Identifying Multibaggers With Chakri Lokapriya | NDTV Profit - video Dailymotion

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Transcript

00:00 (upbeat music)

00:02 - Hello and welcome to this special edition

00:11 of Profit Insights.

00:12 I am Heeral Dhadia and today we are discussing

00:16 all about multi-baggers.

00:18 Joining us on the show to discuss more

00:20 is Chakri Lokpriya, MD at TCG Asset Management.

00:24 Welcome to the show, Chakri.

00:26 - Hello, good afternoon.

00:29 - Good afternoon.

00:30 Chakri, my first question coming to you is,

00:32 overall, we've been talking about

00:35 what multi-baggers have been.

00:37 I mean, we've been identifying so many of them.

00:40 One of the multi-baggers that we've already identified

00:43 from Nifty 50 so far is a Tata Motors,

00:46 something that not really everyone had expected.

00:49 And that's what everyone is looking at going ahead.

00:52 For the benefit of the viewers,

00:54 how are you looking at multi-baggers

00:57 and what is a multi-bagger according to you?

01:00 - You know, it's a good question

01:02 because multi-baggers come in different shapes and sizes.

01:07 In terms of, you know, it can be a growth company,

01:11 a company who's adding new products

01:12 and therefore growing very fast.

01:14 Or it can be a turnaround,

01:15 a company whose fortunes have dimmed,

01:18 but now its valuations are so low.

01:21 Now it's the business is turning,

01:23 for the company is beginning to do better,

01:26 and therefore it'll start making greater amount

01:28 of revenue or profits.

01:29 That's the second kind.

01:31 The third kind could be, you know,

01:33 a company which has been growing at a steady state,

01:37 but now suddenly new avenues of businesses have opened

01:41 because of a change in the business landscape.

01:43 So they can belong to any one of the categories.

01:46 - Right.

01:48 So clearly, you know, returns more than the index

01:52 over the last three to five years

01:53 is something that we're looking at

01:55 as in terms of multi-baggers.

01:58 Now, when you talk about identifying multi-baggers,

02:00 you did mention a couple of criterias.

02:03 Let's first talk about a company which is a growth company,

02:07 which can be a multi-bagger, right?

02:09 Firstly, what is it that you would consider

02:12 as a growth company?

02:13 And if you could help us with a couple of examples

02:16 for the same.

02:17 - Yeah.

02:19 Now let's take the example of,

02:20 they come in different sectors.

02:22 So let's take for a very boring sector

02:25 like consumer staples.

02:26 Now, within that, you take a company, Warren Beverages.

02:30 They are one of the largest franchises

02:32 about distributors, bottlers of Pepsi.

02:36 Now, so they bottle Pepsi, Mirinda, Mountain Dew,

02:40 and they're also various juices like Tropicana

02:43 and also Aquafina.

02:45 Now this company has been a market leader,

02:48 one of the largest franchises of Pepsi.

02:50 So as Pepsi grows, the company grows.

02:53 And this company, Warren Beverages,

02:55 in particular has gone up something three and a half times

02:58 in the last two years.

03:00 One of the main reasons for that is one,

03:02 it's executed really well.

03:04 And second, its revenue is growing much faster

03:08 than that of the sector averages

03:10 because it's expanding into new markets.

03:13 It's expanded into new countries.

03:14 It's expanded into countries like Sri Lanka, Morocco,

03:18 various other countries that it's getting into.

03:20 Now, as these revenue opportunities unfold

03:24 and the company executes well,

03:27 then you begin to ascribe a multiple to the company

03:30 based on its execution in the past,

03:32 as well as its future revenue potential.

03:34 So here's a very good example of a company

03:36 as a staple, Warren Beverages,

03:38 but has gone up three and a half times

03:40 in the last less than about two, two and a half years.

03:43 - Right, so that's with regards

03:45 to where a growth company is concerned.

03:47 We are talking about Warren Beverages.

03:50 Now, second category that you have identified so far

03:54 is a company which probably is seeing a turnaround.

03:58 What is that kind of turnaround

04:00 that you would watch out for, number one?

