You are on page 1of 29

Strategy

Ten-baggers 8.0
THEMATIC January 28, 2019

A re-look at the past for progress Exhibit A: Ten-baggers 8.0


Ticker Company
Mcap
Our greatness framework has been the cornerstone of our portfolio US$ mn)
construction approaches and overall coverage. We take a re-look at the Attractive valuations*
method to make it more stringent for inputs capturing shifting quality. ADVENZY IN Advance. Enzyme. 261

Last year’s equally-weighted portfolio for the first time underperformed JCHAC IN Johnson Con. Hit 672

BSE500 (ex BFSI), but this approach’s last 7-year cumulative TSR has CCLP IN CCL Products 510
NTCPH IN Natco Pharma 1,799
been ~182% (~23% CAGR) vs. ~111% (~14% CAGR) for the BSE500 (ex
JYL IN Jyothy Lab. 983
BFSI). Dominance of richly valued stocks in last year’s portfolio possibly
TMKN IN Timken India 595
led to this underperformance; this year’s portfolio is dominated by
DMART IN Avenue Super. 11,922
attractively valued stocks (relative to historicals) with an equal mix of
AVNT IN Avanti Feeds 708
small/mid/large-cap names. Last year’s sub-BSE500 portfolio witnessed
LOG IN La Opala RG 337
declines (~-19%) but lower than the Small Cap index (~-28%); quality
NILK IN Nilkamal Ltd 278
saved the day. Our Ten-bagger 8.0 portfolio’s business quality can be WIL IN WABCO India 1,677
gauged by relatively high RoCE of ~27% vs BSE500 (ex BFSI) of ~20%. DAGRI IN Dhanuka Agritech 281
Ten-bagger iterations have continued to outperform JBCP IN J B Chem & Pharm 363
Whilst the BSE500 ten-baggers have managed to outperform the BSE500 Index GOAGRO IN Godrej Agrovet 1,348
by ~10% points per annum (on a cumulative basis) over the last seven years, DLPL IN Dr Lal Pathlabs 1,223
the ten-baggers from the sub-BSE500 universe that we highlighted in the SOMC IN Somany Ceramics 216
previous six iterations have managed to outperform the BSE Small-cap Index by HEIM IN Heidelberg Cem. 482

~19% points per annum (on a cumulative basis). Outperformance for all our SFL IN Sheela Foam 863

live ten-baggers from the BSE500 and the sub-BSE500 universe demonstrates TPW IN Torrent Power 1,738
KNPL IN Kansai Nerolac 3,423
that the construct works in the real world too. CY18 poor performance could be
MSIL IN Maruti Suzuki 30,142
explained by high share (63%) of very richly valued mainly large cap companies.
Moderate valuations**
Performance of the BSE500 ten-bagger portfolios (since 19 January 2012) WH IN Venky's (India) 451
PVRL IN PVR 1,051
80.0 73.3 71.2 SCHI IN Sudarshan Chem. 316
57.1 KJC IN Kajaria Ceramics 1,220
60.0 51.7
3M IN 3M India 3,271
42.8
Return (%)

Rich valuations***
40.0
SF IN Sundram Fasten. 1,540
BRIT IN Britannia Inds. 10,708
20.0 6.7 9.5
WHIRL IN Whirlpool India 2,620
ATLP IN Atul 1,472
-
1.0(2012) 2.0(2013) 3.0(2014) 4.0(2015) 5.0(2016) 6.0(2017) 7.0(2018) Source: Ambit Capital research. Note: Market cap as on
19 Jan 2019. Above are sorted on Greatness score
(20.0) * Trading below five-year P/E, P/B, EV/EBITDA
(on at least two of these three measures)
Tenbagger iteration return index return cumulative alpha ** Trading below either five-year P/E, five-year P/B or five-
year EV/EBITDA (on one of these three measures)
*** Trading above five-year P/E, P/B, EV/EBITDA
Source: Bloomberg, Ambit Capital research. Note: Performance is on a total-return basis; i.e. assuming
dividends are reinvested back into the same stock on the ex-dividend date. Index is BSE500 index (ex-
BFSI). Returns are calculated on 1-year forward basis; i.e. from date of one iteration to next.
Relook at our existing greatness framework
We modify our ‘greatness’ framework, thereby evaluating/incorporating the Research Analysts
drivers of greatness (e.g. incremental capex, efficiency in capital employed Nitin Bhasin
turnover etc) rather than the actual outcomes (i.e. RoE, RoCE, PAT etc.) to +91 22 3043 3241
identify the great firms. We observe that great firms identified using new nitin.bhasin@ambit.co
framework have outperformed the great firms identified using old framework by
~2.2% (average returns) in CAGR terms, over a 15-year period (2004-2019). Vinit Powle
+91 22 3043 3149
Key financials of our BSE500 (ex BFSI) ten-bagger portfolios vinit.powle@ambit.co
1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 BSE500
Nikhil Pillai
Cash conversion 65% 58% 67% 76% 67% 81% 69% 67% 6% +91 22 3043 3265
RoE (%) 35% 29% 30% 30% 31% 34% 25% 21% 15% nikhil.pillai@ambit.co
RoCE (%) 45% 35% 37% 37% 38% 41% 30% 27% 20% Karan Khanna, CFA
Debt / equity ratio (0.1) 0.1 (0.0) (0.1) (0.0) 0.0 0.0 0.0 0.6 +91 22 3043 3251
EBIT margins 20% 17% 18% 16% 19% 20% 18% 15% 15% karan.khanna@ambit.co
Source: Ambit Capital research
allresearch@ambit.co;ambitresearch@ambitcapital.com
Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital
may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.
Strategy - Ten-baggers 8.0

CONTENTS

Relook at the philosophy and framework………………………………………………….. 3

Quantifying greatness…………………………………………………………………………. 6

Does this approach work?........................................................................................ 7

Ten-baggers 8.0………………………………………………………………………………. 10

Greatness framework on sub-BSE500 firms……………………………………………….15

Key fundamental parameters of our ten-baggers’ portfolios……………………………17

Performance check: Jan 2018 ten-baggers………………………………………………..18

Performance check: Jan 2017 sub-BSE500 ten-baggers……………………………….. 21

Valuations: A long-term perspective!...................................................................... 22

Appendix - January 2019 ten-baggers’ business activity description…………………. 24

Brief introduction: What is ten-bagger portfolio?


Unlike our Coffee Can Portfolio, wherein we ask investors to own the portfolio for
10 years, here we churn this equally-weighted portfolio annually (historically 1/3rd
but this time in entirety). Objective of this process is to try to generate 26% CAGR
over a 10-year holding horizon by buying companies which are improving on
Greatness as well as accounting scores. Improving Greatness scores imply that the
company’s RoCE metric will be improving as the Greatness score is built on inputs
which lead for RoCE uplift gradually. This time we churn the portfolio in entirety for
the change in methodology; read our attempt to improve.
Greatness Score is built on comparing the last three year financials over the
previous three years; this time we compare FY16/17/18 vs FY13/14/15.
Please note that the stocks highlighted through this process are not necessarily all
going to be individually Ten-baggers.

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 2
Strategy - Ten-baggers 8.0

Relook at the philosophy and framework


‘’Greatness is not in where we stand, but in what direction we are moving….’’
- Oliver Wendell Holmes
The ’greatness‘ framework
This quote appropriately captures the driving philosophy behind our ’greatness
‘framework that lies at the core of our process of identifying potential ten-baggers. The framework essentially
hinges on using publicly
Relook at our greatness framework available historical data to
assess which firms have, over
Instead of evaluating on the basis of final outcomes (looking for companies with a sustained period of time
higher/consistent RoE, RoCE etc.), we make some changes in our framework to rather (FY13-18), been able to
focus on the drivers which actually drive these final outcomes. We look for companies relentlessly and consistently:
that in the quest of achieving ‘greatness’ believe in adhering to right processes over a
(a) Invest capital
period of time. These processes eventually make them structurally sound companies. (b) Turn investment into
A basic sketch of the underlying process behind the making of a great firm has been sales
(c) Turn sales into profit
captured in Exhibit 1 below.
(d) Turn profit into
Exhibit 1: Revised ‘greatness’ framework - emphasizing more on the drivers to balance sheet strength
greatness (e) Turn all of that into
free cash flow
(f) Invest free cash flows
b. Conversion of again
a. Incremental
capex year on year investment to sales
(sales growth)
Clearly, this approach will
have limited value if there is a
structural break in the sector
or in the company, which
c. Pricing discipline makes past performance a
(PBIT margin) meaningless guide to future
performance. (For identifying
structural breaks of this sort,
for example in the Indian
boiler-turbine-generator
sector or in the Indian utilities
c. Achieving efficiency sector, we look to our sector
in capital employed leads for help.)
turnover
However, to the extent that
such structural breaks tend to
e. Cash generation d. Balance sheet be the exception than the
(CFO) rule, the greatness model
discipline (D/E, equity
helps in creating a shortlist of
dilution)
stocks that investors can then
analyse in greater detail.

Source: Ambit Capital research, Company Put simply, the greatness


model separates the wheat
from the chaff. Yet, it does not
We rank the BSE500 universe of firms (excluding financial services firms and cook the whole meal for you!
excluding firms with insufficient data) on our ’greatness ‘score, which consists of six
equally weighted headings—investments, generation of sales, efficiency in capital
employed turnover, pricing discipline, balance sheet discipline and cash generation.
Under each of these six headings, we further look at two kinds of improvements:

 Percentage improvements in performance over FY15-18 (3 fiscals) vs. FY12-


15 (3 fiscals); and

 Consistency in performance over FY12-18 (6 fiscals); i.e. improvements


adjusted for underlying volatility in financial data.
A complete list of factors that are considered whilst quantifying greatness has been
provided in Exhibit 2 below:
allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 3
Strategy - Ten-baggers 8.0

Exhibit 2: Factors used for quantifying greatness


Head Criteria/formulas
1 Incremental capex Above median incremental capex to depreciation (FY16-1818 over FY13-15)
2 Conversion to sales a. Improvement in sales (FY16-18 over FY13-15)*
b. Above median sales increase to standard deviation
Efficiency in capital
3 a. Improvement in capital employed turnover (FY16-18 over FY13-15)
employed
b. Above median capital employed turnover increase to standard deviation
3 Pricing discipline a. Above median PBIT margin increase (FY16-18 over FY13-15)*
b. Above median PBIT margin increase to standard deviation
Balance sheet
4 a. Below median debt-equity decline (FY16-18 over FY13-15)*
discipline
b. Below median debt-equity decline to standard deviation
c. Above median equity dilution increase (FY16-18 over FY13-15)*
d. Above median equity dilution increase to standard deviation
Cash generation and
5 a. Above median CFO increase (FY16-18 over FY13-15)*
PAT improvement
b. Above median CFO increase to standard deviation
Source: Ambit Capital research. Note: * Rather than comparing one annual endpoint to another annual endpoint (say, FY13 to FY18), we prefer to average data
out over FY13-15 and compare that to the averaged data from FY16-18. This gives a more consistent picture of performance (vs. simply comparing FY13 to FY18).

