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Appreciation in Five years
COVER STORY
January,2008 [11]
Past five years saw 212 stocks achieving this level and on a lower side
almost 20% of total active stocks gave ten times appreciation during this
same period. These numbers are substantial and indicate a strong
uptrend in economy; but the crucial question is that will this trend continue?
We analyzed about 4900 stock to
find their appreciation during the
last five years (1-1-03 to 14-12-07).
Out of these stocks, there are 212
such stocks that would have multi-
plied your money from Rs 1 lakh to
more than Rs 50 lakhs!
Some Leading Stocks that have risen multifold over last five years -
Source: CMIE
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COVER STORY
January,2008 [12]
Source: CMIE
Leading Gainers
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It is easy to understand at this
point of time that why major gainers
were Real Estate, Engineering,
Infrastructure, Finance and Power. All
these sectors are direct indicators of
our growth and reaffirm that engineer-
ing, infrastructure, construction, and
power are the drivers of our economy.
Should we invest for as long
as five years in a stock?
If a company has management of
proven capabilities, it operates in a
sector with sustainable growth, has
low external threats, is not excessive-
ly dependent on global markets, and is
able to maintain its competitiveadvantage, then one can definitely
take a long term call for as long as the
sector remains positive.
In fact it is not necessary for one
to do course on economy of finance to
identify such multi-baggers, what all
it needs is an ability to foresee the
trends in market. For example, when
economy rises and income levels of
people increases, their first priority is
a house. This had become evident five
years back that with more and more
people earning more than their fathers
with new economy opportunities in
IT, BPO, media, entertainment,
finance and retail, the income levels
were set to remain in uptrend.
If one had seen the construction
works of Ansal and Unitech, it would
have been easy to assess that they will
be long term winners. There were
very few established brands in hous-
ing and if one had narrowed down
housing for long term investment,
then these two were outstanding and
obvious choices. The results would
have been fabulous, Unitech appreci-
ating 1407 times and Ansal Properties
201 times in just five years! Can youimagine this kind of returns from
established companies?
Which it better - invest for
short term or for long term?
A simple analogous question will
clarify this issue - how much time and
efforts you are willing to invest in
stock markets? A full time employed
person can normally spend about one
hour a day. By spending one hour, or
even less than that, people would
expect doubling their mony in few
months and making lakhs of rupees.
Now, compare this with their salary
and time spend on job! A person earn-
ing 20000 a month spending 10 hrs a
day expects another 20000 a month
spending few minutes a day?
In current scenario, stocks are
moving up 5 to 20% in a single day,
which is more than what a bank would
pay you over a period of one year! It
has become a fad for people to hunt
such opportunities. Ispat Industries,
RNRL, RPL, Ashok Laylend, Essar
Oil, and many more have climbed up
by more than 100% in just fewmonths with very high intraday
volatility. In case of Ispat, the delivery
volumes have been as low as 10% of
its total traded volumes, indicating
high levels of speculation. These
stocks and such strategies are good
for people who closely watch the mar-
kets and are experts in technical
analysis.
Staying invested for long term
COVER STORY
January,2008 [14]
Major Gaining Sectors -
(Sector wise number of companies* in the list of 212 companies that have appreciated over 50
times during last five years)
* 71 companies are in other industries
Source: CMIE
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has other benefits too. Many short-
term traders make more money for
their brokers than they make for
themselves (that is the reason you will
not find any brokerage report recom-
mending to stay invested for a number
of years). Additionally, you save tax
when you invest and hold for more
than one year.For laymen with little time to
spare for stock markets, longer term
investments are better options. Even if
one considers the returns from very
long term investment of say five
years, they are above all kind of
benchmarks. In our study, almost 20%
of the total stocks have multiplied 10
times in their value reflecting an
annualized return of 58.5%, and the
212 stocks that have appreciated over
50 times represent annualized returns
of 118.7 %. In comparison the Niftyhas given an annualized return of 40%
rising from 1115 to 6048 over the
same period.
One has to make his own deci-
sion whether he has the time and skills
to reap the benefits in short term or
can patiently stay invested over a long
term horizon. Just remember the com-
parison between a job income and
stock market income as mentioned
above.
Is long term filled with
Uncertainties?
This is the most serious issue that
prevents people from making long
term investments, but the facts are
mostly in favour of it. Majority of the
known successful investors have risen
to their glorious richness by patiently
staying invested for a number of
years, even decades sometimes. Be it
Warren Buffet, Peter Lynch, or near
home - Rakesh Jhunjhunwala, all arevery long term investors. They trade
short term also but that is to augment
their main stream income from short
term opportunities.