04:03 I'm sure it'll be various depending on various sectors

04:06 and any examples on that that you can give us.

04:08 - Now, turnarounds can be many fold.

04:11 It can be a company whose its own business problems

04:16 as a therefore the stock has fallen

04:18 or second, it can be because of the sector.

04:20 Now, let's be more specific.

04:22 Let's take like, for example, an REC and Power Finance.

04:27 REC limited the stock is up about nearly five times

04:30 over the last two to three years.

04:32 Power Finance is up about four times.

04:35 Now, this company, they are Navratna Companies,

04:37 the government owned companies, power utilities,

04:40 they finance power utilities.

04:42 Now, if you rewind back in the past,

04:44 to let's say around 2007 and eight,

04:47 they had financed a number of power companies.

04:49 Supreme Court had come down,

04:51 changed some regulations, canceled coal mines.

04:53 So a number of power utilities went bankrupt

04:56 and they all became NPAs for Power Finance and REC.

04:59 Now, you fast forward many years later,

05:01 the companies cleaned up its balance sheet.

05:05 Balance sheets are stronger than ability to grow.

05:07 And then now renewable energy has become a very big thing.

05:10 And it's continued to going to be very big

05:12 for the next many years.

05:13 Now, being the lead financiers of this,

05:16 in Power Financing,

05:19 both the companies, REC and Power Finance,

05:21 are growing very fast.

05:23 The balance sheets are strong.

05:25 The secular growth is visible over the next many years.

05:29 Even though the stock is up,

05:31 both of them are up about four to five times

05:33 in the last two to three years,

05:35 the valuations are still undemanding

05:38 and the margins of the business are going to improve.

05:41 So this stock would continue to do well.

05:43 So that's another sign of an example of a turnaround,

05:47 which has become a multi-packet.

05:49 - Right.

05:50 So REC and PFC, these are examples with regards

05:53 to where a turnaround company goes.

05:56 Now, overall, if you see in terms

05:58 of both of these companies as well,

06:00 what is that key factor that you're considering,

06:03 which could continue to be a growth driver from here on?

06:06 Because as you mentioned about the past as well,

06:10 where a lot of negatives were there.

06:12 Present, there is a new thrust to renewables,

06:15 thermal energy as well.

06:16 So from here on, between the two of them as well,

06:20 which is the one that you are preferring?

06:22 - You know, good question.

06:25 If you look at both the companies,

06:26 one, they are NBFCs and they finance power utilities

06:31 as well as infrastructure companies.

06:34 Now that is the government's growth intent to expand.

06:37 And in terms of renewables, it's not just India,

06:40 but all over the world,

06:41 renewables has become a very important source

06:45 of growth and replacing.

06:46 And adding on to thermal energy.

06:49 So both Power Finance and RDC are financing.

06:52 Their loan growth is very strong at about 20% plus

06:56 for the next many years to come,

06:59 because they cleaned up their balance sheets.

07:01 Now they're well capitalized as a company

07:04 to finance that growth.

07:06 And three, being now in a sunrise sector again,

07:11 they're able, and given their size,

07:13 so that's an important factor,

07:15 where given their size,

07:17 they're able to source capital at an advantageous rate

07:21 versus other companies in the financing space.

07:25 And as a result, they earn higher margins.

07:28 And that is supposed to continue for the next many years.

07:31 And lastly, from a stock perspective,

07:33 even though they have done well,

07:35 given that their valuations are still reasonable,

07:38 one can continue to invest in such companies

07:41 in Power Finance, RDC,

07:43 and expect a further multi-bagger turn

07:46 for the next two to three years.

07:48 - Right, so that's with regards

07:50 to where turnaround companies go.

07:52 Stay with us, Chakri.

07:53 We'll quickly slip into a short break

07:54 and come back with another criteria

07:57 with regards to where identifying multi-baggers is concerned.

08:00 And that is with regards to change in business dynamics.

08:04 We'll slip into a short break and be right back.

08:06 Please stay tuned to NDTV Profit.

