10 Key Multibagger Learnings

8 mins readPublishing Date : 2023-10-05

10 Key Multibagger Learnings

Hi everyone, the purpose of this series is to list down some of the key things I have learned over the last few weeks by reading books/magazines, visiting companies and by attending AGMs or conference calls of different companies. 

Top 10 things I learned over last 2 weeks:

1. The trend of Value Migration: The global demand for Alloy Wheels (made of aluminium) is close to 350 million wheels per annum. alloy wheels vs steel wheels are more premium in looks and higher in realisations. For example, the cost of alloy wheels is close to Rs. 18,000 to Rs. 22,000 vs Rs. 3,000 to Rs. 5,000 for steel wheels. These days the youth and those who buy SUV’s often end up choosing alloy wheels instead of steel wheels. This is a premiumisation trend that is playing out. Some of the Indian manufacturers have started exports as well.

2. LEGO abandoned its highest-profile effort to ditch oil-based plastics from its bricks after finding that its new material led to higher carbon emissions, in a sign of the complex trade-offs companies face in their search for sustainability – Financial Times .

Essentially, LEGO tried to replace its bricks made from ABS which is a petrochemical to Recycled PET. However, RPET is a much softer material and given the changes Lego would have had to make in its production processes and sourcing. This would have led to even higher carbon emissions.

3. When it comes to new agrochemical molecules, which have been discovered by innovator companies like Bayers, BASF & others in the last 15 years, there are only three big successes like Rynaxypyr, SDHI fungicides, and Pyroxasulfone. In simple words, there are very few major blockbusters in the Agrochemical Industry. Now guess what? Have you ever wondered why PI Industries and SRF have scaled the way they have since 2014?

SRF is a key beneficiary of SDHI fungicides and is the world market leader in its intermediates. Whereas, Pyroxasulfone is a key contributor to PI Industries Journey as PI is the main manufacturer of Pyro for Kumiai. Recently, Chinese generic agrochemical companies have announced expansion in Pyroxasulfone! One of the reasons why markets haven’t rewarded PI in the last 2-3 years in spite of the stellar growth.

4. I have often wondered what is the performance of Nifty in years when crude oil prices have risen or fallen. This is how the performance of Nifty looks like with changes in the price of crude oil:

5. About 10 years ago, the Solar Industry in Europe was decimated due to cheap Chinese imports. As China, like in other industries, built fully integrated plants and was able to achieve the lowest cost of production in manufacturing Solar Panels. Chinese companies are integrated across the value chain:

Indian companies currently are into Panel/Module manufacturing. Few of them like Waaree Energies have announced backwards integration into cells. India’s solar module imports from China are down by nearly 80% in the first half of 2023. Imports are down from 9.8 GW H1 of 2022 to a mere 2.3 GW in H1 of 2023 . India started levying a customs duty of 40 per cent on solar modules from April 2022. India has committed to achieving 500 GW of installed power capacity from non-fossil fuel-based resources by 2030.

6. Coming back to Europe & China, over the last 2 years the exports of Electric Vehicles from China have started to increase in Europe. Almost 1 in 5 cars sold in Europe is an EV. Market share of Chinese EV makers has grown to nearly 8% in Europe. European authorities are considering Anti Subsidy Probes as Europe plans to ban sales of Combustion (vehicles which run on petrol & diesel) engines by 2035.

7. Relative strength wise the entire Jewellery retail sector has been on fire. The main listed players like Titan, Kalyan, Senco, etc. have been growing at 15%+. With all three planning to add multiple stores going forward. This sector is one of the prime examples of how the trend of unorganised to organised ends up playing out:

8. One of the listed Shunt Manufacturers is actually supplying Shunts to BYD in China for their domestic usage. We got this bit of nugget from their recently held AGM. The company is expecting growth from the Automotive, Metering and Switchgear segment.

9. Driven by the trend of premiumisation and ease of use, the Auto industry in India is shifting more towards smart locking systems vs normal locks for vehicles.

What are smart locks?

- Smart locks are connected with bluetooth.

- A vehicle can be locked or opened with a click of a button from an app.

- Smart locks are linked with a smartphone, or locks with an immobiliser.

- Smart locks command 8-10x higher realisations vs normal locks.

- Penetration of smart locks within 2 Wheeler Industry is at 5% and is expected to increase to 40% going forward.

Get searching folks, one of the listed companies is the main supplier of Smart locks to major OEM’s!

10. This is the most insightful one yet. Bureau of Indian Standards certification is disrupting imports from China. For example, due to compulsion of BIS on stainless steel pipes, the domestic players in India are reporting robust growth. BIS has been imposed across sectors, and be on watchout for some of the companies which compete with Chinese imports. This has given a much needed tailwind to Indian manufacturers across tubes, pipes, stainless steel, and other products. How sustainable it is, is yet to be seen.

Throwing in an added bonus. ;)

It seems that the Real Estate Industry in India is at a cusp of solid growth over the next few years. Each and every transcript I have read in the sector sounds extremely bullish. This is one sector where investors aren’t believing the story. Yet all the promoters are guiding for robust Pre Sales growth. Look out for the RE developers operating out of Mumbai, Pune, Delhi and Bangalore. This is a micro market play. It might be easier to bet on proxies. We haven’t seen a sustained upcycle in RE developers. One of the sectors to keep a watch on!

This is it folks. There are many more insightful learnings which we will publish next week. :)

Do let me know in the comments, which learning you found to be the most insightful.

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