People who set up businesses do
not do it with the intention of making
profits in months or 1-2 years and
then closing it down. They have a
long term vision, and look at any suc-
cessful business, it doesn't start
adding to its networth from the very
beginning, hence it is mostly under-
valued in the markets. This is the most
profitable to time to invest in it, once
it starts performing, the masses in
market will notice that and its price
will rise to a level where supernormal
returns are not possible.
For example we had assessed inbeginning of 2007 that global trade of
India is going to grow substantially in
commodities. Now, in order to con-
vert this strategic view into an invest-
ment opportunity, we searched for
companies that will gain from India's
global commodities trade and zeroed
down on State Trading Corporation of
India. It is the top trading agencies
handling the bulk of commodities
trade with added plus points of mas-
sive assets. Few people had shown
interest in our report pointing out thatit's a PSU with no extra ordinary
future. We recommended it at Rs 152
on 5th April 2007, and the price as on
14th Dec 2007 was Rs 971, after it hit
a high of Rs 1744.
What makes Long Term
investments highly prof-
itable?
Out of the 212 companies that
appreciated more than 50 times, 95companies have appreciated by over
100 times during the last five years.
This means 152% returns per year.There is a single ability that
makes such supernormal returns pos-
sible - identifying the opportunities at
nascent stage. In the early stage of a
business, as long as the company has
not shown any performance, it will be
highly underpriced, especially if mar-
ket is unaware of its potential. As
explained earlier, once a large number
of people have come to know of
potential in the company, it will no
more be undervalued and though
investing in at that time will also be
profitable but it will not be supernor-
mal returns.
Look at the graphs given at the
beginning of this article, the initial 1-
2 years of all those stocks show a non
moving price line which is almost atthe bottom for a very long time. This
is the time that we are mentioning as
the crucial entry point. Once the price
is in upward trajectory, the returns
will come down to normal level.
Can one still make such prof-
its?
With Sensex crossing 20,000,
such thoughts are obvious. The
answer lies in sustainability of India's
growth. If economy grows at 8-10%
for next 5-10 years, the long terminvestors will be able replicate what
we have mentioned above. From 1
lakh to 50 lakhs can be repeated in
next five years. There are strong driv-
ers of our economy that indicate that
Indian economy will remain in high
growth phase for a long term that may
be a 10 to 20 years cycle. We are at
the beginning of our growth journey,
not at its top. Our current situation is
January,2008 [16]
COVER STORY
Sesa Goa appreciated112 times during last fiveyears. But, if we considerthe last four years, itsappreciation was only 13times! The reason is thatwhile on 1st Jan 2003 itsprice was Rs 34.75, on1st Jan 2004, the pricehad increased to Rs 298.Entry at Rs 34.75 willobviously be much moreprofitable than at Rs 298.It is the early entry that
makes all the differencein returns.
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what it was of developed countries at
their start of growth cycle. The major
growth drivers are mentioned below
in brief -
1. Policy driven growth
o Competent Government
o No Government can afford to back-
track.o Government has to maintain
momentum
o Peoples' expectations are increas-
ing
2. Growing worker population
India's demographic trend points to
sharp increases in input factors, 54%
of its population is below 25 years and
the total labour force is estimated to
double in next twenty years. India's
demographic advantage means that its
high growth will continue longer term
while China will slow
3. Huge Domestic Markets
o Growing Middle Class
o Growing Income
4. Infrastructure
o 150% jump in Investment in 11th
Five Year Plan
o Competent Companies to buildInfrastructure
5. Potential To Enhance Equity
Ownership
6. Nation's Capabilities
o Access to Capital
o Abundant Human Resources
o We have large number of skilled
labour, it is available at low cost,
English language abilities help in
global business, Educational infra-structure is of high quality, and more
and more people are coming out as
entrepreneurs.
With these trend setting growth driv-
ers, one can safely take long term
calls on Indian economy.
1. ABC India (CMP Rs:71)
ABC India Limited provides logis-
tic services principally in India.It owns a fleet of trucks, hydraulic
trailers, and prime movers. The com-
pany offers packing, warehousing,
loading, transporting, unloading,
unpacking, and stacking services. It
also provides various export and
import related services. The company
specializes in surface transportation,
international freight forwarding and
integrated logistics services. The
company's Custom House Agent
gives License to facilitate the customs
clearance of imported or exported
cargo. The company was incorporated
under the name Assam Bengal
Carriers Limited in 1972 and changed
its name to ABC India Limited in
1980. ABC India is based in Kolkata,
India.
