Up to 2,50,000% jump: 5 penny stocks show it takes time to make crorepatis
Investment of Rs 55,000 in Eicher Motors in 1998 would have become over Rs 14 crore today.
Some 10 stocks from the National Stock Exchange (NSE) took 20 years for gestation, but have delivered up to 2,619 times return in this period. They were penny stocks back then; five are part of the elite Nifty50 club today. They are Eicher Motors, Kotak Mahindra Bank, UPL, Lupin and Titan Company.
Others which made their investors millionaires included Bajaj Finance, Shree Cement, Gruh Finance, JSW Steel and Ashiana Housing.
No, it has not been a steep climb for any of them. UPL, Titan, and JSW Steel tested investors’ nerves for several quarters or even years before they took off.
That’s what you face on the path to richness.
Ian Cassel, a well-known microcap investor, said in a recent tweet: “Every multibagger will have long periods (even years) of stagnation, as fundamentals backfill, old shareholders get bored, and new shareholders enter.”
So how long is it, really?
UPL remained in the Rs 3-8 range all through 1998-2003; Titan traded in the Rs 2-4 range around the same time. The former is at Rs 637, today and latter at Rs 832.
Shares of Eicher Motors have rallied 2,61,772 per cent from Rs 10.70 on July 12 in 1998 to Rs 28,020 on July 12, 2018. The company has no debt on its books and continues to redeploy cash for further expansion and product innovation.
Data available with Ace Equity showed Eicher’s net profit swelled to Rs 1,712.90 crore for the year ended March 2018 from Rs 23.50 crore reported for FY01. Net sales soared over 20 times during this period.
An investment of Rs 55,000 in Eicher Motors shares in 1998 would have become over Rs 14 crore today.
Kotak Mahindra Bank is the second biggest gainer on the list, up 1,29,337 per cent from Rs 1.10 in July 1998 to Rs 1,394 at last Friday’s close. Net profit of the lender multiplied over 50 times to Rs 4,084.30 crore for the year ended FY18. In comparison, shares of HDFC Bank rallied 16,022 per cent from Rs 13.40 to Rs 2165 in the same period.
Brokerage Sharekhan says Kotak Mahindra Bank is among a handful of banks that have been able to maintain strong asset quality in sharp contrast to most banking peers that have become fraught with challenges. Kotak Bank is well positioned to capture incremental market share in the advances market.
“With PSU banks hobbled with non-performing assets (NPA) and capital-related issues, private banks (such as Kotak Bank) have a great opportunity to grab market share and gain access to attractive clientele,” the brokerage said in a report.
UPL has multiplied investor wealth by 647 times in last 20 years. The scrip jumped from Rs 0.90 on July 13, 1998 to Rs 582.70 on July 12, 2018. Net sales and net profit have soared manifold in the same period.
UPL is engaged in the crop protection business, comprising agrochemicals, industrial chemicals, chemical intermediates and specialty chemicals.
HDFC Securities in an April report said UPL’s long-term prospects remained positive led by its focus on branding and launch of innovative products, maintaining geographical presence and catering to major crops.
It has increased its share in the global agrochemical market (4 per cent in CY16 against 3 per cent in CY14), and improving Innovation Turnover Index, which rose to 19 per cent in FY18 from 15 per cent in FY17. The company has been investing consistently in backward as well as forward integration, resulting in better cost management.
Shares of pharma major Lupin have rallied 46,370 per cent to Rs 885.30 from Rs 1.90 on July 13, 1998, while Titan has soared 35,415 per cent to Rs 808.90 from Rs 2.30 during the same period.
Lupin’s profit has jumped from just Rs 2.90 crore in FY2000 to Rs 1,344 for the financial year ended March 2018. It is the market leader in 51 out of the 158 products it sells in the US generic market. As many as 109 of its products feature among the top three in the US generic market.
Lupin plans to launch around 30 new products in the US during FY19. With 163 ANDAs pending approval by USFDA, Lupin is poised for good growth, according to Centrum Broking. The management has guided an EBIDTA margin of 19-21 per cent and single digit decline in revenues for US generic business in FY19.
Titan’s bottomline has soared to over Rs 1,150 crore in FY18 from Rs 25 crore in FY05, while top line has grown 15 times.
The previous financial year turned out to be a robust one for the company, with the jewellery division delivering healthy expansion in bottomline and topline. Revenues for the jewellery division grew 25 per cent YoY to Rs 13,257 crore.
Recent regulatory changes such as demonetisation and GST have led to market share gains for the company, while its enhanced focus on wedding and high value studded jewellery and favourable gold exchange policy has also helped grow topline. The management remains upbeat on the growth outlook for the jewellery division with plans to grow revenues at a compounding rate of 20 per cent till FY23.
The size of India’s jewellery industry is pegged at Rs 2,50,000 crore, of which Titan’s Tanishq brand has just 5 per cent market share. This provides immense opportunity to enhance market share, going forward.