We rank the entire universe of firms with market cap greater than `1,000mn
(excluding financial services firms) on this score to arrive at this year’s rankings on Both improvement and the
this measure of improvement in company’s RoCE or profitability. After removing consistency of those
financial services firms and firms with insufficient data, 407 firms from the BSE500 improvements are important
and 1009 firms from the sub-BSE500 universe were ranked based on greatness
scores.
Note that to calculate the greatness scores, we have divided the entire universe into
two parts: (a) all BSE500 companies; and (b) all sub-BSE500. The highlights from the
distribution of firms (BSE500) on our ’greatness‘ score are displayed in the next page.
On pages 7-8, we show a back-test of this framework over 2004-2019 and find that
it works on a consistent basis. On pages 18 and 21, we show the real world
performance of these sets of portfolios over the past year and demonstrate that the
construct works in the real world as well. On a total shareholder returns basis (i.e.
assuming dividends are reinvested into the same stock on the ex-dividend date), the
lists from the BSE500 (ex-BFSI) universe cumulatively delivered ~23% total CAGR
returns (over the past seven years) vs. ~14% total CAGR returns for the BSE500 Index
(ex BFSI). Similarly, the lists from the sub-BSE500 universe that we had published in
our previous six iterations have cumulatively delivered ~25% total CAGR returns
(over the past five years) vs. ~15% CAGR returns for the BSE Small-cap Index.
On pages 10 and 15, we delve into this year’s list of 30 firms that constitute our ten-
baggers 8.0. This is followed by a list of 15 firms (on page 15) from the sub-BSE500
universe that do well on the same framework.
Using the new methodology, we observe that the number of ‘great firms’ reduce by
20 (~22%) as compared to the number of ‘great’ firms identified under the old
methodology. The new methodology emerges as a more stringent method of
evaluating the companies.

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 4
Strategy - Ten-baggers 8.0

Exhibit 3: Number of great firms under the new methodology reduce by 20 (~22%)
as compared to the number of ‘great’ firms identified under the old methodology
Year No. of great companies Reduction
New methodology Old methodology
2003 57 88 -35%
2004 67 101 -34%
2005 76 98 -22%
2006 72 99 -27%
2007 75 86 -13%
2008 63 90 -30%
2009 68 100 -32%
2010 64 89 -28%
2011 62 70 -11%
2012 60 85 -29%
2013 61 76 -20%
2014 71 84 -15%
2015 78 83 -6%
2016 85 99 -14%
2017 99 125 -21%
2018 72 84 -14%
Average 71 91 -22%
Source: Ambit Capital research

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 5
Strategy - Ten-baggers 8.0

Quantifying greatness
Within the BSE500 universe (ex BFSI), after removing firms with insufficient data, 407 *The greatness score is
firms were scored on the six headings highlighted on the previous page. The cut-off calculated by assigning
for greatness was placed at 67%* and only 72 firms (~18% of the total population of
equal weightages to the six
407 firms) could manage a score above this cut-off.
factors outlined in Exhibit 2
Exhibit 4: Distribution of firms on the greatness score (total population: 407 firms) on page 4.
140
120 Thus, each of these six
100 factors carries a weightage
of 16.7%. The scoring on
80 161 firms 72 firms sub-criteria within each of
60 score < 50% score >67% these factors is binary, with
40 174 firms a firm getting either 1 or 0
(between 50% based on whether it has
20
and 67%) done better than the
0
respective threshold or not.
0%-10%

100%
10%-20%

20%-30%

30%-40%

40%-50%

50%-60%

60%-70%

70%-80%

80%-90%

90%-
These scores are then
cumulated to arrive at a
Source: Ambit Capital research. Note: Universe for this exhibit is BSE500 companies.
final greatness score on 100
In the next exhibit, we present key financial data on the three zones defined above: for the firm.
Mediocrity (161 firms), Good but not great (174 firms), and Great (72 firms).
Exhibit 5: Zone of greatness – Financial summary
Mediocre Good but not great Great
Number of firms 161 174 72
Mcap (US$ mn)* 927 1,020 1,017
Share price (3-year CAGR)# 8% 12% 17%
Gross block (3-year CAGR) 9% 9% 11%
Sales (3-year CAGR) 4% 9% 11%
Adj PAT (3-year CAGR) 6% 18% 22%
CFO (3-year CAGR) 4% 13% 21%
EBIT Margin (3-year average) 13% 14% 15%
RoE (3-year average) 11% 17% 22%
RoCE (pre-tax) (3-year average) 13% 19% 24%
Net debt equity (3-year average) 0.2 0.3 0.1
FY19 P/E (x) 21.3 20.4 21.4
FY19 P/B (x) 2.7 3.1 3.8
FY20 P/E (x) 16.6 16.3 17.7
FY20 P/B (x) 2.4 2.7 3.3
Source: Capitaline, Ambit Capital research. Note: Universe for this exhibit is BSE500. All figures are based on
median values of the firms analysed. *Market cap as of 22 January 2018. # indicates share price performance
from January 2016 to January 2019. 3 years is based on data for the FY16/FY17/FY18

With regard to fundamentals, the superiority of the great firms compared with the
other two groups is evident in Exhibit 5 above. Of the great firms from BSE500 index,
we identify the ones that perform the best on our accounting and corporate
governance filters, which leads to our final list of 30 great companies. Before we
move on to these 30 potential ten-baggers, we shall discuss a back-test of the
‘greatness’ framework in the next section to see whether ‘great’ firms have indeed
managed to deliver superior returns historically.

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 6
Strategy - Ten-baggers 8.0

Does this approach work?


The ‘greatness’ approach has served us well in live portfolios, both in the ten-baggers
format and as a tool for stock selection in the Good & Clean portfolios (click here for Over 2004-19, ‘Great’ firms have
the latest G&C portfolio which was published on 16 Nov 2018). That this approach outperformed the universe by
works on a cross-cyclical basis is supported by a back-test of the framework. 3.5% points per annum (on
Performance of ‘Great’ Firms average returns) and the BSE500
Index by 5.7% points per annum
Our back-test of the ‘greatness’ framework in India, going back to 2003 (which
implies using data since 1997-98), shows that ‘great’ firms have historically delivered
superior results. Using average returns as a measure to gauge the performance of
‘great’ firms, we note that they have managed to outperform the universe by 3.5%
(on average returns) and the BSE500 index by 5.7% (in CAGR terms; over a 15-year
period from 2004 to 2018).

Calculation of average returns: The back-test is based on annual rebalancing


with forward-looking returns being calculated from December 31 of year X to
December 31 of year X+1; for example, iteration for the most recent year (Ten-
bagger 7.0), the framework included numbers until FY17 and returns have been
calculated from 31 December 2017 to 31 December 2018.
Further, as discussed earlier, since we have modified our ‘greatness’ framework this
year thereby evaluating the drivers of greatness (e.g. incremental capex, efficiency in
capital employed turnover etc) rather than the actual outcomes (i.e. RoE, RoCE, PAT
etc.) to identify the great firms, we observe that great firms identified using new
framework have outperform the great firms identified using old framework by 2.2%
(on average returns) in CAGR terms; over a 15-year period from 2004-2018).
‘Great’ firms are those that score more than 67% on our framework. We rebalance
these buckets once a year (on 31 December) taking into account the preceding six
years of financial data (FY13-18 in the case of Ten-baggers 8.0). The performance
over the subsequent year is measured on calendar year basis.
Exhibit 6: Average performance of ‘Great’ firms vs. the Universe and BSE500 Index
(2004-2018) under the new framework
Over 2004-18, ‘Great’ firms
1,800 under new framework have
1,600 outperformed the ‘Great’ firms
1,400 Greatness under the old framework by 2.2%
1,200 model
18.5% CAGR per annum
1,000
15.1% CAGR BSE500
800
600 12.8% CAGR
400 Universe
200 (average
basis)
-
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19

Source: Ambit Capital research. Note: The back-test is based on annual rebalancing with forward-looking returns
being calculated from December 31 of year X to December 31 of year X+1; for example, in the exhibit above, for
the most recent year, the framework included numbers until FY17 and returns have been calculated from 31
December 2017 to 31 December 2018. (Note: The above exhibit only considers the share price returns and not
the total shareholder returns).

Outperformance was also seen on a median basis. A median firm in the universe has
delivered 4.9% CAGR returns (over 2004-2018). In contrast, a median ‘great’ firm
has managed to deliver 9.7% CAGR returns, thus resulting in an outperformance of
4.8% (on a CAGR basis) for ‘great’ firm vs. the universe.

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 7
Strategy - Ten-baggers 8.0

Exhibit 7: Median performance of ‘Great’ firms vs the Universe (2004-2018) under Outperformance was also seen
our NEW framework on a median basis
600 Greatness model Universe (median basis)

500
400
9.7% CAGR
300
200 5.4% CAGR

100
0

Nov-13
Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19
Source: Ambit Capital research; Note: The back-test is based on annual rebalancing with forward-looking returns
being calculated from December 31 of year X to December 31 of year X+1; for example, in the exhibit above for
the most recent year, the framework included numbers until FY17 and returns have been calculated from 31
December 2017 to 31 December 2018. (Note: The above exhibit only considers the share price returns and not
the total shareholder returns).

Note that this back-test does not consider accounting or management quality, which
we believe are factors that should improve the performance of our live portfolios.
That’s what the next section of this note focuses on.
Performance of ten-bagger portfolios with a hypothetical Sensex-based ETF
Assume that you invested US$100mn in our first ten-bagger portfolio (Ten-baggers
1.0) released on 19 January 2012. Assume further that you churn/sale the entire ten-
baggers 1.0 portfolio on the 366th day to avoid short-term tax implications on capital
gains (taxable @15% on net gains) and reinvest the entire proceeds post bearing the
total price impact cost and brokerage cost (considered as 100bps) in our new ten-
baggers iterations (Ten-baggers 2.0) and you continue the same process every year.
The ten-bagger portfolios would have generated a CAGR of ~21% till Jan 2019 as
against ~11% CAGR which would have been earned by any hypothetical SENSEX
based ETF.
Further, note as per the latest amendments in the income tax laws with effect from
FY19, capital gains earned on sale of equity based portfolios or funds (e.g. MFs, ETFs)
would attract a tax of 10% on net gain even if the sale is made beyond the holding
period of 365 days). Also dividend (above Rs10 lacs) earned on these portfolios or
funds are taxable at rate of 10%. Given the similar tax implications and tax rate for
both, i.e. any equity based portfolio or ETFs, we have ignored the tax implications for
our calculation purpose, as a similar tax % cut from returns of either ten-bagger
portfolio or ETFs will not change the end-results of our analysis.
Exhibit 8: Average performance of ten-baggers and hypothetical Sensex-based ETF

Ten bagger iteration Sensex ETF cumulative alpha

100%
80%
60%
40%
20%
0%
(1.0)2012 (2.0)2013 (3.0)2014 (4.0)2015 (5.0)2016 (6.0)2017 (7.0)2018
-20%
Ten-bagger iterations (1.0 to 7.0)

Source: Bloomberg, Ambit Capital research. Note: Performance in above exhibit is on a total-return basis; i.e.
assuming that dividends are reinvested into the same stock on the ex-dividend date. Returns are calculated on 1-
year forward basis, i.e. from date of 1 iteration to next.

