. The key to enjoy such return is, Time in the market not Timing the Market.

Everyone is looking for multiplying their money. So let’s talk about this and what leads to stocks multiplying 2x, 5x,10x, etc. with examples so that you can relate and understand better. Also do check your portfolio if you are holding any future multi-bagger and if it falls under any category.

There are many triggers which leads to re-rating in the stock. We will try to capture few of them (can be many more) Macro/Micro Events/ Industry Tailwinds/ Management Change/Special Situation/ Monopoly Businesses etc. etc.

Industry Tailwinds – Positive shift happening for the industry as a whole – Like we saw China+1 theme in Chemical companies. It was not only stock specific rally but the entire sector got re-rated. Pick up any example like Navin, Fine Organic, SRF etc. Earning Visibility and Cash Flow increased significantly, the entire Sector was available at around 40k Cr before 2-3 years now its above 4 lac crore.
Government focus – It can be anything – Import ban, hike in import duty, long term subsidy, tax holidays, foreign trade agreement, PLI schemes, Atma Nirbhar Bharat, Har Ghar Jal, Defences. etc.
Rise in the prices of end product – This is mainly for the commodity players where they get impacted by the macro events – Metal sector from mid-2020 to mid-2021. Steel prices sky rocketed, so as stock prices (Tata steel, JSW steel, Vedanta etc.). This happens on cyclical up tick. Here the exit is most important, you need to exit when there is highest optimism, peak margin and ATH.
Unusual Events – Each and every crisis give birth to some great opportunity, Covid gave growth to IT (TATA Elxi, LTI, Happiest Minds etc.) Pharma ( Ipca) and Healthcare ( Apollo/Max Health).

E.g. Russia -Ukraine war – on the back of it there are many stocks rallied 2-3x in few months Adani Wilmar became 3x in just 2 months. Why ? Due to war and supply chain disruption edible oil prices shoot up. 65% of revenue for Adani Wilmar comes from Edible oil. India’ increased focused on Defence Space (HAL 2x in since than) , Drone based Companies.

Company/Sector specific

Promoter/Management change /Leadership Change – They are the driver of company. It’s very critical to track the change. There are many examples to quote but I will give just 2.
Large cap : N Chandrasekaran – The man behind Tata Sons – Joined in 2017- Market cap of Tata companies rose to Rs. 24 Trillion from just Rs. 8 trillion.
Small Cap : Siva Ramakrishnan Ganapathi – The man behind Gokaldas exports – Joined in 2017 – Market cap gained from nearly Rs. 250 crores to Rs. 2800 crores.
Demerger – It is one of the best strategy to unlock value for shareholders (check Mirza International, Meghmani Fairchem, Jubilant Ingrevia etc )- There are quite a few situations which looks interesting now. Do read about – Piramal Enterprise and NIIT limited. JOEL GREENBLAT is the father behind this concept. Its new way of Value buying.
Entry of big fund house/Superstar investors/Smart Money – Look at Xpro India, HLE Glass, Tejas Network, Mastek India, Polyplex Corp, Navin Fluorine, etc. Had deliver exceptional results Superstar examples – Market Vaterans like Abakkus, Sageone, Malabar, Smallcap world Fund, etc. Tracking bulk deal will help for this.
Moat – Strong moat in a big market opportunity continues to gain market share leading to strong earnings and cash flow – NIIT Limited – Became 10x in last 2 years, ELXI in ER&D business.
Early mover advantage and specialization – Dixon – One of the largest contract manufacturing company in electronics. The company started very early and has invested in capex all the while. Somehow they managed and survived. They do business at just 2-4% OPM margins which becomes impossible for others to replicate the same business model at such large scale. Once they cross break even, exponential growths starts. Revenue 20x and profit 60x+ in last 10 years- Stock Price 10x in last 3 years (post listing).
Upcycle in demand – When you are the only player and huge demands kicks in. E.g., CDSL, IEX, BSE and IRCTC etc – We all witnessed one of the greatest bull run from covid lows in market. It led to – huge and new entrants of retail investors, 100s of IPO listing, cheap money getting invested in market. Rerating was bound to happen, Stock grew multifold 10x.
Insider Buying – Again very strong metrics to track. Promoters bought heavily during Covid crash – E.g., Tata Sons bought Heavily in Tata Motors, Tata chemical.
Proxy player/ Indirect Big Beneficiary – Building material companies, Refractories, Auto ancillary, textile – HIL, Greenpanel, Acrysil, RHIM, chemical companies etc.
Theme play – Driven mostly by micro events – Ethanol , Defence, Road construction, Real estate, Contract manufacturing, EV, Chemical, Amine, etc. – Select the leader in the pack and just enjoy the rally.