08:08 (upbeat music)

08:12 (upbeat music)

08:15 (upbeat music)

08:21 Welcome back.

08:27 You're watching Profit Insights.

08:28 I'm Hiral Dattia, and this is a special edition

08:31 where we're talking about multi-baggers

08:34 with Chakri Lokprear.

08:35 Chakri, we've identified two criteria.

08:38 The third one that we're looking at

08:39 is the change in business dynamics.

08:43 Now, if you talk about the change

08:44 in business dynamics as well,

08:47 what is it that you would be watching out for

08:49 with an example once again?

08:51 - Okay, you know, this is a very interesting one

08:55 because now let's take, for example, railway stocks.

08:58 You know, these are companies which every year

09:01 in the past you would talk about them during the budget,

09:03 then forget about them.

09:05 Now, because you know, they're a simple, boring business.

09:07 They supply wagons to the railways

09:09 who are primarily their main source of customer.

09:13 And now, you know, if you look at, for example,

09:15 a company, Tatager Wagons in this industry,

09:19 this stock has gone up by about 10 times

09:22 in the last two or three years.

09:23 Now, what made the company go up by 10 times?

09:27 Now, certainly you had not just the railways

09:30 just ordering a replacement demand or new demand,

09:33 but there was this huge government push

09:34 towards one-day barter, faster trains, better trains.

09:38 And so their order book for new types of trains

09:42 suddenly expanded, which means suddenly new type of trains

09:45 means higher margin, greater size, and longer order book.

09:50 And second, you know, metros,

09:53 which did not exist a few years ago.

09:55 Metros are becoming very big all across the country.

09:58 And now this company started getting orders

10:00 to build the wagons for the metros.

10:03 Again, far more higher specifications

10:05 than what railway wagons were a few years ago.

10:08 This again means higher revenue growth rates

10:11 and higher margins.

10:13 And third, the company itself has kind of woken up

10:17 and started exporting its products,

10:20 railway wagons to other countries.

10:21 So that's opened up a brand new revenue stream.

10:25 So if you add up all these together,

10:27 now the company is expected to grow

10:28 in a far higher growth rate than it did before,

10:32 make far more profit margins than it did before.

10:34 And therefore the stock, not surprisingly,

10:37 turned out to be a multi-bagger up several times.

10:40 - Right, so that's an example with regards

10:43 to where Titakar Wagon goes

10:46 and where we are talking about change in business dynamics.

10:49 Now, taking these three aspects into consideration, Chakri,

10:53 another question I have is,

10:55 what are the key risks one should be watching out for?

10:58 Because yes, as an investor, you would invest, you know,

11:02 in companies thinking they could be multi-baggers,

11:05 but I'm sure you have to take into consideration risks

11:08 which could be common.

11:09 How would you look at that?

11:11 - Absolutely right.

11:13 Now, again, depending upon the criteria

11:15 that you use to identify one of these companies.

11:19 Now, if you, let's say take the railway wagon company.

11:23 Now it's gonna be, it's out of book,

11:25 which is worth several thousand crore,

11:28 which is gonna be executed over the next several years.

11:31 So one needs to keep a track

11:33 of whether the company is actually converting

11:36 that out of book into actual revenue.

11:38 And is that revenue adding to the growth

11:41 and profitability of the company over the years?

11:44 So you need to monitor it on a quarterly basis

11:47 and on an annual basis to ensure

11:49 that this conversion is happening.

11:51 Now, if you take an REC or Power Finance,

11:55 you should explore one, for instance,

11:57 look at again, it's loan growth rate.

12:00 Is it continuing to accelerate?

12:02 Are the NPAs of the bank under control?

12:05 That gives you an indication of whether it's executing well,

12:08 the executing excellence of a company you can measure.

12:12 So there are various metrics.

12:13 So you need to measure the metrics on an ongoing basis,

12:18 on a quarterly and an annual basis

12:19 to ensure milestones are being met

12:22 and forecasts are being achieved.

12:24 - Right, so that's with regards to the risks

12:28 that we should be watching out for as well.

12:31 How are you looking at new entrance into the business?

12:35 How are you factoring that aspect?