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 8
Strategy - Ten-baggers 8.0

Performance of Ten-bagger portfolios and BSE/Sub-BSE 500 index


Before we delve into this year’s list of 30 firms that constitute our Ten-baggers 8.0,
the following two exhibits show the performance of the live ten-bagger portfolio since
January 2012 when we first unveiled this framework. Whilst the BSE500 ten-baggers
have managed to outperform the BSE500 Index by ~10% points per annum (on a
cumulative basis) over the last seven years, the ten-baggers from the sub-BSE500
universe that we highlighted in the previous six iterations have managed to
outperform the BSE Small-cap Index by ~19% points per annum (on a cumulative
basis). Outperformance for all our live ten-baggers from the BSE500 and the sub-
BSE500 universe demonstrates that the construct works in the real world too.
Exhibit 9: Performance of the BSE500 ten-bagger portfolios (since 19 January 2012)

80.0 73.3 71.2


57.1
60.0 51.7
42.8
Return (%)

40.0

20.0 9.5
6.7
The live performance of our
- ten-bagger portfolios has been
1.0(2012) 2.0(2013) 3.0(2014) 4.0(2015) 5.0(2016) 6.0(2017) 7.0(2018) impressive too
(20.0) Tenbagger iterations (1.0 to 7.0)
Tenbagger iteration return index return cumulative alpha

Source: Bloomberg, Ambit Capital research. Note: Performance in the exhibit above is on a total-return basis; i.e.
assuming that dividends are reinvested into the same stock on the ex-dividend date. We have used BSE500 index
(ex-BFSI). Returns are calculated on 1-year forward basis; i.e. from date of 1 iteration to next.

Exhibit 10: Performance of sub-BSE500 ten-bagger portfolios (since 14 January 2013)

150.0 127.2 133.9


116.6
103.5 107.5
100.0
Return (%)

41.5
50.0

-
2.0(2013) 3.0(2014) 4.0(2015) 5.0(2016) 6.0(2017) 7.0(2018)

(50.0) Tenbagger iterations (1.0 to 7.0)


Small-caps tenbagger iteration return BSE Smallcap index return cumulative alpha

Source: Bloomberg, Ambit Capital research. Note: Performance in exhibit above is on a total-return basis; i.e.
assuming that dividends are reinvested back into the same stock on the ex-dividend date.

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 9
Strategy - Ten-baggers 8.0

Ten-baggers 8.0
In the latest iteration of the ten-bagger exercise, to identify stocks for the portfolio,
we select firms which clear our ‘greatness’ filters (i.e. where the ‘greatness score’ is
more than 67%) as well as ‘accounting’ filters (i.e. where the stock does not fall in the
bottom three deciles on accounting in our accounting model).
An overlay of accounting and
To identify the stocks for our Ten-bagger 8.0 iteration, we start with firms with the corporate governance checks to
highest ‘greatness score’. Within these firms, we remove firms: the greatness framework is the
 That fall in the ‘Zone of Darkness’ in our accounting model (i.e. the bottom 3 last but critical step
deciles on accounting quality; for a full exposition of our accounting filter, please
refer to our 21st December 2018 note“ Accounting quality strikes back”); and
 Firms with suspect corporate governance.
This overlay of ‘greatness’, ‘accounting’ and corporate governance checks allows us
to identify the 30 firms that comprise our ten-bagger portfolio. We highlight that we
do not exclude the companies where our analysts may have a negative view for near-
term earnings or valuations.
Exhibit 11: Ten-baggers 8.0 portfolio
S.no Ticker Company Greatness score Accounting decile
1 ADVENZY IN Advance. Enzyme. 92% D4
2 JCHAC IN Johnson Con. Hit 92% D6
3 CCLP IN CCL Products 92% D7
4 NTCPH IN Natco Pharma 92% D5
5 JYL IN Jyothy Lab. 83% D2
6 TMKN IN Timken India 83% D2
7 DMART IN Avenue Super. 83% D4
8 AVNT IN Avanti Feeds 83% D4
9 LOG IN La Opala RG 83% D6
10 NILK IN Nilkamal Ltd 75% D1
11 WIL IN WABCO India 75% D2
12 DAGRI IN Dhanuka Agritech 75% D2
13 JBCP IN J B Chem & Pharm 75% D6
14 GOAGRO IN Godrej Agrovet 75% D7
15 DLPL IN Dr Lal Pathlabs 75% D2
16 SOMC IN Somany Ceramics 75% D5
17 HEIM IN Heidelberg Cem. 83% D3
18 SFL IN Sheela Foam 83% D6
19 TPW IN Torrent Power 75% D1
20 KNPL IN Kansai Nerolac 75% D3
21 MSIL IN Maruti Suzuki 75% D7
22 WH IN Venky's (India) 92% D3
23 PVRL IN PVR 92% D5
24 SCHI IN Sudarshan Chem. 92% D7
25 KJC IN Kajaria Ceramics 75% D2
26 3M IN 3M India 75% D3
27 SF IN Sundram Fasten. 83% D3
28 BRIT IN Britannia Inds. 83% D4
29 WHIRL IN Whirlpool India 75% D2
30 ATLP IN Atul 75% D4
Source: Ambit Capital research, Company

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 10
Strategy - Ten-baggers 8.0

Having identified the 30 great firms that exhibit the ingredients required to be
tomorrow’s winners, we run a valuation check to ascertain if they are currently
trading at reasonable prices for outright investments. In our view, whilst valuations do
matter on a tactical basis, how the underlying fundamentals evolve for the firm over
long periods plays a more important role in determining returns than the beginning-
of-the-period valuation itself. Further, the performance of the previous iterations of
our ten-bagger portfolio corroborates our finding that beginning-of-the-period
valuations do not play a significant role in shaping subsequent investment
returns. We discuss this in detail in the final section of this note.
To determine whether a particular stock is cheap or not, we categorise these stocks
into three buckets based on their relative attractiveness on valuations with respect to
their own history. We compare these firms with respect to their five-year average
valuations on three metrics — P/B, P/E and EV/EBITDA. We find 21 firms to be
inexpensive (on at least two of the three metrics). However, for the long term, all 30 For the long-term investor,
stocks remain candidates to be ten-baggers from our perspective (as we have beginning-of-period valuations
reiterated time and again that current period valuations do not have a significant do not have a significant impact
effect on long-term returns! Please see pages 18-19 for details). on returns
We have bottom-up coverage with BUYs on 2 of these – Maruti Suzuki and PVR.

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 11
Strategy - Ten-baggers 8.0

Exhibit 12: January 2019 ten-baggers – valuation perspective


3 median Blended FY18 and Overall
Mcap Cheap w.r.t. history?
Sr. ADV FY19 valuations cheap on
Ticker Company
No. EV/ how many
(US$ mn) (US$ mn) P/E P/B EV/EBITDA P/E P/B
EBITDA counts?
Attractive valuations*
1 ADVENZY IN Advance. Enzyme. 259 0.7 18 3.3 9.4 Yes Yes Yes 3
2 JCHAC IN Johnson Con. Hit 678 0.3 47 8.3 25.1 Yes Yes Yes 3
3 CCLP IN CCL Products 510 0.3 23 4.5 14.1 Yes Yes Yes 3
4 NTCPH IN Natco Pharma 1,789 3.6 17 3.8 12 Yes Yes Yes 3
5 JYL IN Jyothy Lab. 987 0.8 36 5.9 23.3 Yes Yes Yes 3
6 TMKN IN Timken India 600 0.2 37 4.5 18 Yes Yes Yes 3
7 DMART IN Avenue Super. 11,989 8.6 98 16.8 57.2 Yes Yes Yes 3
8 AVNT IN Avanti Feeds 703 2.9 15 4.4 9.9 Yes Yes Yes 3
9 LOG IN La Opala RG 338 0.1 24 4.5 18.5 Yes Yes Yes 3
10 NILK IN Nilkamal Ltd 276 1.3 16 2.2 8.8 Yes Yes Yes 3
11 WIL IN WABCO India 1,687 0.5 40 7.2 25.6 Yes Yes Yes 3
12 DAGRI IN Dhanuka Agritech 282 0.2 16 3 12.1 Yes Yes Yes 3
13 JBCP IN J B Chem & Pharm 372 0.5 17 1.8 9.3 Yes Yes Yes 3
14 GOAGRO IN Godrej Agrovet 1,347 1.8 39 6.1 21.5 Yes Yes Yes 3
15 DLPL IN Dr Lal Pathlabs 1,230 0.8 47 10.2 27.6 Yes Yes Yes 3
16 SOMC IN Somany Ceramics 215 0.2 26 2.5 13.4 Yes Yes Yes 3
17 HEIM IN Heidelberg Cem. 480 0.7 21 3.1 8.3 Yes - Yes 2
42
18 SFL IN Sheela Foam 867 0.1 7.7 31.3 Yes Yes - 2
12
19 TPW IN Torrent Power 1,732 5.3 1.5 5.8 Yes - Yes 2

20 KNPL IN Kansai Nerolac 3,405 1.2 46 7.3 29 Yes Yes - 2


21 MSIL IN Maruti Suzuki 29,889 62.2 26 4.7 17.5 Yes Yes - 2
Moderate valuations**
22 WH IN Venky's (India) 448 3.0 15 3.9 8.7 Yes - - 1
23 PVRL IN PVR 1,057 3.6 52 6.5 17.7 Yes - - 1
24 SCHI IN Sudarshan Chem. 317 0.4 22 5 18 Yes - - 1
25 KJC IN Kajaria Ceramics 1,224 2.4 37 6.1 19.4 - Yes - 1
26 3M IN 3M India 3,267 0.4 75 15.1 42.5 Yes - - 1
Rich valuations**
27 SF IN Sundram Fasten. 1,545 1.1 28 6.2 16.2 - - - -
28 BRIT IN Britannia Inds. 10,782 9.2 70 20.7 44.5 - - - -
29 WHIRL IN Whirlpool India 2,626 0.5 50 10 28.8 - - - -
30 ATLP IN Atul 1,478 0.6 30 4.3 17.5 - - - -
Source: Bloomberg, Capitaline, Ambit Capital research
* Trading below five-year average P/E, P/B, EV/EBITDA (on at least two of these three measures)

** Trading below either five-year average P/E, five-year P/B or five-year EV/EBITDA (on one of these three measures)
*** Trading above five-year average P/E, P/B and EV/EBITDA

For the ‘greatness’ and accounting scores for the entire listed companies universe (ex-financials), clients can now use our HAWK platform

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 12
Strategy - Ten-baggers 8.0

