NEW DELHI: Spotting a multibagger from the listed universe of over 5,000 stocks is not anyone’s cup of tea. However, there are at least three tried and tested players, which have never let investors down since September 2010.
An analysis by ETMarkets.com showed Fevicol-maker Pidilite Industries, pipe manufacturer Astral Poly Technik and FMCG major Hindustan Unilever (HUL) have delivered positive returns annually during past 10 years through the ups and downs of the market.
Analysts are positive on these firms despite higher valuations.
Annual performance: The Three Musketeers
The superior return ratios make these players favourites among market participants. Data showed the average return on equity (ROE) of HUL, Pidilite and Astral Poly stood at 95 per cent, 27 per cent and 20 per cent, respectively, in last 10 years.
Likewise, the 10-year average return on capital employed (ROCE) stood at 127 per cent for HUL, 34 per cent for Pidilite and 24 per cent for Astral.
With a 5,091 per cent rally over last 10 years, Astral Poly Technik outperformed the other two. HUL has gained 681 per cent for this period, and Pidilite 887 per cent.
These stocks are currently quoting high price-to-earnings ratios: 100 times for Astral Poly, 73 for HUL and 84 for Pidilite against their 10-year averages of 55 times, 46 times and 44 times, respectively.
“Astral will be able to deliver healthy revenue and earnings CAGR of 12.6 per cent and 20 per cent, respectively, over FY2020-FY2023E. A large addressable market, strong balance sheet, and robust growth levers justify the stock’s premium valuation,” brokerage Sharekhan said about Astral’s expensive valuation. The brokerage sees 11-13 per cent upside in the stock.
Edelweiss Securities says Astral Poly enjoys significant premium over the industry average due to its ability to sustain growth momentum and create brands. The company is the undisputed leader in the most consumer-facing category of CPVC and brand Astral enjoys significant premium over others.
Its entry into a higher consumer-facing category of adhesives under brand “Resi” further bolsters the valuation premium, it said.
Promoters had 55.74 per cent stake in Astral as of June 30. Mutual funds and FPIs held 8.34 per cent and 16.76 per cent.
Pidilite has mixed rating currently. Emkay Global Financial Services has a ‘sell’ recommendation. “The slowdown in real estate and construction activity was already hurting growth for adhesives, which will see further deterioration post the Covid-19 disruption. The recovery is likely to be slower than consumer peers due to lower priority spends and increased cautiousness driving postponement of activity,” the brokerage said.
It further said the margin outlook remains positive due to a fall in crude prices. However, this has got priced in and it is unlikely to drive any earnings upgrade. “Given the downside risks to earnings from the disruption and delayed recovery, valuations look unreasonable,” the brokerage said.
Some analysts prefers to play the home improvement theme amid the ongoing work from home (WFH) scenario,
Gurmeet Chadha, Co-Founder & CEO, Complete Circle Consultants, told ETNOW that WFH and the new consumer environment world lead to more expenditure on home improvement.
“Go for paint companies, the likes of Polycab and Havells of the world, the CPVC pipe makers, something like Pidilite, which is into adhesives and special chemicals and are clear market leaders with great ROEs. I would play the home improvement theme first and then look at debt-free companies with big return ratios,” he said.
Promoters held 70.19 per cent stake in Pidilite as of June 30, while mutual funds and foreign portfolio investors had 3.86 per cent and 11.17 per cent.
In HUL, promoters shareholding stood at 61.90 per cent while mutual funds had 4.37 per cent and FPIs 14.81 per cent, as of June 30.
HUL is among the top largecap ideas of Motilal Oswal Financial Services. Siddhartha Khemka, Head of Retail Research, Motilal Oswal said, “The consumption space has consistently done well in the Covid environment. The rural consumption theme has been playing out and the urban theme is catching up well. These stocks trade at a premium.”
“We would continue to be positive on the consumption basket and remain defensive,” he told to ETNOW.
LIC, the country’s biggest institutional investor, held 2.91 per cent in Pidilite and 2.60 per cent HUL, respectively, as of June 30.