12:40 - You know, that can add a completely new dynamics.

12:44 Now a company that did not exist in the space comes up,

12:49 takes up market share.

12:50 Now, if you take a company like JSW Paints, Grassim,

12:54 these are all coming into the paint industry.

12:57 Now, if you look back a few years ago,

13:00 hardly three, four years ago,

13:01 Asian Paints was and is the market leader,

13:04 enjoyed superior profit margins, superior revenue growth,

13:08 and is considered as one of the marquee players.

13:11 That was because it was in a two to three industry.

13:14 They were Berger Paints,

13:15 there are a couple of other companies, not more,

13:18 and the competition was limited.

13:19 Now, once with the entrant of Grassim and JSW,

13:23 they are in an adjacent business.

13:25 For instance, they're in the cement business,

13:27 which has a very similar distribution chain, supply chain,

13:31 like the paint industry,

13:32 and therefore they can plug into the paint industry

13:35 fairly quickly.

13:37 Now, and they have the muscle, the size,

13:39 to rapidly expand their, roll out their paint products.

13:44 As a result of that, the new entrants kind of benefit.

13:48 The existing entrants, like Asian Paints,

13:50 start losing market share, start losing profit margins,

13:54 and therefore start being a lesser multiple

13:57 the valuation comes down.

13:59 So that's a risk for a Asian Paints

14:01 and a benefit for a newer entrant.

14:03 - Right, so that's with regards to a newer entrant's goal.

14:07 Now, the last and the most important thing

14:10 that I'm sure viewers and investors are watching out for

14:14 is that we've spoken about a couple of companies

14:17 which have already been multi-baggers, right?

14:19 So from here on, which are the stocks

14:22 that you would identify as multi-baggers, Chakri?

14:26 Let's go one by one.

14:28 Do you think a power finance, that's a PFC and REC,

14:32 in spite of being a multi-bagger in 2023,

14:35 or even in the last two years,

14:38 continues to see that upside

14:40 because the fundamentals look absolutely strong.

14:43 I mean, a 10 trillion AUM is what the target is in FY28.

14:48 The growth we're looking at is about 15%

14:52 in the next two to three years.

14:54 With the exposure that they have,

14:57 do you think that's still a multi-bagger

14:58 and what's your rationale?

15:00 - You know, you raised some very important points.

15:02 And if you look at it,

15:03 we're just a back from power finance and REC.

15:06 Now, renewable energy and thermal energy

15:09 are gonna be very important sources of growth.

15:12 If India has to grow at 7% plus, you need a lot of power.

15:16 And in make in India,

15:17 which means more of manufacturing,

15:20 which requires more power.

15:22 And therefore you need greater number

15:23 of power utility companies.

15:25 And those power utility companies need financing

15:28 to start up new factories.

15:30 And that financing is coming,

15:32 is being led by REC and power finance.

15:35 Now, these companies, like you rightly mentioned,

15:37 have a 10 trillion kind of target,

15:40 which is very doable given the current growth rate

15:43 that they're growing at.

15:45 And second, you know,

15:46 the company's management has been very proactive

15:49 and looking at low cost funds,

15:52 managing their cost of funds very well,

15:55 mixing the loan liability ratios.

15:57 So which means execution,

15:59 the company is continuing to,

16:01 both of them are continuing to execute really well.

16:03 And in spite of the fact that they've been multi-baggers,

16:08 they still trade at only one time book value,

16:10 about 1.2 times book value on FY26.

16:14 Now, when your loan growth is clearly evident

16:16 over the next many years,

16:17 the companies will clearly can be multi-baggers

16:20 even from current levels.

16:22 - Right.

16:23 So that's with regards to PFC as well as REC.

16:26 Now, any other company that you would identify

16:29 as a multi-bagger and why?

16:31 - You know, if you look at the power space,

16:34 it's quite a wide space.

16:36 Now you have, we talked about financiers.

16:38 We talked about, now if you look at,

16:40 now what, again, what is good for somebody

16:43 can be bad for somebody else.

