Picking great stocks is like treasure hunt, you won’t find them lying in the open. In order to get your hands to them, you to take risk, and go places no one dares to go.
While its definitely risky, and the reason why most people don’t even dare to explore, those who have the courage, definitely reap the benefits.
Similarly, in order to find great multibaggers of the future, you have to look at the most feared and the most beaten down market segments.
Read: Characteristics of a Multibagger Stock - Infimoney
In the past 1 year, two market segments have been the most feared and the most avoided by investors. These are Smallcaps and Midcaps.
The fear is pretty natural, while throughout the year, broad-based indices like Nifty have performed well, it is the midcap and the smallcap that have seen significant beating.
Chart Source: Tradingview
If you look at the chart above, Nifty has seen some up move, while Mid and smallcap indices have clearly disappointed.
Why am I looking at mid and smallcaps for multibaggers when they have not performed at all?
Because when indices get beaten down, stocks, that are a part of such indices, (with good fundamentals) become available at attractive valuations.
Also, If we look at the longer history of these indices, both of them have outperformed Nifty in the long run.
Here is the 5 years comparative chart of Nifty’s performance compared to Nifty Midcap 50 and NSE CNX Smallcap 100
As it is evident from the chart above, that Nifty Midcap and Smallcap Indices have clearly outperformed Nifty by wider margins.
Based on the above rationale, I have picked one stock from each midcap and smallcap index which has strong fundamentals but are available at attractive valuations, and can give great returns if one is willing to stay invested in them for the next 3–5 years.
Also Read: Types of Multibagger Stocks and How to Spot Them
Cholamandalam Investment and Finance:
A part of Nifty Midcap 50 index, Cholamandalam Investment and Finance is engaged in providing loans for commercial vehicles, especially targeting Light commercial vehicles (LCV).
Revenue Breakup: Almost 76% of the total loan book of the company is composed by vehicle finance, out of which 31% is contributed by LCV.
Source: Edelweiss Research Report
The company has pan India presence with well diversified geographical presence.
Source: Edelweiss Research Report
Financial Performance:
Cholamandalam Investment and Finance has seen good growth in loan disbursements in the past 5 years from approx. Rs. 13,000 crores in 2014 to approx Rs. 25,000 crores in 2018.
Source: Company Annual Report
Company also enjoys high Net interest margins which means company has been very efficient in its asset allocation and enjoys healthy interest spread.
Source: Company Annual Report
Profitability: Company has seen healthy profit growth in the past decade.
Source: Screener.in
As it is evident from the charts above, Cholamandalam Investment and Finance has not only improved its profitability in the past 10 years, but has also improved its profit margins from mere 4% in 2009 to 18% in 2018.
All these facts show that Cholmandalam Investment and Finance has performed extremely well in the past and has a strong and robust business.
But as Warren Buffet says, “An investor today cannot profit from yesterday’s growth”
In order to remain a great investment for the future, Company has to keep growing in the future, which is possible only when there are growth opportunities in the market to be tapped.
Future Growth Potential:
As per one of the research done by CRISIL, the LCV market will be dominated by NBFCs, with almost 80% market share by 2020.
As per the same report, the LCV market will continue to grow at 16% CAGR for the coming years, providing great opportunity for NBFCs like Cholamandalam Investment Finance to expand their business.
Here is an excerpt:
Source: Crisil Report published in The Hindu Buisnessline
Disclaimer: Ankit Shrivastav is a SEBI registered Research Analyst (Reg. No. INH000006758). I, or my family members do not have positions in the stocks discussed above. This is not a recommendation to buy or sell, but my personal opinion on the stock discussed. I encourage investors to do their own research before investing.
While its definitely risky, and the reason why most people don’t even dare to explore, those who have the courage, definitely reap the benefits.
Similarly, in order to find great multibaggers of the future, you have to look at the most feared and the most beaten down market segments.
Read: Characteristics of a Multibagger Stock - Infimoney
In the past 1 year, two market segments have been the most feared and the most avoided by investors. These are Smallcaps and Midcaps.
The fear is pretty natural, while throughout the year, broad-based indices like Nifty have performed well, it is the midcap and the smallcap that have seen significant beating.
Chart Source: Tradingview
If you look at the chart above, Nifty has seen some up move, while Mid and smallcap indices have clearly disappointed.
Why am I looking at mid and smallcaps for multibaggers when they have not performed at all?
Because when indices get beaten down, stocks, that are a part of such indices, (with good fundamentals) become available at attractive valuations.
Also, If we look at the longer history of these indices, both of them have outperformed Nifty in the long run.
Here is the 5 years comparative chart of Nifty’s performance compared to Nifty Midcap 50 and NSE CNX Smallcap 100
As it is evident from the chart above, that Nifty Midcap and Smallcap Indices have clearly outperformed Nifty by wider margins.
Based on the above rationale, I have picked one stock from each midcap and smallcap index which has strong fundamentals but are available at attractive valuations, and can give great returns if one is willing to stay invested in them for the next 3–5 years.
Also Read: Types of Multibagger Stocks and How to Spot Them
Cholamandalam Investment and Finance:
A part of Nifty Midcap 50 index, Cholamandalam Investment and Finance is engaged in providing loans for commercial vehicles, especially targeting Light commercial vehicles (LCV).
Revenue Breakup: Almost 76% of the total loan book of the company is composed by vehicle finance, out of which 31% is contributed by LCV.
Source: Edelweiss Research Report
The company has pan India presence with well diversified geographical presence.
Source: Edelweiss Research Report
Financial Performance:
Cholamandalam Investment and Finance has seen good growth in loan disbursements in the past 5 years from approx. Rs. 13,000 crores in 2014 to approx Rs. 25,000 crores in 2018.
Source: Company Annual Report
Company also enjoys high Net interest margins which means company has been very efficient in its asset allocation and enjoys healthy interest spread.
Source: Company Annual Report
Profitability: Company has seen healthy profit growth in the past decade.
Source: Screener.in
As it is evident from the charts above, Cholamandalam Investment and Finance has not only improved its profitability in the past 10 years, but has also improved its profit margins from mere 4% in 2009 to 18% in 2018.
All these facts show that Cholmandalam Investment and Finance has performed extremely well in the past and has a strong and robust business.
But as Warren Buffet says, “An investor today cannot profit from yesterday’s growth”
In order to remain a great investment for the future, Company has to keep growing in the future, which is possible only when there are growth opportunities in the market to be tapped.
Future Growth Potential:
As per one of the research done by CRISIL, the LCV market will be dominated by NBFCs, with almost 80% market share by 2020.
As per the same report, the LCV market will continue to grow at 16% CAGR for the coming years, providing great opportunity for NBFCs like Cholamandalam Investment Finance to expand their business.
Here is an excerpt:
Source: Crisil Report published in The Hindu Buisnessline
Disclaimer: Ankit Shrivastav is a SEBI registered Research Analyst (Reg. No. INH000006758). I, or my family members do not have positions in the stocks discussed above. This is not a recommendation to buy or sell, but my personal opinion on the stock discussed. I encourage investors to do their own research before investing.