Exhibit 13: January 2019 ten-baggers’ financial snapshot


3M 3-yr 3-yr 3-yr FY18
3-yr 3-yr 3-yr avg
Mcap median share Net adj. 3-yr avg Net FY19 FY19
Ticker Company CFO avg EBIT RoCE
(US$ mn) ADV price Sales PAT RoE Debt / P/E P/B
CAGR margins (pretax)
(US$ mn) CAGR CAGR CAGR Equity
Attractive valuations*
ADVENZY IN Advance. Enzyme. 261 0.7 N/A 21% 22% 29% 41% 25% 31% 0.0 16 N/A
JCHAC IN Johnson Con. Hit 672 0.3 16% 12% 9% 21% 6% 19% 23% (0.1) 46 8
CCLP IN CCL Products 510 0.3 15% 9% 16% 12% 19% 24% 25% 0.4 21 4
NTCPH IN Natco Pharma 1,799 3.6 9% 38% 68% 71% 31% 26% 31% 0.0 16 3
JYL IN Jyothy Lab. 983 0.8 13% 5% 10% 14% 14% 18% 16% 0.3 35 6
TMKN IN Timken India 595 0.2 5% 10% 4% -3% 13% 17% 25% (0.1) 31 4
DMART IN Avenue Super. 11,922 8.6 N/A 37% 56% 49% 7% 20% 23% 0.0 89 15
AVNT IN Avanti Feeds 708 2.9 43% 24% 57% 47% 15% 47% 63% (0.6) 18 4
LOG IN La Opala RG 337 0.1 -10% 5% 22% 20% 34% 22% 30% (0.7) 30 4
NILK IN Nilkamal Ltd 278 1.3 1% 4% 33% -10% 9% 18% 24% 0.1 15 2
WIL IN WABCO India 1,677 0.5 6% 24% 29% 36% 14% 19% 27% (0.5) 36 6
DAGRI IN Dhanuka Agritech 281 0.2 -7% 7% 6% 8% 18% 23% 31% (0.3) 16 3
JBCP IN J B Chem & Pharm 363 0.5 8% 7% 4% -1% 16% 11% 16% (0.3) 15 2
GOAGRO IN Godrej Agrovet 1,348 1.8 N/A 11% 7% 65% 8% 22% 20% 0.3 38 5
DLPL IN Dr Lal Pathlabs 1,223 0.8 12% 17% 21% 17% 25% 27% 42% (0.6) 42 9
SOMC IN Somany Ceramics 216 0.2 1% 4% 18% 65% 9% 18% 20% 0.7 31 2
HEIM IN Heidelberg Cem. 482 0.7 30% 5% 57% 26% 12% 9% 12% 0.4 16 3
SFL IN Sheela Foam 863 0.1 N/A 12% 46% -3% 10% 31% 37% (0.4) 37 5
TPW IN Torrent Power 1,738 5.3 6% 3% 37% 7% 19% 10% 13% 1.1 10 1
KNPL IN Kansai Nerolac 3,423 1.2 20% 9% 22% 6% 16% 19% 27% (0.3) 46 7
MSIL IN Maruti Suzuki 30,142 62.2 20% 16% 25% 22% 14% 17% 28% (0.8) 26 5
Moderate valuations**
WH IN Venky's (India) 451 3.0 99% 16% 132% 63% 11% 22% 24% 0.3 15 3
PVRL IN PVR 1,051 3.6 30% 16% 100% 42% 12% 14% 15% 0.7 43 6
SCHI IN Sudarshan Chem. 316 0.4 52% 11% 16% 10% 10% 25% 19% 1.0 19 N/A
KJC IN Kajaria Ceramics 1,220 2.4 4% 7% 9% 10% 16% 23% 30% 0.1 36 6
3M IN 3M India 3,271 0.4 28% 12% 42% -45% 16% 22% 33% (0.5) N/A N/A
Rich valuations***
SF IN Sundram Fasten. 1,540 1.1 52% 7% 43% 63% 13% 27% 25% 0.4 22 5
BRIT IN Britannia Inds. 10,708 9.2 34% 8% 21% 29% 15% 41% 58% (0.3) 64 19
WHIRL IN Whirlpool India 2,620 0.5 34% 14% 19% 9% 11% 23% 35% (0.8) 44 9
ATLP IN Atul 1,472 0.6 33% 7% 5% 5% 15% 18% 23% (0.2) 22 4
Source: Source: Bloomberg, Capitaline, Ambit Capital research. 3 years is based on data for the FY16/FY17/FY18. 3-year CAGR share price performance is for Jan
2016 to Jan 2019
* Trading below five-year average P/E, P/B, EV/EBITDA (on at least two of these three measures)

** Trading below either five-year average P/E, five-year P/B or five-year EV/EBITDA (on one of these three measures)
*** Trading above five-year average P/E, P/B and EV/EBITDA

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 13
Strategy - Ten-baggers 8.0

Exhibit 14: January 2019 ten-baggers – forward looking data using consensus
3M median
Ticker Company Mcap FY20 P/E FY21 P/E FY18-FY21E FY18-FY21E
ADV
US$ mn) (US$ mn) EPS CAGR BPS CAGR
Attractive valuations*
1 ADVENZY IN Advance. Enzyme. 261 0.7 11 N/A 21% N/A
2 JCHAC IN Johnson Con. Hit 672 0.3 33 28 21% 20%
3 CCLP IN CCL Products 510 0.3 17 14 20% 18%
4 NTCPH IN Natco Pharma 1,799 3.6 17 18 -1% 16%
5 JYL IN Jyothy Lab. 983 0.8 29 25 15% 8%
6 TMKN IN Timken India 595 0.2 26 22 23% 24%
7 DMART IN Avenue Super. 11,922 8.6 67 52 27% 22%
8 AVNT IN Avanti Feeds 708 2.9 14 11 1% 19%
9 LOG IN La Opala RG 337 0.1 27 23 -9% 14%
10 NILK IN Nilkamal Ltd 278 1.3 14 N/A 6% 15%
11 WIL IN WABCO India 1,677 0.5 31 30 14% 20%
12 DAGRI IN Dhanuka Agritech 281 0.2 14 12 9% 14%
13 JBCP IN J B Chem & Pharm 363 0.5 12 11 22% 11%
14 GOAGRO IN Godrej Agrovet 1,348 1.8 30 24 20% 17%
15 DLPL IN Dr Lal Pathlabs 1,223 0.8 35 30 20% 21%
16 SOMC IN Somany Ceramics 216 0.2 18 15 14% 11%
17 HEIM IN Heidelberg Cem. 482 0.7 14 11 32% 14%
18 SFL IN Sheela Foam 863 0.1 29 25 23% 48%
19 TPW IN Torrent Power 1,738 5.3 9 9 15% 15%
20 KNPL IN Kansai Nerolac 3,423 1.2 38 32 13% 11%
21 MSIL IN Maruti Suzuki 30,142 62.2 22 18 14% 13%
Moderate valuations**
22 WH IN Venky's (India) 451 3.0 13 N/A 25% 29%
23 PVRL IN PVR 1,051 3.6 33 27 31% 19%
24 SCHI IN Sudarshan Chem. 316 0.4 15 N/A 19% N/A
25 KJC IN Kajaria Ceramics 1,220 2.4 29 24 16% 15%
26 3M IN 3M India 3,271 0.4 N/A N/A N/A N/A
Rich valuations***
27 SF IN Sundram Fasten. 1,540 1.1 22 18 18% 24%
28 BRIT IN Britannia Inds. 10,708 9.2 53 44 20% 20%
29 WHIRL IN Whirlpool India 2,620 0.5 40 35 15% 14%
30 ATLP IN Atul 1,472 0.6 20 17 31% 19%
Source: Bloomberg, Ambit Capital research
* Trading below five-year average P/E, P/B, EV/EBITDA (on at least two of these three measures)
** Trading below either five-year average P/E, five-year P/B or five-year EV/EBITDA (on one of these three
measures)
*** Trading above five-year average P/E, P/B and EV/EBITDA

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 14
Strategy - Ten-baggers 8.0

Greatness framework on sub-BSE500 firms


In our January 2013 ten-baggers 2.0 note, based on client feedback, we had inserted
a list of sub-BSE500 firms that did well on our framework primarily in the hope that
given the inefficient price discovery in the smaller-cap names, running the screen on
lesser known names should work even better. The results have been very
encouraging. The lists from the sub-BSE500 universe that we had published in our
previous six iterations have cumulatively delivered ~25% total CAGR returns (over the
past five years) vs ~15% CAGR returns for the BSE Small-cap Index (ex BFSI).
Continuing with this initiative, we present below a list of select small-caps from The framework should work
outside the BSE500 but above a market cap of US$50mn or Rs3.5bn that fare well on better in the less-discovered sub-
this year’s iteration of our greatness framework (after updating FY18 numbers). BSE500 universe
Based on client feedback, we have extended our forensic accounting model to all
firms with market cap of `1,000mn and above. Whilst these stocks have cleared our
accounting screen, we may not have sufficient information on the quality of their
corporate governance; but this time we have tried to highlight if we see any concerns
from Watchout investors
Exhibit 15: January 2019 greatness framework on smaller caps outside BSE500
3M median
Greatness Mcap FY18 P/E FY18 P/B
Ticker Company name ADV
score (2018)
US$ mn) (US$ mn) (x) (x)
BEPL IN Bhansali Engg. 100% 174 1.3 12 5
MEN IN Menon Bearings 100% 65 0.0 22 6
KNM IN Kennametal India 92% 325 0.2 44 5
LUMX IN Lumax Inds. 92% 221 0.1 22 4
MATRIM IN Matrimony.com 92% 143 0.2 13 6
FSC IN Foseco India 92% 140 0.1 32 7
NRA IN N R Agarwal Inds 92% 84 0.2 7 3
HARS IN Harita Seating 92% 56 0.2 13 3
MUIL IN Multibase India 83% 79 0.0 29 7
VORG IN Valiant organics 83% 116 0.1 51 14
ORIENT IN Orient Refrac. 83% 340 0.6 28 7
SHEM IN Shemaroo Entert. 83% 159 0.1 16 2
IGLY IN India Glycols 83% 123 0.8 9 1
RDL IN Rushil Décor 92% 108 0.2 24 4
DECM IN Deccan Cements 83% 76 0.0 14 1
Source: Bloomberg, Ambit Capital research;
For the ‘greatness’ and accounting scores for the entire listed companies universe (ex-financials), clients can now
use our HAWK platform.
Ambit Capital research, Bloomberg

Note that unlike the ten-baggers’ list for the BSE500 universe (where we only
consider firms that meet the greatness score cut-off of 67% whilst being in the top 7
deciles of our forensic accounting model), the criteria used to screen for ten-baggers
from the sub-BSE500 universe has been made much more stringent. Only firms
with a greatness score above 80% that also fall in the top four deciles on accounting
quality in the sub-BSE500 universe have been included in this list.

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 15
Strategy - Ten-baggers 8.0

On a separate note, in the wake of several clients requesting access to both our
‘forensic’ and ‘greatness’ models, in July 2016, we launched our ‘HAWK’ platform
giving clients access to Ambit’s proprietary ‘forensic’ and ‘greatness’ models in an
easy to use and intuitive format (click here for the User Guide). Our ‘HAWK’ platform
allows clients to screen the entire universe ex-financials (~1,500 listed Indian
companies) on the basis of their accounting quality (quantified using our ‘forensic’
model) and capital allocation track record (quantified using our ‘greatness’
framework’) over the last 10 years. Whilst the platform currently has the accounting
scores for all the companies updated until FY17, in a few weeks from now, we will
refresh our platform to incorporate FY18 financials as well.
Please contact your relevant sales representatives at Ambit if you have not yet
received the login credentials for ‘HAWK’ or if you would like a demo on how
to use the product.

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 16
Strategy - Ten-baggers 8.0

Key fundamental parameters of our


ten-bagger portfolios
Identifying structurally sound companies has always been the crux of our process of
picking potential ten-baggers. We unveiled this framework on 19 January 2012 with
the first iteration of the ‘Tomorrow’s ten-baggers’ note. The ‘greatness’ framework
studies a firms structural strength by focusing not on absolute but on improvements
over a period of time and the consistency of those improvements.
Needless to say, the above exercise has always allowed us to identify high quality
companies. We present in the below exhibit a summary of key parameters for each of
our ten-bagger portfolios (including the latest one) released in the previous years.
Exhibit 16: Key parameters of BSE500 ten-bagger portfolios
Ten Ten- Ten- Ten- Ten- Ten- Ten- Ten-
BSE500
baggers baggers baggers baggers baggers baggers baggers baggers
2018
1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0
Cash conversion
65% 58% 67% 76% 67% 81% 69% 67% 6%
(CFO/EBITDA)
RoE (%) 35% 29% 30% 30% 31% 34% 25% 21% 15%
RoCE (%) (pre tax) 45% 35% 37% 37% 38% 41% 30% 27% 20%
Net debt/ equity (0.1) 0.1 (0.0) (0.1) (0.0) 0.0 0.0 0.0 0.6
EBIT margins 20% 17% 18% 16% 19% 20% 18% 15% 15%
EBITDA margins 20% 19% 18% 18% 21% 22% 22% 16% 16%
Source: Ambit Capital research, Bloomberg, Company. The above parameters are calculated as a simple average of the underlying companies and the BSE500
companies. BSE500 companies exclude financial stocks. Earlier ten-bagger iterations are not strictly comparable with ten-bagger 8.0 as quality parameters in those
(RoCE and RoE) were an input and hence a bias for higher RoCE, which is not the case this year.