It is a member of the TCI-Boruka
Group which is a leading transport
operator in India. By virtue of being a
member of the TCI-Bhoruka Group,
the company presently has access to
over 800 depots all over India. The
company's clientele ranges from small
retailers to large public sector under-takings. Apart from the transport divi-
sion, ABCIL also runs a specialised
Project division which distinguishes
the company from other transport
operators. Apart from having over 250
offices, it has huge assets and landed
properties which are not reflected in
its valuations.
It is also going to ride on the power
sector boom in India as ABC India is
the only listed company in India that
is doing turnkey transportation work
of complete power projects. The com-pany has recently bagged a presti-
gious order for hydel power project
and is also working on various
turnkey power projects all over India.
It is a very thinly traded stock and has
yet to be noticed by markets. Its sales
are almost constant for last 10 years
and operating profit margins are very
low at below 1% and have been
COVER STORY
January,2008 [17]
A long term bullish sector
Logistics is an integral input forgrowth of an economy
Over 35 years old company
Group also owns TCI and GATIhas one of the largest network ofover 250 offices with access to 800depots
The only listed company doingturnkey transportation work ofPower projects
Share prices are consolidating from
last two years
MULTIBAGGERS AT TAKEOFF
We are discussing some stocks that are in line with our long term investmentstrategies discussed above.
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declining over a number of years. But,
the management is working on put-
ting it on fast track and looking at the
performance of group company, Gati,
one can be assured of similar per-
formance from ABC in future. In a
key development, Mahendra Agarwal,
CEO and MD of Gati has joined ABCas a director.
2. JCT Ltd (CMP Rs 12)
JCT Limited, together with its sub-sidiaries, manufactures textiles inIndia. It operates in two segments,
Textiles and Filament. The Textile
segment manufactures cloth; yarn and
fents; and rags and chindies. The fab-
ric produced by this segment caters to
sportswear, active-wear, work-wear,
and other segments. The Filament
segment produces polyester/nylon
yarn and chips. The company's over-
seas operations include a textile mill
in Malaysia; and offices in Singapore
and Dubai. JCT Limited is based in
New Delhi, India.
Prompted by the textile boom, which
is very much on the cards, we havechosen JCT Ltd., a very low-priced
share, which has turned a corner with
its huge C/F losses that are likely to be
wiped out this year and has retuned
from the red to the black in FY06 and
is expected to fare even better in
FY07-08.
JCT Ltd. will prove to be a dark horse
in near future.
Future Plans:
JCT has chalked out an ambitious
capex plan for expanding its existing
capacities.
(A) Phagwara Textile Mills - It plans
to modernize all its existing
machineries.
(B) Mahiarpur Nylon Filament
Plant - New polymerization plant
with a capacity of 45 TPD with cap-tive power of 6 MW has already been
installed to provide better synergies.
(C) Synthetic Fabrics - This will be a
100% greenfield project at Phagwara
as there are no manufacturers of this
kind of sports wear and fashion fab-
rics throughout Asia. When it starts
production, the company's turnover
will exceed Rs.1000 cr.
The C/F losses are yet to be wiped off.
Due to the high crude oil prices, the
prices of all principal raw material i.e.
caprolactum, which is the basic raw
material for nylon yarn continued to
remain high and could not be passed
on to the consumers resulting in its
margin remaining under pressure.
JCT also has huge land bank at
Phagwara.
The stock is currently traded at
around Rs.12, which is almost its bot-
tom. In such a booming market, such
a low-priced pick is an attractive buy-
ing opportunity to reap a good harvest
in future. The share is sure to give
more than many times appreciation
looking to its size of business, expan-
sion and return into the black.
3. Jet Airways (CMP Rs 972)
Jet Airways (India) Limited pro-vides air transportation services inIndia and internationally. It also offers
cargo services to courier companies.
The company operated a fleet of 67
aircraft comprising 6 Boeing 777-300
ER; 50 737-400/700/800/900 aircraft,
4 airbus A330-200 aircraft, and 7 ATR
72-500 turboprop aircraft. It alsooperated approximately 350 daily
flights to 44 destinations in India, as
well as international flights to Nepal,
Sri Lanka, Singapore, Malaysia, the
United Kingdom, Thailand, Belgium,
Canada, and the United States. Jet
Airways (India) Limited was founded
in 1993 and is based in Mumbai,
India.
New plant for sports and defenseclothing
Deals with Nike
Carbon credits
Sick unit selling
Entering into retail sector
Collaboration with an MNC
New power plants installed of17MW
Profit of Rs 80 crores in 2009-10
January,2008 [18]
COVER STORY
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In the recent past Indian civil aviation
sector has grown manifold. The rapid
growth of Indian economy has result-
ed in a
spillover effect
on the airline
industry in
India. Several
new players
have enteredthe industry
and many
more are about
to enter the
arena. The
arrival of
cheap airline carriers in India has
spiced up the whole affair. Suddenly
the air travel is no more the monopoly
of the rich and the mighty. Now it has
become a common man's vehicle and
revolutionized the way a commonIndian traveler used to travel.
