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Identifying Multibaggers
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basant
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Quote basant Replybullet Topic: All multibaggers started with small market cap
    Posted: 03/Aug/2006 at 11:52am

All multibaggers started with small market caps

One of the most loved after words in the stock market is the ďmultibaggerĒ. Typically multibaggers are stocks that go up a number of times. I plan to post a series of write-ups on the similarities in specific financial attributes for the multibaggers of the past ten years.I have named the series as " How to identify the next Infosys?". This is so because Infosys was a shareholder's delight not only in terms of price appreciation but with respect to other financial attributes as we would notice once other write ups are posted. I have excluded companies like Bharti Airtel, Unitech and Pantaloon Retail because they have not completed 10 years of listing.

Markets capitalization also known as Market cap means the amount of money required to buy all (100%) shares of a company it is computed as the number of shares multiplied by the market price of each share. For instance if BEML Rs 900 and there are 3.67 crore shares issued the market cap would be 3.67 crores X 900 = Rs 3303 crores

The market cap of a company is inversely proportional to whether that company could be a multibagger or not. In other words companies with small market caps are more prone to going up a number of times compared to companies with large market caps.

In the analysis that I did for the multibaggers for the Indian stocks markets an interesting phenomenon was identified. All multibagger companies started from a base of very small market capitalization

All multibaggers started with small market caps

Company

Price as on Dec 31 1995

Market Cap * as on that day (Rs crores)

Price as on Jan 02, 2006

Market Capitalization today (Rs crores)

CAGR

Infosys Technologies

26.15

708

2996.75

81221

59.68

Satyam Computers

7.12

228

737.80

23641

59.05

Wipro

9.13

1290

463.45

65516

48.09

Sun Pharma

19.13

354

682.15

12635

42.96

Hero Honda

24.40

479

859.70

16890

42.78

HDFC Bank

29.50

928

707.45

22266

37.40

Cipla

21.66

646

443.40

13228

35.24

Zee Telefilm

12.87

534

156.90

6513

28.41

HDFC

135.75

3352

1205.35

29766

24.40

 

 

 

 

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                *Approximate

 
 
 
 
 
 
 
 
 
                                                                                             * Approximate
 
In the table above I have presented a case for buying companies at low market caps. About 10 years back these companies were available at market caps that were less then Rs 1000 crores. The PE for quite a few of them were over 30 and the stock price kept going up because the earnings went up in all cases and the PE kept on expanding in some select cases.

In the initial years of growth these companies were very different from a greater fool theory. The greater fool theory states that a fool buys an overvalued stock and sells it to a bigger fool who looks for a greater fool to dump the same. The idea is not to become the last fool in the chain. How ever unfortunate it may sound almost all multibagger companies enter into the greater fool mode. The better ones recover while the bad ones falter.

The figure to look for in the above table is column (c) which reflects the market cap at which these companies were available about 10 years back. Column (e) tells us the current market cap. In some cases stocks have gone up by over 100 times over the said period!.

So looking at the table one can easily observe that except WIPRO and HDFC all the other companies were in a range of less then Rs 1000 crores market cap. At that time the total market cap of the Indian stock market was less then Rs 400,000 crores. Today the market cap of all the stocks has gone up by about 7 times. Therefore the yardstick to look for companies below Rs 1000 crores market cap can be extended to Rs 6,000 crores.

Any ides anyone on companies with small market caps and which are ready to become multibaggers!



Edited by basant - 19/Sep/2006 at 12:16pm
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Quote Money Master Replybullet Posted: 05/Aug/2006 at 1:45am
 
The most interesting observation I could make from here was 1) No Cyclical company 2) No MNC 3) Majority of these companies were first generation entrepreneurs. Almost all of these were first generation entrepreneurs!
 
 


Edited by Money Master - 05/Aug/2006 at 1:46am
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reetesh
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Quote reetesh Replybullet Posted: 02/Sep/2006 at 3:01am
I think Bilcare, what do you think?
When going gets tough, thatís when tough (people) gets going.
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Quote investor Replybullet Posted: 07/Sep/2006 at 4:17pm
I think GM BREWERIES has a lot of potential to be a multibagger.
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Vivek Sukhani
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Quote Vivek Sukhani Replybullet Posted: 19/Sep/2006 at 11:38pm
Agree with you. Am trying to build one myself.Basant, will be glad if you can tell me what do you mean by Enterprise value
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basant
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Quote basant Replybullet Posted: 19/Sep/2006 at 11:55pm
Enterprise value = Market cap + Debt. Some companies take a lot of debt so on a market cap basis they appear cheap. In that case we look at enterprise value. On the other hand some companies have cash on their books in that case we deduct the cash from the market cap to arrive at enterprise value..
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Quote reetesh Replybullet Posted: 19/Sep/2006 at 12:07pm

ie: to get EV= Market cap. PLUS Debt. MINUS Cash in balance sheet. Right?

When going gets tough, thatís when tough (people) gets going.
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Quote Equity Buff Replybullet Posted: 04/Nov/2006 at 9:48am
 
Basantjee,
 
Have a look at Goldiam. In the jewellery space I think it is one of the top picks along with Titan and Gitanjali. Titan, Gitanjali and Goldiam in this order is my preference. A Pantaloon group company also has recently taken a stake in Goldiam.
 
On a slightly different subject, which LARGE CAPS you think could still be multibaggers even from this level over the next 5 years. Pantaloon, F.T. ?(not exactly sure of F.T. current market cap right of the bat).
 
Rgds.
 
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