Exhibit 17: Key parameters of sub-BSE500 ten-bagger portfolios


Ten Ten Ten Ten Ten Ten Sub-BSE500
baggers 3.0 baggers 4.0 baggers 5.0 baggers 6.0 baggers 7.0 baggers 8.0 2018
Cash conversion (CFO/EBITDA) 58% 59% 72% 69% 77% 89% 136%
RoE (%) 20% 31% 26% 28% 22% 27% 6%
RoCE (%) 30% 35% 30% 35% 30% 31% 14%
Debt / Equity ratio 0.0 0.3 0.3 0.3 (0.1) 0.0 3.0
EBIT margins 13% 16% 14% 16% 16% 15% 23%
EBITDA margins 14% 18% 15% 18% 18% 16% 13%
Source: Ambit Capital research, Bloomberg, Company. The above parameters are calculated as a simple average of the underlying companies and the Sub-BSE500
companies. Sub-BSE500 companies exclude financial stocks. Earlier ten-bagger iterations are not strictly comparable with ten-bagger 8.0 as quality parameters in
those (RoCE and RoE) were an input and hence a bias for higher RoCE and which is not the case this year.

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 17
Strategy - Ten-baggers 8.0

Performance check: Jan 2018 ten-baggers


Exhibit 18: The ten-bagger list published on 15 January 2018 (Click here for the 15
January 2018 note,’ Ten-baggers 7.0’)
Mcap Price Total
Ticker Company
US$ mn) 15-Jan-18 22-Jan-19 returns

Attractive valuations
ITC IN ITC 50,263 100 110 10%
HCLT IN HCL Technologies 18,435 100 104 4%
CDH IN Cadila Healthcare 4,934 100 79 -21%
PI IN PI Industries 1,668 100 89 -11%
AJP IN Ajanta Pharma 1,469 100 78 -22%
Average for this bucket -8%
Moderate valuations
DMART IN Avenue Supermarts 11,989 100 111 11%
BRIT IN Britannia Industries 10,782 100 134 34%
UBBL IN United Breweries 5,381 100 127 27%
MACA IN Mahindra CIE Automotive 1,260 100 92 -8%
GPPV IN Gujarat Pipavav Port 602 100 54 -46%
TELX IN Tata Elxsi 848 100 93 -7%
Average for this bucket 2%
Rich valuations
PIDI IN Pidilite Industries 8,185 100 128 28%
MRCO IN Marico 6,827 100 122 22%
KNPL IN Kansai Nerolac Paints 3,405 100 83 -17%
BRGR IN Berger Paints India 4,384 100 123 23%
WHIRL IN Whirlpool Of India 2,626 100 97 -3%
AIAE IN AIA Engineering 2,191 100 107 7%
HTSMF IN Hatsun Agro Products 1,501 100 83 -17%
KJC IN Kajaria Ceramics 1,224 100 75 -25%
AVNT IN Avanti Feeds 703 100 44 -56%
FNXC IN Finolex Cables 927 100 61 -39%
VGRD IN V-Guard Industries 1,197 100 88 -12%
ARTO IN Aarti Industries 1,758 100 139 39%
ATLP IN Atul 1,478 100 114 14%
RLXF IN Relaxo Footwears 1,251 100 109 9%
JCHAC IN Johnson Controls - Hitachi 678 100 67 -33%
CCLP IN CCL Products (India) 510 100 91 -9%
LOG IN La Opala RG 338 100 62 -38%
Sudarshan Chemical
SCHI IN 317 100 74 -26%
Industries
SRTY IN TVS Srichakra 256 100 66 -34%
Average for this bucket -9%
Ten-bagger -6.53%
BSE500 index(ex BFSI) 100 96 -4.45%
Outperformance -2.08%
Source: Bloomberg, Ambit Capital research. Note: Performance is on a total-return basis; i.e. assuming that
dividends are reinvested into the same stock on the ex-dividend date.

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 18
Strategy - Ten-baggers 8.0

Whilst the total returns of broader markets (read BSE500 index) declined by ~5% last
year, last year’s iteration of ten-baggers published on 06 January 2017 declined by
~7% (implying ~2% underperformance relative to the BSE500). The relative
underperformance of ~2% could be partially explained by the fact that the previous
year’s portfolio (Ten-baggers 7.0) consisted of larger proportion (~63%) of
companies with expensive valuations which experienced significant decline in their
share prices in the previous 12 months. This year’s portfolio (Ten-baggers 8.0) on the
contrary consists of a higher number of companies (~70%) with attractive valuations.
Moreover, the above exhibit also highlights that beginning-of-the-period valuations
have not made much difference to investment returns, with the stocks categorised as
attractively valued, based on initial valuations, underperforming those classified as
moderately valued and almost performing at par with those classified as richly valued
on average basis. This finding also emerged from earlier ten-bagger iterations. In
effect, what our models have shown time and again is that once you screen
rigorously for high quality, there is little value-add in further screening
through a demanding valuation filter.

Exhibit 19: Last year’s portfolio was dominated by Exhibit 20: Current year’s portfolio is dominated by
companies with expensive valuations companies with attractive valuations

Attractive Expensive
valuations, valuations,
17% 13%

Moderate
valuations,
Moderate 17%
valuations,
Rich 20%
valuations, Attractive
63% valuations,
70%
Ten-baggers 7.0 Ten-baggers 8.0

Source: Ambit Capital research Source: Ambit Capital research

Also, basis our new greatness framework and FY18 AR-based accounting scores, it is
observed that large-cap companies may not necessarily continue to dominate the
greatness and good quality accounting space over a period of time. Whilst ~57% of
previous years’ iteration consisted of large companies, only ~37% of current years’
iteration consists of large-cap companies.

Exhibit 21: A large portion (~57%) of last year’s portfolio Exhibit 22: Almost equal distribution between large-cap,
consisted of large-cap companies mid-cap and small-cap in current year’s portfolio

Small cap
companies,
4 Small cap
companies, Large cap
~13% 9 companies,
~30% 11
~37%
Mid-cap ~30% ~57% Large cap
companies, companies,
9 17 Mid-cap ~33%
companies,
10
Ten-baggers 7.0 Ten-baggers 8.0

Source: Ambit Capital research note: Large cap companies (market cap: Source: Ambit Capital research note: Large cap companies (market cap:
Above Rs.200bn), mid-cap companies (market cap: Rs40bn to Rs200bn), Above Rs.200bn), mid-cap companies (market cap: Rs40bn to Rs200bn),
small cap companies (market cap: Less than Rs40bn) small cap companies (market cap: Less than Rs40bn)

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 19
Strategy - Ten-baggers 8.0

Exhibit 23: Barring 2014, relative returns have moved broadly in line with the
proportion of attractively valued stocks

125% 40%
105% 35%
13% 30%
85% 24%
47% 17% 25%
53% 60%
65% 70% 63%
24% 73% 20%
45% 15%
20% 27%
10% 70% 10%
25% 52% 7% 3% 20%
27% 27% 23% 23% 30% 5%
5% 17%
0%
-15% 2012 2013 2014 2015 2016 2017 2018 2019 -5%
Attractive valuations Moderate valuations
Rich valuations Relative returns (RHS)

Source: Ambit Capital research, Bloomberg

12 large-cap companies from the previous year’s iterations (Ten-baggers 7.0) were
unable to make their way to current year’s iteration. Summary of reasons for such slip
is explained in the exhibit below
Exhibit 24: Reasons for large-cap stocks exiting our ten-baggers portfolio
Company name Reasons for exclusion
ITC Marginally misses the ‘greatness’ cut-off; gets a low score on improvement in capital employed turnover
HCL Technologies Misses the ‘greatness’ cut-off ; gets a low score on capital employed turnover improvement and EBIT margin discipline
Cadila Healthcare Features in D8 on our accounting framework, which may be for recent business and cash generation weakness
PI Industries Marginally misses the ‘greatness’ cut-off; gets a low score on improvement in capital employed turnover
Ajanta Pharma Features in D9 on our accounting framework, which may be for recent business weakness
United Breweries Misses the ‘greatness’ cut-off; gets a low score on capital employed turnover improvement and EBIT margin discipline
Pidilite Industries Features in D9 on our accounting framework, which may be for recent business weakness
Marico Marginally misses the ‘greatness’ cut-off; gets a low score on incremental capex criteria on greatness framework
Marginally misses the ‘greatness’ cut-off; gets a low score on incremental capex criteria and capital employed turnover
Berger Paints India
improvement criteria
AIA Engineering Misses the ‘greatness’ cut-off; features in D8 on our accounting framework, which may be for recent business weakness
Marginally misses the greatness cut-off; gets a low score on debt-equity and improvement in capital employed turnover
Hatsun Agro Products
criteria
Marginally misses the ‘greatness’ cut-off ;gets a low score on debt-equity and improvement in capital employed turnover
Aarti Industries
criteria
Source: Ambit Capital research, Company

Cumulative absolute returns of our ten-bagger portfolios still higher than


BSE500 returns
Our first seven iterations of ten-baggers have given cumulative absolute returns of
~182% and relative returns (to BSE500) of ~71% (click here for the 19 January 2012
note on ten-baggers 1.0; click here for the 14 January 2013 note on ten-baggers
2.0; click here for the 26 November 2013 note on ten-bagger 3.0; click here for the
05 January 2015 note on ten-bagger 4.0; click here for the 05 January 2016 note on
ten-bagger 5.0); click here for the 06 January 2017 note on ten-bagger 6.0) and click
here for the 15 January 2018 note on ten-bagger 7.0).

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 20
Strategy - Ten-baggers 8.0

Performance check: Jan 2017 sub-BSE500


ten-baggers
Small-cap stocks declined sharply in CY2018 and even our small-cap ten-bagger
portfolio wasn’t spared, declining by 19% (see below). However, filtering for quality
and business improvement momentum helped outperform the small-cap index
though. The outperformance was driven by three stocks of which two (Garware and
Alkyl Amines) are covered by our analyst Karan as part of the Beachcombing series.
Please click for our detailed notes on these two (https://ambitresearch.co)
Exhibit 25: Superior firms on ‘greatness’ from sub-BSE500 published on 15 January
2018 (click here for the 15 January 2018 note, ‘Ten-baggers 7.0’)
Mcap Price
Ticker Company Total returns
US$ mn) 15-Jan-18 22-Jan-19
FMGI IN Federal-Mogul Go 396 100 88 -12%
IGM IN Igarashi Motors 234 100 71 -29%
GTFL IN Garware-Wall Rop 356 100 113 13%
GMBR IN G M Breweries 139 100 65 -35%
KMC IN Kovai Medical 108 100 54 -46%
AACL IN Alkyl Amines 242 100 125 25%
MMFG IN M M Forgings 183 100 91 -9%
UMP IN Ultramarine Pig. 98 100 60 -40%
MTEP IN Mold-Tek Pack. 104 100 80 -20%
MUIL IN Multibase India 79 100 65 -35%
STOV IN Stovec Inds. 72 100 77 -23%
VORG IN Valiant Organics 116 100 174 74%
PRMP IN Prima Plastics 15 100 40 -60%
INDT IN Indo Tech.Trans. 18 100 53 -47%
NTFT IN National Fitting 17 100 61 -39%
Ten-bagger -18.8%
SPBSSIP Index 100 72 -27.9%
Outperformance 9.1%
Source: Bloomberg, Ambit Capital research. Note: Performance is on a total-return basis; i.e. assuming that
dividends are reinvested back into the same stock on the ex-dividend date.