India's civil aviation passenger
growth stands at 20% -- among the
highest in the world -- saturating most
metro airports and a handful of fast-
growing smaller cities. Many airlines
are bulking up on capacity as well:
Ten Indian carriers recently placed
orders for about 400 aircraft worth
$15 billion. India's civil aviation mar-
ket has been severely underserved for
several decades. Less than 0.01% of
the population used air transportation
and, until last year, this country of
over a billion people had only 150
large jets. Meanwhile, India's strong
economy in recent years has lifted
people's disposable incomes, while
increasing urbanization. In addition,
more diverse business investments in
non-metropolitan regions have
brought new demand for air services.
"The opening up of the skies had led
to similar boom situations in other
markets, like the United States in the
1980s and Europe in the 1990s," says
Dinesh Keskar, vice-president of sales
at Boeing.
Despite the temporary setback interms of profitability, most industry
watchers remain bullish about long
term prospects for the airline industry.
Kiran Rao, vice-president, sales
(India and Africa) at Airbus Industrie
says the growth phase in Indian avia-
tion will continue into the near future.
Both Boeing and Airbus have revised
their India forecasts in the past year.
4 .MosChip Semiconductor
Technology (CMP Rs 31)When Ram Reddy and Dayakar
Reddy chose to return to India in1999
to set up a chip design company,
everyone thought the company would
have to be aborted because semicon-
ductor and India just didn't go togeth-
er. Ram Reddy spent over 23 years the
Silicon Valley, designing and manu-
facturing various ICs, had turned an
entrepreneur to set up semiconductor
design companies and sold them to
larger companies in the last 18 years.
Dayakar Reddy, graduated in elec-tronics engineering from California
State University, San Jose, has filed
for 12 patents in his 10- year stint
Cirrus Logic and later turned into an
entrepreneur in his own right.
But, grappling against odds, these two
engineers made this Hyderabad-based
firm MosChip Semiconductor a
stand-alone success. Now, Moschip
has achieved the distinction of being
the first India's fabless design firm to
have shipped two million units from
its suite of peripheral component
interconnect (PCI) controller chips
since this product was launched four
years back. These chips, which con-
nect peripherals to a PC are high per-
formance connectivity solutions for
Only 0.01% of the population usesair transportation - huge marketopportunities
Sector growing at 20%
Markets similar to US boom of1980s
Growth of economy to fueldemand for business air travel
Rising income levels will furtherboost leisure travel
Developing business in non-metrocities creating new routes and air
travel demand
Markets are consolidating andprice wars are expected to endleading to profitable operations of
Largest chip and complete productdesigner in India
Established brand
Reputed clients like IBM,Panasonic
Huge market potential
Innovative and market orientedproducts
January,2008 [19]
COVER STORY
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consumer, industrial and computing
applications and are used right from
printers to handheld devices when
they have to be connected to PCs
Today, with customers including
IBM-GES, Panasonic among others,
its 80-strong team of engineers is
product centric-thinking and design-ing products that working across dif-
ferent operating systems and multiple
platforms of various hardware config-
urations.
Says Dayakar Reddy, co-founder and
managing director of Moschip, "The
remarkable record of the our product
(MCS9800) which has crossed the
two million mark shows the confi-
dence our customers have in us. We
are seeing a continued growth indemand for these products as well our
other products which have become
major design-wins."
This suite of products are also being
used in point of sale ( POS) machines,
industrial automation, set top boxes,
vending/banking kiosks,
GSM/GPRS modems, gaming moth-
erboards and CTV systems.
Basically the company develops sys-
tem software to enable the complete
functionality of ICs. It focuses on
product design and development uti-
lizing standard cell approach portable
to multi foundries for processing.
After the design is done here the prod-
ucts are fabricated in fabs in Taiwan
and sold worldwide through its Santa
Clara office in the US.
"Today, we are able to design end to
end solutions - right from conceptual-
izing the design to production stage
by talking to customers, getting an
idea of the market need and refining
features of the products. These
become customized products and we
are also able to create intellectual
property (IP) for customers," Reddy
pointed out.
Although India is seeing a number of
design houses working on chip
designs - right from well established
companies (like Wipro, Sasken and
MindTree) and start-ups (like Insilica,
Qualcore), most of them are in the
services side of the chip design.
