Multibagger stocks: Up to 6,685% return in 20 years! Key observations on D-St 100-baggers

PI Industries, KEI Industries, Bajaj Finance Ltd, Titan Company, Relaxo Footwear, Havells India, Deepak Nitrite, Balkrishna Industries and Navin Fluorine are among nine multibagger stocks that compounded investor wealth at 35-55 per cent annually in the last 20 years. At least nine other stocks delivered 200-366 times returns to investors during this period, compounding wealth at 31-35 per cent per annum, ICICI Securities suggested in a strategy note.

In its study, ICICI Securities focused on multibaggers, which compounded investor wealth at least at 25 per cent per annum. The domestic brokerage observed that none of respective companies had a diversified business approach and were in fact focused on core business during the two decade period. It noted that the companies' earnings growth and return on equity (RoE) were higher than ‘cost of equity’, suggesting prudent capital allocation decisions. Besides, it noted that cumulative ‘operating cash flow’ for most of the companies exceeded cumulative capex over the past two decades.

Among other key learnings, ICICI Securities suggested that while competition is a key risk while evaluating a company, obsessing over it may not be beneficial for an investor. Besides, fancy growth stories seldom materialise. For this, ICICI Securities cited the example of new age sectors during the ‘2000 dot-com bubble’ aligned under Telecom, Media and Technology (TMT) – comprising stocks with high growth expectations. ICICI Securities said none of the TMT stocks one made it to its multibagger list.

Lastly, it felt that cheap valuations, to start with, is an important criterion.

"Median earnings CAGR for the TTC 100-baggers was nearly 19 per cent while the price CAGR was 28 per cent. Median-trailing PE of the stocks was around 11 times at the beginning of the 20-year period, while it currently stands at 55 times," ICICI Securities noted.

Most of the stocks that constitute the list hail from traditional manufacturing – commodities, building materials, home appliances, capital goods, engineering, discretionary consumption, staples, pharma, etc. A few 100-baggers emanate from the services sector such as financials and rating agency.

ICICI Securities talked about three cycles: 2003-2010, 2011-21 and since 2021. The first cycle, ICICI Securities said, belonged to capital-intensive and cyclical stocks and said investors reaped the benefits of a booming investment and real estate cycle in 2003–2010, which  resulted in a rapid expansion in gross fixed capital formation (GFCF), which in turn also boosted the credit cycle.

"During this phase, capital intensive and cyclical stocks were propelled by prodigious tailwinds and turned out to be massive multi-baggers," it noted.

In the second phase, the non-performing asset (NPA) cycle of banks had only begun rising, thereby, denting the performance of companies but the 'private final consumption expenditure’ was relatively resilient, prompting the ‘flight-to-safety’ behaviour among investors, fuelling ‘richer valuations’ for low-earnings-volatility stocks, or high RoE consumption-related stocks over 2011-2021.

The third cycle, it said, is again being driven by capital-intensive and cyclical stocks as investment cycle again starts to pick up after a decade.

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