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- Aug 26, 2022 - 5 Multibagger Stocks to Watch Out for in 2023
5 Multibagger Stocks to Watch Out for in 2023
Keeping track of the Indian stock market for quite some time now, I can say that the stock market is a crazy place.
The recent recovery took everyone by surprise. After falling throughout 2022, the market recovered in less than two months.
Investors with high appetite were back looking for the best midcap stocks to buy and the best smallcap stocks to buy.
My point is...the stock market never fails to surprise investors with its constant ups and downs.
Take a look at the chart below to see the movement of the BSE Sensex since 2000.
Now, as can be seen from the chart above, there are phases where the entire market has rallied significantly.
During these bull market phases, there were stocks which rallied continuously for several months or even years. These stocks are called momentum stocks.
There's also a popular strategy - momentum investing - where investors buy outperforming securities and avoid or sell underperforming ones.
This strategy is built on the premise that stocks which have gone up will continue to go up and vice versa. The goal here is to work with the 'momentum' by finding buying opportunities in an uptrend.
Keeping that in mind, we bring to you five such multibagger stocks which have rallied in the past one year.
These stocks have good growth prospects pertaining to the industry they operate in and they are also trading near their 52-week high levels.
These stocks should be on your watchlist for 2023. Let's get started...
#1 Fineotex Chemical
The chemical sector is known to produce multibagger stocks. That too, in a short span of time.
Of late, certain developments have raised the prospects of India's chemical sector. To cut dependence on China, several countries have adopted the China plus one strategy and shifted some of their operations to India.
Also, the recent energy crisis in Europe has turned out to be beneficial for Indian specialty chemical companies.
Some of the client demand is shifting from Europe to India as companies there are temporarily closing operations due to energy shortage. So, it's important you keep the best specialty chemical companies on your watchlist.
One such company that has lived up to its name is Fineotex Chemical.
Fineotex Chemicals is engaged in the business of manufacturing auxiliaries and specialty chemicals for textiles, construction, water treatment, fertilizer, leather, and paint industries.
As a leading manufacturer, Fineotex provides the entire range of products for pre-treatment, dyeing, printing, and finishing for textile processing to customers across the globe.
Over the past one year, share price of Fineotex Chemical has gained 168%.
Despite the high market volatility, the company has emerged as a winner as it improved revenues from new orders and delivered stable performance in the core divisions.
Take a look at the table below which shows the company's financials.
Financial Snapshot
| Rs m, consolidated | FY18 | FY19 | FY20 | FY21 | FY22 |
|---|---|---|---|---|---|
| Revenues | 1,411.2 | 1,823.3 | 1,963.4 | 2,185.1 | 3,682.3 |
| Growth (%) | 11% | 29% | 8% | 11% | 69% |
| Operating Profit | 351.4 | 353.0 | 364.0 | 580.6 | 767.2 |
| OPM (%) | 25% | 19% | 19% | 27% | 21% |
| Net Profit | 227.0 | 225.2 | 130.8 | 425.9 | 551.7 |
| Profit Margin (%) | 16% | 12% | 7% | 19% | 15% |
| Total Debt | 47.5 | 21.9 | 30.4 | 34.8 | 19.1 |
| Debt to Equity (x) | 0.03 | 0.01 | 0.02 | 0.02 | 0.01 |
The company primarily gets orders from textile companies but this year, it diversified to other sectors and bagged orders from FMCG companies.
According to the company's management, these new orders are expected to generate incremental revenues of Rs 1.5-2 bn and it has guided for a revenue of Rs 5.5 bn by end of this year.
The company also plans to increase the installed capacity to one lakh metric tonnes (MT) by the end of September 2022, compared with a capacity of 42,000 MT in 2020.
Moreover, if we look at the company's latest shareholding pattern, promoters have bought shares to a large extent.
The company is also present in Ashish Kacholia's portfolio. He recently added exposure to the stock.
It appears all things are coming together for Fineotex. It is also a debt-free company.
Fineotex Chemical's financials, share price performance and overall growth prospects all look positive.
