KEY TO PICKING MULTI-BAGGER STOCK IDEAS
Published by Sharekhan Education | February 14, 2020
What are multi-baggers?
Multi-baggers are stocks that gain multi-fold in value over a particular period. Recent multi-baggers include Asian Paints, Cera Sanitaryware, TTK Prestige, and LIC Housing Finance. These stocks have been the darlings of the stock market. News, reports, and investors often highlight strong earnings growth, boosting these companies’ stock valuations.But investors rarely talk about management strategy and strategic vision and their impact on long-term value creation from stocks. Assessing the management is the key to picking multi-bagger stock ideas.
Real-life Example
Let us explore Eicher Motors, a multi-bagger, to see how effective management strategies resulted in impressive shareholder returns.
At age 26, Siddharth Lal took over as CEO of Eicher Motors in 2000. Mr. Lal who was youthful and energetic, had a challenging assignment. He had to make some hard decisions to brighten the prospects of the ailing Royal Enfield. Mr. Lal decided to give it a shot. At 30, as Eicher Group COO, he axed 13 businesses, focusing resources on Royal Enfield and Eicher trucks. In both these core segments, Eicher Motors had a reasonably strong market position. Mr. Lal’s decision led to a surge in Royal Enfield sales, boosting revenue (CAGR 21.8%) and EBITDA margin (15.9% from 10.4%).
Strategy
Mr. Lal had some other strategic decisions to make when he wanted to scale up the Royal Enfield side of the business. He decided to improve the economies of scale by building Royal Enfield bikes on a single platform, which helped boost sales by six times in just half a decade. Later, he decided to shift into higher gear and drive into international markets. He hired several key personnel to achieve his objective of becoming a sizable player in the international motorcycle market. Mr. Lal recruited experts from Harley Davidson, Ducati, Triumph, and Hindustan Unilever.
Reviving Royal Enfield, Mr. Lal ventured into a new truck strategy with a Volvo JV. Mr. Lal emphasizes “small is big,” staying focused on top-quality vehicles. Eicher Motors aspires to lead commercial transportation modernization in India and the developing world.
Performance
Eicher Motors’ stock has gone up from Rs1,235 in CY2010 to Rs21,675 as of November 30, 2016. The performance of the stock itself speaks volumes about the company’s management’s long-term strategy and Mr. Lal’s visionary leadership skills.
While there is no doubt that management strategy and strategic vision play a key role in creating long-term wealth for shareholders, investors need to do two things:
- Identify companies with sound strategic management and a long-term vision.
- Regularly track whether the same is being successfully implemented.
You can visit screener.in to scan for multi-bagger ideas.
If you like to know where to find such details and identify more about key to picking multi-bagger stock ideas, then register for one of our free seminars, “Power Money Workshop,” and join our investment education program, “Ace Investor Course,” to polish your investing skills.
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Happy reading…
