Multibagger Stock -Tata Elxsi completed analysis

December 2, 2018

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In this post we have done analysis of Tata Elxsi Stock whose fundamentals are really good already given many fold return and still giving good return. Let us first understand what are miltibagger stocks

Stocks that give returns that are several times their costs are called multibaggers. These are essentially stocks that are undervalued and have strong fundamentals, thus presenting themselves as great investment options. Multibagger stock companies are strong on corporate governance and have businesses that are scalable within a short span of time.

So, A stock that doubles its price is called two-bagger while if the price grows 10-times, it would be called a 10-bagger. Thus, multibaggers are stocks whose prices have risen multiple times their initial investment values.

Let’s come to the point. As we all know, Tata Group is an Indian multinational conglomerate holding company whose subsidiaries are as follows:

Source : Tata companies via @tatacompanies

Among all these companies, There is one company, Tata Elxsi, which is an Indian design company and a part of the Tata Group. It provides design and technology services for product engineering and solutions across industries including broadcast, communications, and automotive.

10 Logical reasons why I think Tata Elxsi may become next Multibagger

Well-diversified Business Model:

The key services of Tata Elxsi are:

Technology Services & Product Engineering
Industrial Design & Visualization
Systems Integration Services
Technology consulting
New Product Design & Development
Test & Measurement
IoT
Big Data Analytics
Cloud
VR/AR/MR Artificial Intelligence

Its system integration & support segment is engaged in implementing and integrating systems and solutions for computing, broadcast, virtual reality, storage, and disaster recovery. Its software development & services segment comprises three business divisions: Embedded Product Design, which provides technology consulting, new product design, development, and testing services for the broadcast, consumer electronics, healthcare, telecom and transportation industries; Industrial Design (ID), which services a range of industries, including automotive, consumer electronics, retail and consumer goods and healthcare, and Visual Computing Labs (VCL), which provides three dimensional (3D) animation services, addressing content development for feature films, television and advertising commercials.

2. Consistent Sales Growth:

CAGR 10 Years: 13.19%
CAGR 5 Years:18.05%
CAGR 3 Years:17.74%

If it maintains 15% ( On an Average CAGR) then after 10 years its sales may touch 5607.14 Crore, NPM of 15% makes its NI 841 Cr. 10 years down the line which is currently held at 82 Cr.

3. Consistent Net Profits with higher margins:

If we take it in a broader way then we can say that the Company has good consistent profit growth of 50.63% over 5 years. This fulfills the basic requirements for selecting any stock for the longer term.

4. Healthy Reserves and Cash Rich:

The company has been consistently generating cash from its operating activities without negative halt.

5. Debt Free:

By having less debt or zero debt, companies send a signal to the outside world that they are able to manage their funding requirements predominantly through internally generated cash and thus they are cash-rich firms. During an economic slowdown, many a debt-heavy firm’s profits dip owing to falling sales and payment of fixed interest while companies with no debt or less debt need not worry about the same.

Thus, they have low-interest rate risk. By having less debt in the balance sheet firms are also sending a message to the outside world that they are conservative in nature.

6. Maintaining massive ROE of 34% in the last 10 years.

Very few listed companies which are maintaining the ROE 34% CAGR in the last 10 years and TATA ELEXI is one of them. A rising ROE suggests that a company is increasing its ability to generate profit without needing as much capital. It also indicates how well a company’s management is deploying the shareholders’ capital. In other words, the higher the ROE the better. Falling ROE is usually a problem.

7. Pledged percentage: 0.00 % and Contingent liabilities: 28.16 Cr.

Pledging of shares is generally seen in the companies where the shareholding of the promoters is high. As a thumb rule, pledging of shares above 50% can risky for the promoters.In short, ignore companies with high pledging of shares to avoid unnecessary troubles Read more about pledged shares here https://medium.com/@akshay.equit…

8. Tata Elexi is trading 21 times of its FY19 earnings (Fv 10) and delivered a massive 640% returns in the last 5 years and still growing at the same pace.