In his latest interview with The Economic Times, Gautam Baid explains how he uses his variant perception strategy to find multi-baggers. Here’s an excerpt from the interview:
In addition to that, the variant perception strategy also covers companies which have completed a big capacity expansion program. Now we should understand that there are only three ways companies can do capex; one is through debottlenecking, one is through brownfield and one is through greenfield.
Of these three, debottlenecking has the highest margin and so when we are investing based on variant perception, ideally we are looking for companies which are debottlenecking or basically getting more throughput from the same capacity and getting very high margins because margin expansion is a key driver of ROCE.
When there is ROCE expansion coupled with earnings growth and valuation rerating, one gets multi baggers.
One can also get variant perception triggers in the form of deleveraging. So, when debt goes down, interest costs go down, net profit goes up and the market cap goes up. You can also get it from improvement in operating efficiency like improvement in asset turnover.
This information is easily available in the conference calls. One can understand the asset turnover on the new capacity which the company is going for. One can also get variant perception if one gets the industry cycle shift correctly. For example, since the middle of last year, the residential real estate cycle in India has turned around after 10 years and has very good return potential when one is able to catch the turnaround or the inflection point in certain sectors.
One also gets variant perception if one is able to understand the government’s regulatory change in certain sectors. For example, since last year, the government of India is putting a heavy emphasis on ethanol blending. So a lot of sugar mills, distilleries are benefitting from that particular regulatory action. There is no dearth of opportunities in the Indian stock market and we just need to be open minded, flexible and keep evolving and adapting with the times.
You can read the entire interview here:
Gautam Baid – The Economic Times
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