In a more normal market scenario witnessed in the previous 12 months, poor quality
small/mid-caps have seen sharp declines. Consequently, the sub-BSE500 list of ten-
bagger firms published on 15 January 2018 has over performed the benchmark BSE
small-cap index (~19% decline for the portfolio versus ~28% decline for the BSE
small-cap index, implying ~9% outperformance for the portfolio; see exhibit 25
above) over the past year. That said, our previous six iterations have cumulatively
delivered ~25% total TSR CAGR (over the past six years) vs. ~15% TSR CAGR for the
BSE small-cap Index. This suggests that over long periods of time the framework
indeed does a reasonably good job in the sub-BSE500 universe as well.

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 21
Strategy - Ten-baggers 8.0

Valuations: A long-term perspective!


Over long periods, it is how the underlying fundamentals evolve for the firm that
plays a more important role in determining returns rather than the beginning period
valuation itself. Put another way, over long periods how a business fundamentally
performs is overwhelmingly the most important driver of investment returns (so much
so that the price at the time of entering the stock becomes almost irrelevant). This
point can be understood better with the following exhibits that plot ten-year returns
over FY08-18 vs FY08 valuations as measured by P/B and P/E at the beginning of the
period (in 2008).
Exhibit 26: Valuation impact on long-term returns – P/B

40% R² = 0.003
FY08-FY18 share price CAGR

30%
20%
10%
(rel. to sensex)

0%
-10% - 30.0 60.0 90.0 120.0 150.0 180.0
-20%
-30%
-40%
-50%
-60%
FY08 Price to Book ratio
Source: Ambit Capital research; Note: FY08-18 returns here are stock returns relative to Sensex

The value of the R-squared makes the story self-explanatory. A low value for this
parameter indicates that the beginning-period valuations do not play any meaningful
role in explaining stock returns over the next ten years. This holds true for both P/B
and P/E as measures of valuation.
Exhibit 27: Valuation impact on long-term returns – P/E

40% R² = 0.0113
FY08-FY18 share price CAGR

30%
20%
10%
(rel. to sensex)

0%
-10% - 20.0 40.0 60.0 80.0 100.0 120.0
-20%
-30%
-40%
-50%
-60%
FY08 Price to Earnings ratio
Source: Ambit Capital research; Note: FY08-18 returns here are stock returns relative to Sensex. Trailing P/E has
been restricted to 100.

Further, that valuations do not play an overwhelming role in shaping investment


returns is also seen in the performance of the latest iteration of our ten-bagger
portfolio.
The following exhibits plot the returns since publication for the 30 stocks published as
a part of the ten-bagger portfolio on 15 January 2018 vs. their trailing valuations as
measured by P/B and P/E at the beginning of the period.

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 22
Strategy - Ten-baggers 8.0

Exhibit 28: Ten-baggers 7.0 - Beginning-period P/B and stock returns

40% R² = 0.0072
Share price performance

20%

0%
- 10.0 20.0 30.0 40.0
-20%

-40%

-60%

-80%
Trailing Price to Book ratio

Source: Bloomberg, Ambit Capital research

Here again, a low R-squared value indicates that the beginning-period P/B does not
influence stock returns to a significant extent. This holds true for P/E as a measure of
valuation as well.

Exhibit 29: Ten-baggers 7.0 - Beginning-period P/E and stock returns

R² = 0.0261
40%
Share price performance

20%

0%
- 20.0 40.0 60.0 80.0 100.0 120.0
-20%

-40%

-60%

-80%
Trailing Price to Earnings

Source: Bloomberg, Ambit Capital research

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 23
Strategy - Ten-baggers 8.0

Appendix - January 2019 ten-baggers’


business activity description
Exhibit 30: Ten-baggers 8.0 - business description
Sr. No Ticker Company Business description
Advanced Enzyme Technologies Limited manufactures and markets enzymes. The Company offers
1 ADVENZY IN Advance. Enzyme. enzymes derived from various natural origins such as plant, fungal, bacterial, and animal.
Advanced Enzyme Technologies serves customers worldwide.
Johnson Controls-Hitachi Air Conditioning India Limited manufactures air conditioning products.
The Company offers commercial air conditioning and refrigeration, absorption and centrifugal
2 JCHAC IN Johnson Con. Hit
chillers, compressors, and environmental testing products. Johnson Controls-Hitachi Air
Conditioning operates worldwide.
CCL Products India Ltd is a manufacturer and exporter of powdered and granulated coffee. The
3 CCLP IN CCL Products
company exports instant coffee under different international and domestic brand names.
Natco Pharma Limited manufactures a comprehensive range of branded and generic dosage
forms, bulk actives and intermediates for both Indian as well as International markets. The
4 NTCPH IN Natco Pharma
Company's product range is constantly expanded through its own R&D initiative, basic research
and also through joint ventures, technology transfers and collaborations.
5 JYL IN Jyothy Lab. Jyothy Laboratories Limited develops and manufactures household products.
Timken India Limited provides friction management solutions for a wide range of industry
applications across the globe; from agriculture to construction, from heavy industrial applications
6 TMKN IN Timken India
to automobiles and from rail to related products. Timken provides a complete package solution
for bearings and roll-shop maintenance.
Avenue Supermarts Limited (ASL), doing business as DMart, owns and operates a chain of
hypermarkets and supermarkets. The Company offers foods, kitchenware, garments, footwears,
7 DMART IN Avenue Super.
toys, games, bath linen, stationery, grocery, household, and electronic products. DMart serves
customers in India. We have a SELL rating
Avanti Feeds Ltd. manufactures and distributes shrimp feed. The Company also processes,
8 AVNT IN Avanti Feeds
packages, and exports shrimp throughout the world.
9 LOG IN La Opala RG La Opala RG Limited manufactures glass and glass products.
Nilkamal Limited manufactures and sells plastic furniture and material handling products. The
Company also has a retail chain of home decor stores. Nilkamal Ltd's products include chairs,
10 NILK IN Nilkamal Ltd
cabinets, dining tables, trolleys, sofa sets and designer chairs, office chairs, crates, polypropylene
corrugated boxes, insulated boxes, ballot units, readymade furniture, furnishings, and accessories.
WABCO India Ltd. manufactures automotive parts. The Company produces electronic braking,
11 WIL IN WABCO India stability, and suspension and transmission control systems for heavy-duty commercial trucks,
trailers and buses.
Dhanuka Agritech Ltd. manufactures insecticides, pesticides and other chemicals. The Company
12 DAGRI IN Dhanuka Agritech has a technical tie-up with M/s E.I. Dupont De Numours & Co., U.S.A. to formulate the product
Methomyl 12.5L under brand name "Dunet".
J.B. Chemicals & Pharmaceuticals Ltd. manufactures pharmaceuticals, chemicals and agro-based
products. The Group's products include metrogyl, rantac (a ranitidine-based formula), and
13 JBCP IN J B Chem & Pharm
nicardia, a cardiac care medicine. The Company has an agreement with Justesa Imagen, to
manufacture and market diagnostics under the "Trazograf" brand name.
Godrej Agrovet Limited operates as an animal feed and agribusiness company. The Company
14 GOAGRO IN Godrej Agrovet specializes in poultry processing, animal feed, oil palm plantations, crop protection, and dairy
products. GAVL serves customers in India.
Dr. Lal PathLabs Limited operates clinical laboratories. The Company offers medical diagnostic,
15 DLPL IN Dr Lal Pathlabs cardiology, radiology, pathology and imaging, health checkup, blood test, and customer care
services. Dr. Lal PathLabs conducts its business in India.
Somany Ceramics Limited manufactures ceramic wall and floor tiles. The Group exports its
16 SOMC IN Somany Ceramics products to Europe, the Middle East, Australia, New Zealand, Mauritius, South Africa and Sri
Lanka.
17 HEIM IN Heidelberg Cem. Heidelbergcement India Ltd. manufactures portland slag cement and portland pozzolana cement.
Sheela Foam Limited provides foam products. The Company manufactures polyurethane and
18 SFL IN Sheela Foam polyester foam for home comfort, industrial, and technical sectors. Sheela Foam serves customers
worldwide.
Torrent Power Limited generates, transmits and distributes power. The Company also implements
19 TPW IN Torrent Power
large power projects in India.

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 24
Strategy - Ten-baggers 8.0

Sr. No Ticker Company Business description


Kansai Nerolac Paints Limited manufactures paints, varnishes and enamels. The Company also
20 KNPL IN Kansai Nerolac fabricates synthetic resins, organic & inorganic pigments and oils. Kansai Nerolac's products are
used for decorative, marine and industrial purposes.
Maruti Suzuki India Limited manufactures and exports automobiles. Maruti collaborated with
21 MSIL IN Maruti Suzuki
Suzuki of Japan to produce affordable cars for the average Indian. We have a BUY rating
Venky's (India) Limited owns several hatcheries throughout India. The Company business units
specialize in poultry breeding and farming, as well as chicken meat processing. Venky's also
22 WH IN Venky's (India)
manufactures poultry feed and animal health products, specifically pathogen free eggs used in
the manufacture of human, animal and poultry vaccines.
PVR Ltd. operates cinemas. The Company owns and manages multiplex movie theaters. We have
23 PVRL IN PVR
a BUY rating
Sudarshan Chemical Industries Limited manufactures color pigments, which are used in paints,
24 SCHI IN Sudarshan Chem. printing inks, plastics, rubber artist materials, and textile printing. The Group also manufactures a
basic range of pesticides.
Kajaria Ceramics Limited manufactures glazed and unglazed ceramic tiles. The Company sells its
25 KJC IN Kajaria Ceramics
products in India and it also exports them to other countries.
3M India Limited manufactures products for the electronics, telecommunications, industrial,
consumer and office, health care, safety, and other markets. The Company's products include
26 3M IN 3M India
cable connectors, discrete modular and heat recoverable closures, electrical termination and
splicing products, specialty pressure sensitive coated tapes, and specialty chemicals.
Sundram Fasteners Limited manufactures a wide range of nuts, bolts and related fastener
equipment. Products include high-tensile fasteners and equipment for the automotive industry,
27 SF IN Sundram Fasten.
such as cold extruded parts, radiator caps and gear shifters. The Company also manufactures
water pumps and fuel pumps.
Britannia Industries Limited manufactures bakery products such as biscuits, bread, cakes and
28 BRIT IN Britannia Inds. rusks. The Company also manufactures and exports soybean products, cashew kernels, marine
products, and general merchandise items.
Whirlpool of India Ltd. manufactures appliances. The Company produces refrigerators, washing
29 WHIRL IN Whirlpool India machines, air conditioners, microwave ovens, water purifiers, built-in appliances and other
products.
Atul Limited is a diversified manufacturer of chemicals. The Company's products include
30 ATLP IN Atul agrochemicals, aromatics, cresol & its derivatives, pharmaceutical intermediates, bulk drugs and
bulk chemicals. Atul also manufactures dyestuffs and colors for the textile industry.
Source: Bloomberg.

