#8thVIPS – Unveiling the Multibagger Blueprint: Essential Strategies for Investment Success

In the dynamic and ever-evolving investment landscape, the pursuit of multibagger opportunities remains a compelling quest that demands strategic insight, astute decision-making, and a deep understanding of market dynamics. In the 8^th Value Investing Pioneers Summit (VIPS) organised by CFA Society India, Sunil Singhania, CFA, Founder, Abakkus Asset Manager LLP delved into the intriguing subject of the multibagger blueprint and essential strategies for investment success. 

India has emerged as a promising hub for investment, offering a multitude of opportunities. Sunil spoke about the remarkable performance of the Indian market, for example, small caps have exhibited an impressive 27% return over the last decade. He shared examples of a few mutual funds that have been multi-baggers, delivering commendable return of at least 20% since their launch. He mentioned that India’s equities market is well diversified and offers a plethora of choices. Furthermore, the entrepreneurial opportunities and new companies entering the market provide further diversification and expansion prospects. Evidence comes from more than 60 IPOs in 2024 itself. The last 3-5 years have been a great time for stock pickers and have delivered impressive returns. However, the scenario has changed, prompting the need for a more strategic approach.

Mr Sunil’s discourse delved into the essential characteristics necessary for identifying potential multibagger opportunities, providing a comprehensive framework for investors to assess and navigate the market effectively. Notably, the value and fundamental-focused approach adopted by companies play a pivotal role in this pursuit.

He underscored the significance of management changes and their transformative impact on stock prices. He provided compelling examples to illustrate the influence of management transitions on businesses. He added that management is one of the most important factors that drives corporate performance as well as the perception (P/E) of a company. A competent management team is a must and can be promoter-driven or professionally managed. There have been many instances of a change in management leading to a sharp turnaround in a company’s performance – from loss to profit, faster growth, and tough decisions. Improvement in performance also leads to a significant rerating of multiples, leading to the possibility of multibagger opportunities. 

Consistent profit growth emerged as another key factor, with Sunil dissecting the interplay between earnings and perception. Through a series of examples he elucidated how consistent profit growth, triggered substantial rerating and market confidence for these companies.

Furthermore, he emphasized the strategic restructuring of businesses through splits or sales, extraordinary or one-off write-offs, and the importance of cash profits and balance sheet strength as critical determinants for identifying multibagger opportunities. He shared an example where the company had one-off provisions for a few quarters. When depreciation expense normalized, there was a sharp increase in PAT and a commensurate surge in the stock price. Meanwhile high cash profits can also be an indicator to invest at an early stage. In another instance, the company reported net losses but had made significant cash profits at the same time. The company used cash profits to pay off debts, and as fundamentals improved, the stock got rerated, rising 5x over the last five years.

In addition to these factors, he provided insights into the impact of operating leverage, completion of major capex, and the potential presented by cyclicals in downturns. He also shed light on the nuances of change in perception, the opportunities arising from valuation discrepancies, and emerging themes such as solar, EV, railway, and defence, all of which hold significant potential to shape the investment landscape in the coming years.

As Mr Sunil’s talk drew to a close, the audience was left with a profound understanding of the multibagger blueprint. The strategies and characteristics delineated offer a comprehensive roadmap for investors seeking to unearth potential multibagger investments in the market. He mentioned that in this dynamic world, new themes keep popping up, so it’s crucial to be on the lookout for them. In the wake of limited immediate opportunities, his insights equip investors with the knowledge and tools to navigate the complex world of investments with prudence and foresight.