5 Multi-bagger Stocks for the next 5 years

The year 2017 was a splendid year for the Indian stock markets. Nifty 50 and Sensex started
at 8,179 and 26,595 levels respectively and have given 28.7% and 28% return respectively in
the calendar year 2017. Similarly, 2018 also started on positive note. Further, gradual pickup
in corporate earnings, focus on healthcare, infrastructure & rural economy in the Union
Budget 2018 are likely to be the next big triggers for the market. However, it is difficult to
find stocks that can give enormous returns in such an expensive market. Based on the
fundamentals, management outlook and product portfolio of the company, we have cherry
picked the below mentioned stocks that could be potential multi-baggers in the coming years.

Greenply Industries
Greenply Industries Ltd (Greenply) is India’s leading plywood and medium density
fibreboard (MDF) manufacturer with market share of 26% (organized plywood) and 30%
(MDF) in India. The company has a presence in over 300 cities across 21 states serviced
through a well-entrenched distribution network of 2,497 dealers and authorized stockists. We
estimate revenue CAGR of 19.1% over FY18E-20E. This will be led by increasing
urbanization and rising spend on home improvement. The company is planning to increase its
plywood capacity by 40% and MDF capacity by 100% to meet the increasing demand. The
entire capacity is to be operational from FY19E onwards. Thus, we expect the company to be
ready to take advantage of the market share gains post the implementation of GST. We
expect EBITDA CAGR of 20.4% over FY18E-20E on the back of increasing mix of value
added products. We see PAT CAGR of 16.4% over FY18E-20E.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x)
FY18E 1,825 14.3% 135 11.1 33.4
FY19E 2,091 13.8% 131 10.7 34.5
FY20E 2,590 14.6% 183 15.0 24.7

Source:5 Paisa Research

Central Depository Services Ltd. (CDSL)

Central Depository Services Ltd. (CDSL) is the leading securities depository in India offering
dematerialization (demat) services to Depository Participants (DPs) and other capital market
intermediaries. CDSL’s primary segments consist of annual fees, transaction fees, annual
maintenance charges and other charges contributing 39%, 21%, 2% and 38% to revenues
respectively. The duopolistic nature of this industry with high entry barriers and constant rise
in market share (increasing demat accounts) from 46% in FY12 to 64% in Q3FY18 bodes
well for the company. Hence, we expect sales CAGR of 20% over FY18E-20E. The
penetration in stock market at mere 2-3% provides significant opportunity to CDSL. The
increase in volumes along with efforts to improve efficiency through offering single demat
account to investors and enabling centralized billing system and complete bouquet of
products / services will support EBITDA growth. Hence, we expect EBITDA CAGR of 22%
over FY18E-20E. We see PAT CAGR of 18% over FY18E-20E.

Year Net Sales (Rs cr) OPM (%) Net Profit (Rs cr) EPS (Rs) PE (x)
FY18E 194 59.8% 104 10.0 33
FY19E 244 60.7% 128 12.2 26
FY20E 283 61.4% 147 14.1 23

Source:5 Paisa Research

JK Cement
JK Cement (JKCEM), with total grey cement capacity of 10.8mtpa, would benefit from
expected volume growth in North India. JKCEM sells 64% of volumes in the northern and
western regions. We expect JKCEM to register strong revenue CAGR of 12.3% over FY18E-
20E led by improving utilization level in North India (government spending on roads and
affordable housing) and strong performance of white cement (pricing 2.5x grey cement).
Additionally, JKCEM will benefit from cost rationalization through economies of scale,
commissioning of railway siding and grid connection at the UAE plant. Cost rationalization
and increasing share of white cement in total revenue (33%) will aid margin expansion;
EBITDA margin is estimated at 20.8% in FY20E (410bps expansion over FY18E-20E). We
see PAT CAGR of 43% over FY18E-20E.

Year Net Sales (Rs cr) OPM (%) Net Profit (Rs cr) EPS (Rs) PE (x) EV/EBITDA (x)
FY18E 4,730 16.7% 320 45.8 22.5 13.1
FY19E 5,322 19.0% 480 68.6 15.0 10.2
FY20E 5,967 20.8% 654 93.5 11.0 8.3

Source:5 Paisa Research

Tejas Network
Tejas Networks Ltd (TNL) is the second largest company in the Indian optical equipment
market. It sells products to internet service providers and telecom, defence companies and
government entities. TNL would be a beneficiary of increased data traffic for telecom
operators, thus requiring continuous optical capex in a bid to remain competitive in an
increasing competition environment. It also stands to benefit from being the only Indian
optical network equipment company. Government’s capex under initiatives like BharatNet
Project should aid its revenues, as project SPV, Bharat Broadband Network Ltd, is a key
contributor to TNL’s revenues. Allocated spends of Rs10,000cr on the project in this Budget
would also support revenue growth. TNL has advantages vs. global companies owing to low
cost manufacturing. Higher revenue growth and resultant operating leverage should aid
EBITDA margins. Overall, we estimate revenue CAGR of 17.2%, EBITDA margin
expansion of ~160bps and PAT CAGR of 27.8% over FY18E-20E.

Year Net Sales (Rs cr) OPM (%) Net Profit (Rs cr) EPS (Rs) PE (x)
FY18E 1,099 22.30% 128 14.3 24.7
FY19E 1,298 23.20% 172 19.2 18.4
FY20E 1,510 23.9% 209 23.3 15.1

Source:5 Paisa Research

Biocon Ltd
Biocon is India’s largest biologics company and an established player in research business. In
FY17, small molecules, CRO, branded formulations and biologics contributed 41%, 29%,
14% and 12% respectively and the rest 4% came from the licensing fees. In India, it is the
largest biologics company and has products like INSUGEN, BASALOG, CANMAb,
ALZUMAb, etc. Geographically, India contributes 30% of total revenue and 70% of revenue
comes from overseas markets. Biocon’s early entry in the biosimilars business is positive for
the company. The company, with its partner Mylan, is developing total 10 biosimilars, of
which 3 (Pegfilgrastim Trastuzumab and Insulin Glargine) are submitted for regulatory
submission. Company’s research business i.e. Syngene, in the last year has signed two new
dedicated clients and has undertaken a capex of $200mn to expand its capabilities and
forward integrate. This will help Biocon to grow its profit 6x over next five years. We expect
31.7% and 73.7% CAGR in revenue and PAT over FY18E-20E. Biocon is expected to
witness 38.6% EBITDA CAGR during this period.

Year Net Sales (Rs cr) OPM (%) Net Profit (Rs cr) EPS (Rs) PE (x)
FY18E 4,086 25.2% 592 9.9 60.9
FY19E 4,869 27.0% 706 11.8 51.1
FY20E 7,090 27.9% 1787 29.8 20.2

Source:5 Paisa Research