#2 West Coast Paper Mills
Most paper stocks rose in 2022. Paper and companies manufacturing paper products were the big gainers as India decided to reduce the use of plastics to reduce plastic pollution.
The ban on plastic kicked in on 1 July. Paper stocks benefit from this as paper is an alternative to plastic.
Another reason behind the rally in paper stocks is most states are lifting lockdowns and announcing the re-opening of schools and offices. As kids move back from the PDF to paper for reading and writing, the prospects of paper stocks look good.
Now, a boring sector like paper has had its fair share of prolonged rough patches. But in the last one year, it invariably found the mojo back.
Among the lot, one stock which particularly rose the most is West Coast Paper Mills.
Over the past one year, share price of West Coast Paper Mills has gained 161%.
West Coast Paper Mills is the flagship entity of the SK Bangur Group, based out of Kolkata. It manufactures writing and printing papers, among other products. It has a 3.2-lakh metric tonne per annum (MTPA) plant at Dandeli, Karnataka.
The paper and paperboard division accounts for over 95% of the total revenues. Take a look at the table below to see the company's financial performance.
Financial Snapshot
| Rs m, consolidated | FY18 | FY19 | FY20 | FY21 | FY22 |
|---|---|---|---|---|---|
| Revenues | 17,102.0 | 19,791.5 | 24,928.6 | 22,445.3 | 33,776.7 |
| Growth (%) | 242% | 16% | 26% | -10% | 50% |
| Operating Profit | 3,803.6 | 5,309.2 | 6,698.3 | 2,773.0 | 6,955.4 |
| OPM (%) | 22% | 27% | 27% | 12% | 21% |
| Net Profit | 2,231.5 | 2,960.1 | 3,703.8 | (31.0) | 3,070.4 |
| Profit Margin (%) | 13% | 15% | 15% | 0% | 9% |
| Total Debt | 3,214.7 | 3,674.5 | 7,585.0 | 6,679.6 | 4,516.6 |
| Debt to Equity (x) | 0.38 | 0.33 | 0.55 | 0.48 | 0.27 |
Earlier this month, the company reported strong financials for June 2022 quarter owing to acquisition of Andhra Paper.
Mutual funds are slowly and steadily increasing their stake in the company. As of June 2022, they hold 7.96% stake in the company. This is up from 7.71% in June 2021.
The latest shareholding pattern of West Coast also shows that FIIs are bullish on the company.
As things stand now, there are speculations that there could be a hike in paper price from 1 September 2022.
The prospect for backward integrated paper companies (like West Coast) looks good as they are expanding their capacity.
#3 Monte Carlo
Monte Carlo is a leading branded apparel company with a comprehensive range of woolens, cottons, cotton blended, knitted and woven apparels for men, women and kids.
For the past few quarters, the company has delivered stellar growth in revenue and profit.
In the recent June 2022 quarter, the textile company registered record sales as cotton prices eased and due to strong store addition.
The company opened 11 new exclusive brand outlets. It plans to open a total of 30 stored by end of March 2023.
In an exchange filing, the company said it saw strong demand across segments in terms of revenue with things getting back to normal.
Taking note of the above points, Mr Market has rewarded shareholders of Monte Carlo Fashions.
Over the past one year, share price of Monte Carlo has gained 144%.
The gains for this year can also be attributed to the company getting qualified for the government's production-linked incentive (PLI) scheme for the textile sector.
Coming to full year performance, in financial year 2021-22, the company reported a strong operational performance.
The strong growth was led by all segments with kids and the cotton segment contributing to higher growth.
For the year, the company's net profit came in at Rs 1.1 bn, which is a 72% growth and also the highest in the company's operating history.
