Multibaggers and scale of opportunity
In my endeavor to look for multibaggers I have discussed two piquant features that all multibaggers possess small market capitalizations and first generation promoters. In this section I wish to present the importance of the scale of opportunity. The following table indicates the sectors which did well because of the presence of scale of opportunity and the ones where it did not.
Scale of opportunity existed |
Did not exist |
Software |
Aquaculture |
Retail Banking |
Granites |
Telecom |
Mini Cement Plants |
Retailing |
Movie Production |
Construction |
|
Insurance |
|
Media |
|
Internet and Education |
|
Software: In the year 2000 the Indian software industry was worth US $ 10 billion. While US $10 billion does not look that big it was comparably very large when viewed in relation to the market caps of the leading software companies Infosys, Wipro and Satyam which were less then US $ 300 million. So we had a situation where the market capitalization of the sector leader was not even 3% of the Industry size two years down the line.
While software has already given its share of multibaggers the following sectors could still throw up multibaggers.
Private Banking: This was the easiest to spot but we missed because we used complicated methods. Customers were fed up with the beurocratic approach of nationalized banks and looked for alternatives. For years investors thought that signing up new customers with a minimum balance of Rs 5000 and under the fear of hidden charges would be impossible but HDFC bank rolled on or shall we say roared on. This sector was easy since the market was already there all these private banks needed to do was shift the customer from one segment (PSU banks) to another (Nationalized banks).
Telecom: The Indian Telecom story was quite similar. Mobile Telephony had to happen after all what happens globally will happen in India. Initially there were a lot of govt. regulations and restrictions suddenly the market expanded as new players entered the fray and Bharti Airtel which traded at a market cap of US $ 1.5 billion against a total market size of US $ 100 billion two years down the line was a no brainier but the external smoke had prevented investors from looking beneath the surface.
Retailing. The Indian Retail market is presently worth US $ 300 billion and the collective market cap of the leaders in the listed space was less then 1% in 2003 and is at a similar level currently. The total share of organized retail has gone up from 2% in 2003 to 3% in 2006 and is estimated to hit 10% by 2010.
Company |
Market Capitalization |
Pantaloon Retail |
US $ 1 billion |
Titan |
US $ 756 million |
Shopper Stop |
US $ 358 million |
Trent |
US $ 263 million |
Total market cap of listed Retail players |
US $ 2.37 billion |
Total size of the Retail market |
US $ 300 billion |
Percentage to the total Retail Market |
0.79% |
Proposed Valuation of Reliance in 2009 at a Sale Rs 90,000 crores |
US $ 18 billion |
Construction: Rakesh jhunjhunwala says that India is like a runner without shoes The Indian construction sector got its first boost when the NDA Govt., announced the golden quadrilateral project. Chandra babu Naidu the former Chief Minister of A.P was also responsible for the development of this Industry. The kind of reforms he carried out in the 1990’s created the most valuable construction companies in India Nagarjuna, IVRCL and ERA construction are some of them, Here also the size of the opportunity (Rs 200,000 crores) was huge compared to the market cap of these companies.
Company |
Market Capitalization |
Larsen and Toubro |
33980 |
Nagarjuna Construction |
2984 |
Punj Lloyd |
3899 |
IVRCL |
2552 |
Hindustan Construction |
2778 |
Gammon India |
3005 |
|
|
Private Insurance plays:
The total Insurance premium to be collected in 2007 would be close to Rs 100,000 crores. The share of the state owed LIC is decreasing and the private insurers are generating higher growth rates.
Max India (Market capitalization Rs 2542 croes) is the only pure play available in this sector. Other surrogate plays are
HDFC, Aditya Birla Nuvo and ICICI.
Media: Globally media properties are huge. In India media is yet to evolve. With addressability (CAS and DTH) stress on intellectual property rights and increased consumer spending the path ahead could throw up a lot of multibaggers. The ones that come to mind are Zee TV, Sun TV, TV 18 and ENIL.
Internet and Education: There is a huge opportunity here. The growing middle class will like to get their children educated. Broadband penetration is expected to go up from 1.3 million to 20 million by 2010. This could drive up valuations of internet companies. Over the last 12 months NASDAQ listed Indian internet companies have been in demand. Internet advertising is more target oriented and reaches the right audience. Advertisers know the kind of traffic that would visit particular sites for instance wealthy people could be looking at finance sites whereas a younger crowd could be accessing the sites that have online chat rooms.
Also it is not possible to show the entire material on TV Print and Radio but on the internet relevant users could go directly into the site from the link.
Unfortunately there are no choices for the investor here. Educomp is a good solid education play but for the internet part investors will have to look at TV 18 only.
Edited by basant - 20/Sep/2006 at 9:54am