Want a multibagger? Sunil Singhania reveals what to look for

Every investor dreams of finding the next multibagger—a stock that delivers outsized returns and transforms portfolios. But while most chase market fads or tips, Sunil Singhania has a different approach. The founder of Abakkus Asset Management and one of India's most seasoned stock pickers, Singhania believes that identifying multibaggers isn't about luck or formulas. What it requires is doing the unglamorous work of digging into annual reports, understanding change, reading the signs early and trusting time more than trends.

He doesn't just speak from theory. In a talk delivered at a CFA Society India event, Singhania laid out a grounded and richly illustrated framework for spotting multibaggers—built on case studies, long-term thinking and deep respect for business fundamentals. Let's walk through some of his strategies of spotting multibaggers:

The market itself can be a multibagger

Before talking about individual companies, Singhania reminds investors that multibagger returns don't always require picking obscure stocks. Sometimes, just staying the course with discipline can deliver extraordinary outcomes.

He points to the BSE Small Cap Index, which has delivered a 27 per cent annual return over the past decade, effectively growing 10 times in 10 years. In his words, "the market itself has been a multibagger".

He also recalls the journey of the Reliance Growth Fund, now called Nippon India Growth Fund, which has turned Rs 1 into Rs 400 since 1994. "Multibaggers happen with time on your side," Singhania says, "and with simple, non-extraordinary risk-taking."

New leadership can spark a new story

One of the drivers of stock price rerating, according to Singhania, can be a change in management. When leadership changes, perception changes. And in the stock market, "perception drives the P/E multiple".

He cites Tube Investments. Before its leadership changed, the company was growing at a modest 10 to 12 per cent annually. Post the management overhaul, however, the business found new energy. "The new leadership brought a different energy, focus on growth, and aggressive expansion."

Revenue tripled in three years and the company expanded into new segments like electric vehicles with the acquisition of CG Power.

The result? A 10 times stock return in five years. "Whenever a company undergoes a management change, it's worth researching whether the new leadership can drive transformation," Singhania suggests.

Consistent earnings = consistent rewards

One of the simplest but most overlooked drivers of multibagger returns is steady profit growth. As earnings grow, perception (P/E) follows leading to a price explosion, Singhania explains.

He highlights Polycab as a case study. When it went public, the stock traded at a steep discount to a peer like Havells. But over time, Polycab grew revenue by 17 to 18 per cent per annum and profits at nearly 29 per cent. As the business delivered, the market responded.

Its P/E multiple expanded from 13 to 56 times, turning the stock into a 10x performer. According to Singhania's breakdown, around 4x of that return came from valuation re-rating, and 2.5x came from earnings growth.

"If a company delivers consistent profit growth, the market will reward it with a higher P/E multiple over time," he explains.

When a business splits, value can multiply

Some companies operate multiple businesses under one roof—some strong, others underwhelming. As a result, they remain undervalued because the weaker segments drag down overall perception.

Singhania gives the example of AGI Greenpac, which once housed both a low-margin glass division and a profitable sanitaryware business. Investors largely ignored the stock due to its commodity-heavy profile.

But once the company demerged the two divisions, the picture changed. Sanitaryware profits jumped 10 times, and the company's market cap soared from Rs 494 crore to Rs 5,900 crore in five years, while the glass business remained flat.

"Demerger can unlock value and create investment opportunities," he says, especially when good businesses are being held back by unrelated, underperforming ones.

Don't be fooled by one-off write-offs

Not all reported losses are bad. According to the fund manager, companies sometimes take extraordinary or one-time write-offs that temporarily depress profits but don't reflect the underlying business strength.

He illustrates this through the story of Tanla Platforms. Between March 2019 and June 2020, the company reported four consecutive quarters of losses, despite strong EBITDA, due to large depreciation write-offs.

Investors who dug deeper would've noticed that these were non-recurring charges. Once the write-offs stopped, profit growth exploded and the stock surged.

"Always check whether losses are due to one-off write-offs," Singhania advises. "They may mask strong underlying business performance."

Follow the cash, not just profit

Singhania also highlights the importance of focusing on cash flows, not just reported net profit. A business that generates strong cash flows can clean up its balance sheet, reduce debt, and ultimately boost reported earnings.

Tata Communications looked like a laggard between FY18 and FY20, with net losses and weak margins. But during the same period, it consistently generated Rs 1,500-2,200 crore in cash profit annually. At a market cap of Rs 10,000 crore, that was a solid cash yield, he recalls.

As the company used that cash to reduce debt and improve operations, profit after tax surged and the stock rose five times in five years. "Cash profit is as important as profit after tax as it shows if a business is generating real operational profit".

There's no shortcut, just obsession

For all his frameworks and examples, Singhania doesn't sugarcoat the reality: there's no magic pill to finding multibaggers. "The formula is to read as many balance sheets and track as many companies as possible," he says.

His approach to identifying multibaggers isn't based on prediction. It's about recognising patterns of change—in management, in earnings, in business structure or in financial statements.

Also read: Spend less to grow more? How Thyrocare founder Velumani did it

This article was originally published on March 21, 2025.