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 25
Strategy

Exhibit 31: Small-cap ten-baggers – business description


‘Greatness’ scores* Checks

Ticker Company Business Description Watch-out Promoter Board


2018 2017 2016 2015 2014 investors Sh. Hol. Indepen-
check (%)* dence (%)
No major
Bhansali Bhansali Engineering Polymers Limited manufactures ABS and SAN
BEPL IN 100% 75% 33% 33% 33% observation 67%
Engg. resins. 55.0
on Watchout
Menon Bearings Limited manufactures bi-metal engine bearings,
No major
Menon bushes and thrust washers for light and heavy automobile engines,
MEN IN 100% 83% 67% 46% 50% observation 67%
Bearings two wheeler engines, compressors and refrigerators and air 70.9
on Watchout
conditioners.
Kennametal India Ltd. manufactures hard metal and hard metal
No major
Kennametal products, including tungsten carbide products. The Company also
KNM IN 92% 25% 17% 8% 17% observation 50%
India manufactures mining tools, special purpose machines and 75.0
on Watchout
accessories, and jigs and fixtures.
Lumax Industries Limited manufactures automobile lighting systems
No major
and solutions. The Group's products include stellar quality head
LUMX IN Lumax Inds. 92% 67% 46% 21% 67% observation 50%
lamps and tail lamps, side indicators, front combination lamps, 75.0
on Watchout
blinkers, sundry lamps and auxiliary lamps.
Matrimony.com Limited owns and operates matrimony websites. No major
Matrimony.co
MATRIM IN The Company offers online matchmaking and marriage services. 92% N/A N/A N/A N/A observation 67%
m 50.3
Matrimony.com serves clients worldwide. on Watchout
No major
Foseco India Limited manufactures industrial chemicals for
FSC IN Foseco India 92% 75% 25% 25% 21% observation 60%
companies with steel milling and foundry operations. 75.0
on Watchout
N.R. Agarwal Industries Ltd. manufactures coated duplex boards No major
N R Agarwal
NRA IN and newsprint. The Company markets its products countrywide 92% 75% 17% 13% 21% observation 38%
Inds 73.3
through a network of dealers and also exports them worldwide. on Watchout
Harita Seating Systems Ltd manufactures and supplies seats for
various types of vehicles. The Company provides seating solutions No major
Harita
HARS IN to the commercial vehicles, buses, coaches, agriculture tractors, 92% 63% 75% 58% 75% observation 83%
Seating 66.2
construction machinery, two wheelers, three-wheelers, cars, multi- on Watchout
utility vehicles.
Multibase India Limited is a polymer compounding company. The
Company provides customized compound solutions, tolling service No major
Multibase
MUIL IN and product development, with global customers in the automotive, 83% 100% 92% 83% 79% observation 33%
India 75.0
household appliances, packaging, construction, and the sports and on Watchout
leisure markets.
Valiant Organics Limited produces and distributes chemicals. The
No major
Valiant Company offers chemical products for agriculture, pharmaceutical,
VORG IN 83% 92% 92% N/A N/A observation 33%
organics veterinary, and cosmetics. Valiant Organics markets its products in 46.2
on Watchout
India.
Orient Refractories Ltd. fabricates metal products. The Company
manufactures slide gate plates, nozzles and well blocks, tundish No major
ORIENT IN Orient Refrac. nozzles, bottom purging refractories and top purging lances, slag 83% 54% 83% 46% N/A observation 33%
66.5
arresting darts, basic spray mass for tundish working lining, and on Watchout
castables.
No major
Shemaroo Shemaroo Entertainment Limited produces theatrical and non-
SHEM IN 83% N/A N/A N/A N/A observation 50%
Entert. theatrical motion pictures and video tapes. 65.8
on Watchout
India Glycols Limited manufactures mono-ethylene glycol (MEG),
diethylene glycol (DEG) and triethylene glycol (TEG). The Group's No major
IGLY IN India Glycols products are used by industries that manufacture agro chemicals, 83% N/A N/A N/A N/A observation 56%
61.0
leather and textiles, fertilizers, paints, detergents, and an on Watchout
assortment of healthcare products.
Rushil Decor Ltd. manufactures building products. The Company No major
RDL IN Rushil Décor produces particle board, medium density fiberboard, and decorative 92% 83% 42% 58% 54% observation 50%
52.9
high pressure laminate sheets. on Watchout
No major
Deccan Deccan Cements Limited manufactures and sells cement. The
DECM IN 83% 58% 50% 25% 58% observation 57%
Cements Company also works with wind and hydel power generation. 56.2
on Watchout

Source: Bloomberg, Watchout investors, NSE infobase, BSE filings, Ambit HAWK, Ambit Capital Research
Except Menon bearing (~8.6% shares are pledged as at quarter ended Dec 2018) and Rushil Décor (~2% shares
are pledged as at quarter ended Dec 2018) no other company has pledged the shares.

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 26
Strategy

Institutional Equities Team


Research Analysts
Name Industry Sectors Desk-Phone E-mail
Nitin Bhasin - Head of Research E&C / Infra / Cement / Home Building (022) 66233241 nitin.bhasin@ambit.co
Aadesh Mehta, CFA Mid-Caps (022) 66233239 aadesh.mehta@ambit.co
Amandeep Singh Grover Small-Caps (022) 66233082 amandeep.grover@ambit.co
Ashish Kanodia, CFA Light Electricals / Capital Goods (022) 66233264 ashish.kanodia@ambit.co
Basudeb Banerjee Automobiles / Auto Ancillaries (022) 66233141 basudeb.banerjee@ambit.co
Deep Shah Media / Telecom (022) 66233064 deep.shah@ambit.co
Dhruv Jain Mid-Caps (022) 66233177 dhruv.jain@ambit.co
Gaurav Kochar Banking / Financial Services (022) 66233246 gaurav.kochar@ambit.co
Jay Kakkad Light Electricals / Capital Goods (022) 66233021 jay.kakkad@ambit.co
Kanwalpreet Singh Small-Caps / Strategy (022) 66233223 kanwalpreet.singh@ambit.co
Karan Khanna, CFA Small-Caps / Strategy (022) 66233251 karan.khanna@ambit.co
Kushagra Bhattar Healthcare (022) 66233062 kushagra.bhattar@ambit.co
Nikhil Mathur, CFA Healthcare (022) 66233220 nikhil.mathur@ambit.co
Pankaj Agarwal, CFA Banking / Financial Services (022) 66233206 pankaj.agarwal@ambit.co
Pratik Chheda Automobiles / Auto Ancillaries (022) 66233121 pratik.chheda@ambit.co
Prateek Maheshwari Cement (022) 66233234 prateek.maheshwari@ambit.co
Rahil Shah Banking / Financial Services (022) 66233217 rahil.shah@ambit.co
Ritesh Gupta, CFA Consumer Discretionary / Agri & Chemicals (022) 66233242 ritesh.gupta@ambit.co
Ritika Mankar Mukherjee, CFA Economy / Strategy (022) 66233175 ritika.mankar@ambit.co
Ronil Dalal, CFA Aviation / Home Building (022) 66233278 ronil.dalal@ambit.co
Sagar Dhawan Retail / Consumer Discretionary (022) 66233224 sagar.dhawan@ambit.co
Sudheer Guntupalli IT / Engineering / Business Services (022) 66233203 sudheer.guntupalli@ambit.co
Sumit Shekhar Economy / Strategy (022) 66233229 sumit.shekhar@ambit.co
Surabhi Bomb E&C / Infrastructure (022) 66233254 surabhi.bomb@ambit.co
Vihang Subramanian Agri Inputs / Chemicals (022) 66233297 vihang.subramanian@ambit.co
Vinit Powle Strategy / Forensic Accounting (022) 66233149 vinit.powle@ambit.co
Vivekanand Subbaraman, CFA Media / Telecom (022) 66233261 vivekanand.s@ambit.co
Sales
Name Regions Desk-Phone E-mail
Dhiraj Agarwal - MD & Head of Sales India (022) 66233253 dhiraj.agarwal@ambit.co
Dharmen Shah India / Asia (022) 66233289 dharmen.shah@ambit.co
Nityam Shah, CFA Europe (022) 66233259 nityam.shah@ambit.co
Punitraj Mehra, CFA India / Asia (022) 66233198 punitraj.mehra@ambit.co
Shaleen Silori India (022) 66233256 shaleen.silori@ambit.co
USA / Canada
Hitakshi Mehra Americas +1(646) 793 6751 hitakshi.mehra@ambitamerica.co
Achint Bhagat, CFA Americas +1(646) 793 6752 achint.bhagat@ambitamerica.co
Production
Sajid Merchant Production (022) 66233247 sajid.merchant@ambit.co
Sharoz G Hussain Production (022) 66233183 sharoz.hussain@ambit.co
Jestin George Editor (022) 66233272 jestin.george@ambit.co
Richard Mugutmal Editor (022) 66233273 richard.mugutmal@ambit.co
Nikhil Pillai Database (022) 66233265 nikhil.pillai@ambit.co
Babyson John Database (022) 66233209 babyson.john@ambit.co

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 27
Strategy

Explanation of Investment Rating


Investment Rating Expected return (over 12-month)
BUY >10%
SELL <10%
NO STANCE We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation
UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events
NOT RATED We do not have any forward looking estimates, valuation or recommendation for the stock
POSITIVE We have a positive view on the sector and most of stocks under our coverage in the sector are BUYs
NEGATIVE We have a negative view on the sector and most of stocks under our coverage in the sector are SELLs
* In case the recommendation given by the Research Analyst becomes inconsistent with the rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures (like
change in stance/estimates) to make the recommendation consistent with the rating legend.
Disclaimer
This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Ambit Capital Private Ltd. AMBIT Capital Private Ltd. research is disseminated and available
primarily electronically, and, in some cases, in printed form.
Additional information on recommended securities is available on request.

Disclaimer
1. AMBIT Capital Private Limited (“AMBIT Capital”) and its affiliates are a full service, integrated investment banking, investment advisory and brokerage group. AMBIT Capital is a Stock Broker, Portfolio
Manager, Merchant Banker, Research Analyst and Depository Participant registered with Securities and Exchange Board of India Limited (SEBI) and is regulated by SEBI.
2. AMBIT Capital makes best endeavours to ensure that the research analyst(s) use current, reliable, comprehensive information and obtain such information from sources which the analyst(s) believes
to be reliable. However, such information has not been independently verified by AMBIT Capital and/or the analyst(s) and no representation or warranty, express or implied, is made as to the
accuracy or completeness of any information obtained from third parties. The information, opinions, views expressed in this Research Report are those of the research analyst as at the date of this
Research Report which are subject to change and do not represent to be an authority on the subject. AMBIT Capital and its affiliates/ group entities may or may not subscribe to any and/ or all the
views expressed herein and the statements made herein by the research analyst may differ from or be contrary to views held by other parties within AMBIT group.
3. This Research Report should be read and relied upon at the sole discretion and risk of the recipient. If you are dissatisfied with the contents of this complimentary Research Report or with the terms of
this Disclaimer, your sole and exclusive remedy is to stop using this Research Report and AMBIT Capital or its affiliates shall not be responsible and/ or liable for any direct/consequential loss
howsoever directly or indirectly, from any use of this Research Report.
4. If this Research Report is received by any client of AMBIT Capital or its affiliate, the relationship of AMBIT Capital/its affiliate with such client will continue to be governed by the terms and conditions
in place between AMBIT Capital/ such affiliate and the client.
5. This Research Report is issued for information only and the 'Buy', 'Sell', or ‘Other Recommendation’ made in this Research Report as such should not be construed as an investment advice to any
recipient to acquire, subscribe, purchase, sell, dispose of, retain any securities and should not be intended or treated as a substitute for necessary review or validation or any professional advice.
Recipients should consider this Research Report as only a single factor in making any investment decisions. This Research Report is not an offer to sell or the solicitation of an offer to purchase or
subscribe for any investment or as an official endorsement of any investment.
6. This Research Report is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied in
whole or in part, for any purpose. Neither this Research Report nor any copy of it may be taken or transmitted or distributed, directly or indirectly within India or into any other country including
United States (to US Persons), Canada or Japan or to any resident thereof. The distribution of this Research Report in other jurisdictions may be strictly restricted and/ or prohibited by law or contract,
and persons into whose possession this Research Report comes should inform themselves about such restriction and/ or prohibition, and observe any such restrictions and/ or prohibition.
7. Ambit Capital Private Limited is registered (SEBI Reg. No.- INH000000313) as a Research Entity under the SEBI (Research Analysts) Regulations, 2014.