Moschip is unarguably the largest and
one of the very few firms that designsand completes the product here and
sends it for manufacture in Taiwan
and markets it on its own.
Its performance is not at all reflected
by its stock price because its true
growth will happen once its products
gain mass volumes. It has been show-
ing increasing sales since last few
years, though its bottom line still has
to come out of red. The stock has been
languishing between Rs 20 to 50 forlast five years, which is not strange
considering that the company is at its
early stage.
Just consider this one product of
Moschip to understand its potential -
Moschip has recently unveiled a chip
for digital home solutions that can be
used in a variety of applications that
need network connectivity and high
performance to run their unique soft-
ware applications. The product will
enable virtualisation of peripheral
devices over Ethernet. Design of such
complex ASIC's from India are almost
non-existant. Company has several
customers in US & Far-East who are
actively designing systems using this
product.
The product can be used in several
potential application markets such as
USB servers, print servers, NAS
servers, surveillance applications,
industrial automation, POS and access
control. The product has been devel-
oped in India and thus the costincurred is significantly below the
industry norms.
The company estimates that the mar-
ket opportunity for this product in all
the verticals is about Rs.1,020.27
crore. Even if the company captures a
fraction of this market (they should
not have difficulty as they have sig-
nificant cost advantage), it will be
able to boost its sales tremendously
which was just Rs 5.2 crore for FY07.And we have considered just one of
company's numerous successful prod-
ucts. It can be very imagined by any
one that what will be the revenue once
the development and production of
Moschip reaches high volumes.
5. MAX India (CMP Rs 247)
Max India Limited and its sub-sidiaries primarily operate in
the health care, life insurance, and
clinical research sectors in India. The
company's life insurance activities
include the provision of individual
and group insurance products.
Individual insurance products com-
prise unit-linked, protection, savings,
January,2008 [20]
COVER STORY
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retirement, and children's endowment
insurance; and group insurance prod-
ucts consist of group term life,
employee deposit linked insurance,
credit shield, group gratuity, and unit
linked group gratuity, as well as a
range of other insurance products,
such as rural and bancassurance. Itshealthcare activities comprise the
operation of various specialized cen-
ters and provision of a range of med-
ical services in the National Capital
Territory of Delhi. It operates Max
Devki Devi Heart & Vascular Institute
for cardiac care and allied services;
Max Institute of Neuro Sciences for
neuro-surgical operations; Max
Institute of Orthopaedics, an ortho-
peaedics and joint replacement center;Max Institute of Obstetrics and
Gynaecology; Max Institute of
Paedeatrics; and Max Eye Care. The
company provides clinical research
services during the various phases of
drug development and discovery,
which include study management,
project management, data base man-
agement, monitoring services, and
clinical trial pharmacy supply chain
management services to the pharma-
ceutical, medical device, biotechnolo-
gy, and contact research organizationsworldwide. In addition, Max India
engages in activities relating to sourc-
ing, training, and placing healthcare
personnel in India and abroad.
With a formidable presence in insur-
ance and healthcare, two of the fastest
growing sectors, Max India is a
unique play on India's increasing eco-
nomic prosperity and changing
lifestyle. The buoyant economy willprovide a strong growth momentum
to the hitherto underserved/under pen-
etrated life insurance and healthcare
sectors. The life insurance venture,
Max New York Life (MNYL), aided
by industry's most productive agent
force is set to reclaim market share.
Added impetuses are a change to
multi-channel distribution approachand a high growth in ULIP portfolio
which is amongst the best in the coun-
try on account of longer tenors. With
hospital beds likely doubling in the
next 4-5 years, superior margins
(>20%), increasing rate of medical
tourism and a strong brand and fran-
chisee network, the healthcare busi-
ness, Max Healthcare (MHC) too is
set to see golden times ahead.
A confluence of booming economy,rising life expectancy, shift in disease
profile to lifestyle-related ones, med-
ical tourism opportunity and growing
health insurance penetration are
poised to drive an accelerated growth
in India's healthcare sector. The pri-
vate healthcare sector is expected to
grow to $35.9bn in size by 2012 from
$15.5bn in FY06. The growth will be
driven by increased hospitalization
cases as well as higher average billing
per case.
Low penetration level of life insur-ance inIndiahence ample scopeforgrowth
More productive workforce whichwill lead tohigher margins
Value unlocking from various sub-
sidiaries incoming years
With change in lifestyle andincreasingconsumerism, the inci-dence of lifestyle diseases hasincreased which will leadto highermedical care expenses
Medical Tourism is on fast growthtrack asIndiahas emerged as acentre forquality medical care at alow cost
January,2008 [21]
COVER STORY