16:45 Now, solar panel prices are coming down

16:48 and coming down very fast.

16:50 So, and it is like following the principle,

16:52 which is in the technology industry

16:55 where prices keep coming down.

16:57 And therefore it's bad for solar panel manufacturers.

17:00 On the other hand, a company like Sterling Wilson,

17:03 which is an EPC player,

17:05 which installs these various solar farms all over,

17:10 they benefit from that because, you know,

17:13 worldwide solar panels is coming down.

17:15 The company is well positioned as renewable energy,

17:18 gathers space, not just in India, but outside India.

17:22 The company has exposure to, of course, the Indian market

17:26 and outside India, they've expanded

17:28 into various parts of Africa

17:30 where the solar ability is very strong.

17:34 In addition to that, now they have a very strong stakeholder

17:36 in the Reliance Industries,

17:38 owning 40% of the company and Reliance in itself

17:41 has very big plans for the solar industry.

17:45 So given all that, now this is a company

17:47 which has turned around from the past

17:50 and given that it has a new leg of growth,

17:52 the valuations are pretty much on its side.

17:54 And I think this is another stock

17:56 which has all the credentials to be a multi-bagger.

17:59 - Right, so Sterling and Wilson,

18:01 which has all the credentials to be a multi-bagger as well.

18:05 Chakri, let me take one more stock with you.

18:08 You know, specifically, if you see in terms of multi-baggers,

18:11 we've always identified them from the mid-cap,

18:14 small cap universe, right?

18:16 Very rarely you see multi-baggers that evolve

18:19 out of nifty-fifty or, you know, from the large cap space.

18:23 One such example that I have with regards to 2023

18:26 is a Tata Motors.

18:27 The year 2023, the stock went up two times.

18:30 In 2021, Tata Motors was up 2.6 times.

18:34 2009, it was up five times

18:36 and 2003, up around 2.3 times, right?

18:39 So in that last two decades,

18:42 four times Tata Motors has been a multi-bagger.

18:46 How would you look at this company now?

18:48 - You know, absolutely, rightly said.

18:51 And, you know, multi-baggers can come both in large,

18:54 mid or small cap.

18:55 So there is no, I would urge all your viewers

19:00 to basically to look across the spectrum.

19:03 Tata Motors, perfect example.

19:04 This is a company which has, you know,

19:07 over the many years ago, acquired Jaguar,

19:10 then Land Rover.

19:12 In making those acquisitions,

19:13 it had incurred a huge amount of debt

19:16 and therefore the balance sheet became weaker.

19:19 And then it did lots of steps to lower the debt over time.

19:24 And meanwhile, Jaguar and Land Rover started doing well.

19:27 And now the company is foraying very well

19:30 into domestically and abroad,

19:33 into the electric vehicle space.

19:35 They have 10 different electric vehicles

19:37 across the different price point spectrums,

19:39 appealing to different types of customers.

19:41 So their future product profile is extremely strong.

19:45 They cater to both the luxury market, Jaguar, Land Rover,

19:48 as well as the lower segment.

19:50 They're there in passenger,

19:51 as well as in commercial vehicles.

19:53 And they're now generating free cash flows

19:56 and their valuations are pretty much on their side.

19:59 So with the global economic recovery insight

20:02 with the company actions,

20:04 looks like Tata Motors again,

20:06 can be a very strong performer in the coming years.

20:09 Right, so Tata Motors,

20:11 that could be a strong performer as well in coming years.

20:15 In fact, thank you Chakri so much for joining us on the show

20:18 and explaining to our viewers what are multi-baggers,

20:22 the ways we could identify them as well,

20:24 and what could be potential multi-baggers going ahead.

20:28 That's when we're completely out of time

20:30 on this edition of Profit Insights

20:33 and a detailed discussion of what multi-baggers

20:37 could be from here on.

20:39 Thanks for watching and lots more lined up on the other side.

20:41 Please stay tuned to NDTV Profit.

20:43 (upbeat music)

20:46 (upbeat music)

20:48 (upbeat music)

Identifying Multibaggers With Chakri Lokapriya | NDTV Profit

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