Financial Snapshot
| Rs m, standalone | FY18 | FY19 | FY20 | FY21 | FY22 |
|---|---|---|---|---|---|
| Revenues | 5,759.5 | 6,563.8 | 7,256.1 | 6,220.2 | 9,043.2 |
| Growth (%) | -0.4% | 14% | 11% | -14% | 45% |
| Operating Profit | 1,309.3 | 1,165.8 | 1,359.4 | 1,357.3 | 2,055.1 |
| OPM (%) | 23% | 18% | 19% | 22% | 23% |
| Net Profit | 679.2 | 596.0 | 626.9 | 663.0 | 1,140.4 |
| Profit Margin (%) | 12% | 9% | 9% | 11% | 13% |
| Total Debt | 557.2 | 475.2 | 363.6 | 348.1 | 684.2 |
| Debt to Equity (x) | 0.11 | 0.1 | 0.07 | 0.06 | 0.10 |
At present, Monte Carlo is trying to increase its online presence.
One of the top investing gurus of India Dolly Khanna has added exposure to the stock in the June 2022 quarter. Although she did sell some stake in the preceding quarter.
#4 Maharashtra Seamless
Incorporated in 1988, Maharashtra Seamless is part of the DP Jindal Group, which also includes Jindal Pipes and Jindal Drilling Industries.
The company primarily manufactures seamless pipes across its manufacturing facilities at Raigad in Maharashtra.
It enjoys market leadership in the domestic seamless pipes market and has the capacity to manufacture seamless pipes with outside diameter (OD) of up to 20 inches. This segment sees relatively low competition.
Over the past one year, share price of Maharashtra Seamless has gained 163%.
So, what reasons can be attributed to this stellar performance? Well, one prime reason can be the promoters showing confidence by adding exposure to the stock.
The shareholding pattern for Maharashtra Seamless shows that promoters of the company have increased stake for four consecutive quarters. Promoters buying shares usually comes as a big positive.
Another reason can be its strong financial profile. Take a look at its yearly and quarterly performance.
Financial Snapshot
| Rs m, consolidated | FY18 | FY19 | FY20 | FY21 | FY22 |
| Revenues | 21,814.4 | 30,517.9 | 26,448.3 | 23,083.4 | 42,003.0 |
| Growth (%) | 38.4% | 40% | -13% | -13% | 82% |
| Operating Profit | 3,760.7 | 7,374.4 | 5,905.2 | 5,528.3 | 7,231.0 |
| OPM (%) | 17% | 24% | 22% | 24% | 17% |
| Net Profit | 2,107.3 | 2,342.0 | 838.7 | 980.4 | 4,333.0 |
| Profit Margin (%) | 10% | 8% | 3% | 4% | 10% |
| Total Debt | 6,264.3 | 10,587.1 | 11,454.4 | 9,215.5 | 7,086.0 |
| Debt to Equity (x) | 0.21 | 0.34 | 0.36 | 0.28 | 0.19 |
Quarterly Performance
| Rs m, consolidated | Jun-21 | Mar-22 | Jun-22 |
|---|---|---|---|
| Revenues | 6,904.8 | 14,189.9 | 13,343.7 |
| Operating Profit | 1,582.4 | 1,996.6 | 2,448.1 |
| PAT | 958.2 | 988.1 | 1,532.3 |
Going forward, market experts are projecting the company to expect strong orders from countries like the Middle East and Europe.
#5 TCPL Packaging
TCPL Packaging (Twenty First Century Printers) manufactures folding cartons, printed blanks and outers, litho lamination, blister packs and flexible packaging products used in the food, FMCG, cigarette, liquor, pharma, pesticide, and stationery industries.
Established position in the industry gives the company an edge. The company is present in the industry for more than three decades and has healthy relationships with customers and suppliers.
Over the past one year, share price of TCPL Packaging has gained 140%.
And the reasons behind this rally are not hard to guess...
Mutual funds and FIIs both remain bullish on the stock. The shareholding data for TCPL shows they have added exposure for the past three quarters.
The gains can also be attributed to the all-round financial performance and due to capacity addition.
The company has made capacity addition by installing the second line at its flexible packaging unit.
Here's a table showing the company's financial performance.