Conflict of Interests
8. In the normal course of AMBIT Capital’s or its affiliates’/group entities’ business, circumstances may arise that could result in the interests of AMBIT Capital or other entities in the AMBIT group
conflicting with the interests of clients or one client’s interests conflicting with the interest of another client. AMBIT Capital makes best efforts to ensure that conflicts are identified and managed and
that clients’ interests are protected. AMBIT Capital has policies and procedures in place to control the flow and use of non-public, price sensitive information and employees’ personal account
trading. Where appropriate and reasonably achievable, AMBIT Capital segregates the activities of staff working in areas where conflicts of interest may arise and maintains an arms – length distance
from such areas, at all times. However, clients/potential clients of AMBIT Capital should be aware of these possible conflicts of interests and should make informed decisions in relation to AMBIT
Capital’s services.
9. AMBIT Capital and/or its affiliates may from time to time have or solicit investment banking, investment advisory and other business relationships with companies covered in this Research Report and
may receive compensation for the same.
10. The AMBIT group may, from time to time enter into transactions in the securities, or other derivatives based thereon, of companies mentioned herein, and may also take position(s) in accordance
with its own investment strategy and rationale, that may not always be in accordance with the recommendations made in this Research Report and may differ from or be contrary to the
recommendations made in this Research Report.

Additional Disclaimer for Canadian Persons


(i) About AMBIT Capital:
11. AMBIT Capital is not registered in the Province of Ontario and /or Province of Québec to trade in securities and/or to provide advice with respect to securities.
12. AMBIT Capital's head office or principal place of business is located in India.
13. All or substantially all of AMBIT Capital's assets may be situated outside of Canada.
14. It may be difficult for enforcing legal rights against AMBIT Capital because of the above.
15. Name and address of AMBIT Capital's agent for service of process in the Province of Ontario is: Torys LLP, 79 Wellington St. W., 30th Floor, Box 270, TD South Tower, Toronto, Ontario M5K 1N2
Canada.
16. Name and address of AMBIT Capital's agent for service of process in the Province of Québec is Torys Law Firm LLP, 1 Place Ville Marie, Suite 1919 Montréal, Québec H3B 2C3 Canada.
(ii) About AMBIT America Inc.:
17. Ambit America Inc. is not registered in Canada
18. Ambit America Inc. is resident and registered in the United States.
19. The name and address of the Agent For Service in Quebec is: Lavery, de Billy, L.L.P., Bureau 4000, One Place Ville Marie, Montreal, Quebec, Canada H3B 4M4.
20. The name and address of the Agent For Service in Toronto is: Sutton Boyce Gilkes Regulatory Consulting Group Inc., 120 Adelaide Street West, Suite 2500, Toronto, ON Canada M5H 1T1.
21. A client may have difficulty enforcing legal rights against Ambit America Inc. because it is resident outside of Canada and all substantially all of its assets may be situated outside of Canada.

Additional Disclaimer for Singapore Persons


22. This Report is prepared and distributed by Ambit Capital Private Limited and distributed as per the approved arrangement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP
289) and Paragraph 11 of the First Schedule to the Financial Advisors Act (CAP 110) provided to Ambit Singapore Pte. Limited by Monetary Authority of Singapore.
23. This Report is only available to persons in Singapore who are institutional investors (as defined in section 4A of the Securities and Futures Act (Cap. 289) of Singapore (the “SFA”).” Accordingly, if a
Singapore Person is not or ceases to be such an institutional investor, such Singapore Person must immediately discontinue any use of this Report and inform Ambit Singapore Pte. Limited.

Additional Disclaimer for UK Persons


24. All of the recommendations and views about the securities and companies in this report accurately reflect the personal views of the research analyst named on the cover. No part of this research
analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst in this research report. This report may not be
reproduced, redistributed or copied in whole or in part for any purpose.
25. This report is a marketing communication and has been prepared by Ambit Capital Private Ltd. of Mumbai, India (“Ambit”). Ambit is regulated by the Securities and Exchange Board of India and is
registered as a Research Entity under the SEBI (Research Analysts) Regulations, 2014. Ambit is an appointed representative of Aldgate Advisors Limited which is authorized and regulated by the
Financial Conduct Authority whose registered office is at 16 Charles II Street, London, SW1Y 4NW.
26. In the UK, this report is directed at and is for distribution only to persons who (i) fall within Article 19(5) (persons who have professional experience in matters relating to investments) or Article
49(2)(a) to (d) (high net worth companies, unincorporated associations etc.) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (as amended).

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 28
Strategy

27. Ambit is not a US registered broker-dealer. Transactions undertaken in the US in any security mentioned herein must be effected through a US-registered broker-dealer, in conformity with SEC Rule
15a-6.
28. Neither this report nor any copy or part thereof may be distributed in any other jurisdictions where its distribution may be restricted by law and persons into whose possession this report comes
should inform themselves about, and observe, any such restrictions. Distribution of this report in any such other jurisdictions may constitute a violation of UK or US securities laws, or the law of any
such other jurisdictions.
29. This report does not constitute an offer or solicitation to buy or sell any securities referred to herein. It should not be so construed, nor should it or any part of it form the basis of, or be relied on in
connection with, any contract or commitment whatsoever. The information in this report, or on which this report is based, has been obtained from publicly available sources that Ambit believes to be
reliable and accurate. However, it has not been prepared in accordance with legal requirements designed to promote the independence of investment research. It has also not been independently
verified and no representation or warranty, express or implied, is made as to the accuracy or completeness of any information obtained from third parties.
30. The information or opinions are provided as at the date of this report and are subject to change without notice. The information and opinions provided in this report take no account of the investors’
individual circumstances and should not be taken as specific advice on the merits of any investment decision. Investors should consider this report as only a single factor in making any investment
decisions. Further information is available upon request. No member or employee of Ambit accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or
indirectly, from any use of this report or its contents.
31. The value of any investment made at your discretion based on this Report, or income therefrom, maybe affected by changes in economic, financial and/or political factors and may go down as well
as go up and you may not get back the original amount invested. Some securities and/or investments involve substantial risk and are not suitable for all investors.
32. Ambit and its affiliates and their respective officers directors and employees may hold positions in any securities mentioned in this Report (or in any related investment) and may from time to time add
to or dispose of any such securities (or investment). Ambit and its affiliates may from time to time render advisory and other services, solicit business to companies referred to in this Report and may
receive compensation for the same. Ambit has a restrictive policy relating to personal dealing. Ambit has controls in place to manage the risks related to such. An outline of the general approach
taken in relation to conflicts of interest is available upon request.
33. Ambit and its affiliates may act as a market maker or risk arbitrator or liquidity provider or may have assumed an underwriting commitment in the securities of companies discussed in this Report (or
in related investments) or may sell them or buy them from clients on a principal to principal basis or may be involved in proprietary trading and may also perform or seek to perform investment
banking or underwriting services for or relating to those companies.
34. Ambit may sell or buy any securities or make any investment which may be contrary to or inconsistent with this Report and are not subject to any prohibition on dealing. By accepting this report you
agree to be bound by the foregoing limitations. In the normal course of Ambit and its affiliates’ business, circumstances may arise that could result in the interests of Ambit conflicting with the
interests of clients or one client’s interests conflicting with the interest of another client. Ambit makes best efforts to ensure that conflicts are identified, managed and clients’ interests are protected.
However, clients/potential clients of Ambit should be aware of these possible conflicts of interests and should make informed decisions in relation to Ambit services.

Additional Disclaimer for U.S. Persons


35. The Ambit Capital research report is solely a product of AMBIT Capital Pvt. Ltd. and may be used for general information only. The legal entity preparing this research report is not registered as a
broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and/or the independence of research analysts.
36. Ambit Capital is the employer of the research analyst(s) who has prepared the research report.
37. Any subsequent transactions in securities discussed in the research reports should be effected through Ambit America Inc. (“Ambit America”).
38. Ambit America Inc. does not accept or receive any compensation of any kind directly from US Institutional Investors for the dissemination of the AMBIT Capital research reports. However, Ambit
Capital Pvt. Ltd. has entered into an agreement with Ambit America Inc. which includes payment for sourcing new MUSSI and service existing clients based out of USA.
39. Analyst(s) preparing this report are resident outside the United States and are not associated persons or employees of any US regulated broker-dealer. Therefore the analyst(s) may not be subject to
Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by the research analyst.
40. In the United States, this research report is available solely for distribution to major U.S. institutional investors, as defined in Rule 15a – 6 under the Securities Exchange Act of 1934. This research
report is distributed in the United States by Ambit America Inc., a U.S. registered broker and dealer and a member of FINRA. Ambit America Inc., a US registered broker-dealer, accepts responsibility
for this research report and its dissemination in the United States.
41. This Ambit Capital research report is not intended for any other persons in the USA. All major U.S. institutional investors or persons outside the United States, having received this Ambit Capital
research report shall neither distribute the original nor a copy to any other person in the United States. In order to receive any additional information about or to effect a transaction in any security or
financial instrument mentioned herein, please contact a registered representative of Ambit America Inc., by phone at 646 793 6001 or by mail at 370, Lexington Avenue, Suite 803, New York,
10017. This material should not be construed as a solicitation or recommendation to use Ambit Capital to effect transactions in any security mentioned herein.
42. This document does not constitute an offer of, or an invitation by or on behalf of Ambit Capital or its affiliates or any other company to any person, to buy or sell any security. The information
contained herein has been obtained from published information and other sources, which Ambit Capital or its Affiliates consider to be reliable. None of Ambit Capital accepts any liability or
responsibility whatsoever for the accuracy or completeness of any such information. All estimates, expressions of opinion and other subjective judgments contained herein are made as of the date of
this document. Emerging securities markets may be subject to risks significantly higher than more established markets. In particular, the political and economic environment, company practices and
market prices and volumes may be subject to significant variations. The ability to assess such risks may also be limited due to significantly lower information quantity and quality. By accepting this
document, you agree to be bound by all the foregoing provisions.
Disclosures
43. The analyst (s) has/have not served as an officer, director or employee of the subject company.
44. There is no material disciplinary action that has been taken by any regulatory authority impacting equity research analysis activities.
45. All market data included in this report are dated as at the previous stock market closing day from the date of this report.

Analyst Certification
Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1) the views expressed in this report reflect his or her personal views
about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this
report.

© Copyright 2019 AMBIT Capital Private Limited. All rights reserved.


Ambit Capital Pvt. Ltd.
Ambit House, 3rd Floor. 449, Senapati Bapat Marg,
Lower Parel, Mumbai 400 013, India.
Phone: +91-22-3043 3000 | Fax: +91-22-3043 3100
CIN: U74140MH1997PTC107598
www.ambitcapital.com

allresearch@ambit.co;ambitresearch@ambitcapital.com
January 29, 2019 Ambit Capital Pvt. Ltd. Page 29

You might also like