Ten years is a long time to hold a stock. But if one is convinced about the company’s fundamentals, its growth prospects and has the conviction that a fundamentally sound company will deliver a good return over time, markets do reward such a thought process. And handsomely!
A quick analysis of the BSE 500 stocks’ return over the past 10 years reveals an interesting picture. As many as 63 stocks have zoomed over 1,000 per cent during this period. Avanti Feeds and Caplin Point Laboratories top this list with an astounding rally of over 39,000 per cent and 21,000 per cent respectively on an absolute basis, ACE Equity data show.
Bajaj Finance, Symphony, PI Industries, Atul Auto, Astral Poly Technik, Relaxo Footwears and Ajanta Pharma are some of the other stocks that have gained over 5,000 per cent on an absolute basis during this period.
Some of these companies have been remarkable growth stories.
Established with a portfolio comprising one air cooler model, Symphony was able to match large multi-product competitors such as Crompton Greaves, Usha and Polar in the air-cooler category by the 1990s. It then decided to diversify into air conditioners (ACs), washing machines and other durables, which failed to attract consumers. By 2001, investors lost faith. Symphony’s net worth eroded and it ended up as a penny stock at the bourses. It was then referred to the Board for Industrial and Financial Reconstruction (BIFR) with debt of over Rs 50 crore, reports suggest.
Post-2005, Symphony restructured its philosophy into 'One Product–Many Markets’ and scaled up its international presence. In 2009, it acquired IMPCO (North America) and had begun offering central air cooling solutions in India by 2011.
On the other hand, Bajaj Finance has emerged as the only sizeable diversified non-bank finance company (NBFC) in India in a relatively short period of time. The offering includes consumer durable loans, housing finance, auto loans, gold loans, loan-against-property as well as credit cards. This has ensured that it has a diverse set of growth drivers in its portfolio which help it reduce cyclicality in growth and asset quality.
“Bajaj Finance's loan book has grown at a CAGR of 47 per cent over FY09-19 (more than 15 per cent loan book growth in each of the last 11 years). Profit after tax (PAT) grew at a CAGR of 61 per cent during the same period (FY09-19). Along with the stellar loan book growth, the company has been able to maintain steady asset quality with average net NPAs of 1.03 per cent during FY09-19 (average net NPA ratio has been 0.40 per cent during FY11-19),” said Saurabh Mukherjea, founder, Marcellus Investment Managers.
Astral Poly Technik, according to Jefferies, has fortified its pipes mix with consistent launches and inorganic growth over the years. After building a robust franchise in this segment, Astral forayed in adhesives business in FY14 – turning around Resinova's margins. Going ahead, an improvement in 'SEAL IT' is in the offing. It also has ramped up its pipes capacity from 137kMT in FY18 to 221kMT now.
“With majority capex outlay behind us, higher utilisation levels could result in superior operating leverage. Estimate FY20-22e sales/PAT CAGR at around 19 per cent/30 per cent, led by opportunity from multiple government initiatives, new product launches, ramp-up in Rex (acquired in FY19), margin expansion and boost from recent tax cuts. However, current valuation at 58x/42x PE on FY20/21e EPS appears stretched. Maintain Hold with price target of Rs 1,060 levels,” wrote Sonali Salgaonkar, an analyst at Jefferies tracking the company in a recent report.