Financial Snapshot
| Rs m, standalone | FY18 | FY19 | FY20 | FY21 | FY22 |
|---|---|---|---|---|---|
| Revenues | 6,980.5 | 8,158.1 | 8,897.8 | 9,038.2 | 10,760.2 |
| Growth (%) | 13.9% | 17% | 9% | 2% | 19% |
| Operating Profit | 877.0 | 1,057.3 | 1,280.9 | 1,362.7 | 1,590.2 |
| OPM (%) | 13% | 13% | 14% | 15% | 15% |
| Net Profit | 202.2 | 289.5 | 365.2 | 337.4 | 492.6 |
| Profit Margin (%) | 3% | 4% | 4% | 4% | 5% |
| Total Debt | 2,978.0 | 3,202.0 | 3,598.3 | 3,023.1 | 4,068.5 |
| Debt to Equity (x) | 1.38 | 1.33 | 1.34 | 1.01 | 1.18 |
Only debt remains a problem now as the company has added some debt for capex.
The company's management has said that TCPL is well positioned to cater to the growing demand for sustainable packaging solutions from leading brands.
To know more, check out TCPL Packaging 2021-22 annual report analysis.
To conclude...
If you think every stock you invest in will be a multibagger, you will be unhappy with the outcome.
The idea should be to buy the shares of a good quality company. One that has a solid foundation, sound growth strategy, and an exceptional management team. Once these factors are in place, all you have to do is remain invested for the long haul.
If you follow this strategy, you will definitely make handsome returns. And once in a while you may end up with a multibagger.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...
Yash Vora is a financial writer with the Microcap Millionaires team at Equitymaster. He has followed the stock markets right from his early college days. So, Yash has a keen eye for the big market movers. His clear and crisp writeups offer sharp insights on market moving stocks, fund flows, economic data and IPOs. When not looking at stocks, Yash loves a game of table tennis or chess.
FAQs
Which are the top multibagger stocks in India right now?
As per Equitymaster's Stock Screener, these are the stocks which have given multibagger returns to shareholders -
These companies have been ranked as per the returns they have delivered to shareholders in the last three years on a compounded annual growth rate (CAGR) basis.
Remember, it's not easy to identify future multibagger stocks, but if you do it carefully and with due diligence, you can find high growth companies which can turn out to become future multibaggers.
"How to pick the best multibagger stocks in India?
While there's no guaranteed method, multibagger stocks have some qualitative rules.
#1 A solid competitive advantage
A company's ability to sustain its market share over time is what matters. A competitive advantage can be anything ranging from brand name and goodwill to patents, etc.
For example, IRCTC currently enjoys a 100% monopoly in its industry. It is an e-ticketing and catering company that has no competitors yet.
#2 Fast sales growth and a high current or future profitability
Consistent growth is certainly an indication the company is doing well and has good prospects. You should understand the business, its future prospects, expansion plans, and industry outlook.
#3 Low or falling debt levels
Multibagger stocks usually have low debt. If a company is highly leveraged and unable to generate profits, it can be a cause of concern for the investor.
#4 Growing free cash flow
Investors love companies that produce plenty of free cash flows. It signals a company's ability to repay debt, pay dividends, buy back stock, and facilitate the growth of business - all important undertakings from an investor's point of view.
#5 High and possibly increasing Return on Equity (ROE)
Equitymaster has a screener which can help you find high growth companies. You can start you search there.
And if you want to get a sense of how big returns could be, see our list of multibagger stocks here...
When should you sell a multibagger stock?
There isn't any standard thumb rule for when to sell a stock. However, you can follow a few guidelines.
You can sell the stock if the company's fundamentals take a turn for the worse. You could also sell if the stock has achieved the predetermined target price.
Other reasons for selling could be if the business has entered a mature or a declining phase in the growth cycle, and for rebalancing your portfolio.
Which sectors can produce future multibagger stocks?
Multibagger stocks are not restricted to any sector. A sector can be re-rated and see a sharp rally at one time while it may underperform when the tide turns.
For instance, the paper sector was shunned by investors during the Covid-19 pandemic when demand was weak. Additionally, the prospects looked to be in danger with digitization taking over.
But when demand picked up as states lifted lockdowns and re-opened schools, paper stocks were big beneficiaries.
With changing market dynamics, one should invest in sectors that have scope for good long-term growth.
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