Last Updated on Jan 11, 2022 by Ayushi Mishra
Putting money in every stock does not guarantee that it would give exponential returns. Only a few stocks that have been consistently showing the power of compounding for a few years can be called constant compounders.
Simply put, constant compounders are businesses that have consistently increased their revenue and profitability over a long period. They arrive with clear accounts, sensible money allocation, and strong progressive benefits, making them an ideal low-risk approach to long-term wealth creation. The stock worth of such businesses grows over time as the market rewards them for their consistent efficiency.
Here are four firms that have been consistent compounders in recent years.
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With around Rs. 1.7 tn. in assets under management (AUM), Bajaj group’s financial services business and a subsidiary of Bajaj Finserv is one of India’s largest non-banking financing businesses (NBFC).
Bajaj Finance (BFL) works in the home finance sector through its subsidiary Bajaj Housing Finance and in the depositary sector through Bajaj Finance Securities. It also benefits from its role as a captive financier for Bajaj Auto. In FY 2021, Bajaj Finance funded around 36% of Bajaj Auto’s sales volume, up from 20% in FY 2020.
On the back of its two-pronged strategy of creating scale and maximising income, the company has grown as one of India’s leading retail asset financing NBFCs in the last decade.
Consumer durable loans, personal loans, and two- and three-wheeler financing are focused toward boosting income, whereas mortgages, small business loans, and business lending are geared toward expanding size.
As a result, the corporation’s income has increased by 29.6% in the last five years. Its earnings have also increased at a compound annual growth rate (CAGR) of 28.2%.
Going forward, the launch of digital platforms focused on a seamless buyer purchasing experience is expected to produce significant benefits.
Grasim Industries is the flagship company of the Aditya Birla Group, a global corporation. The corporation has a wide range of businesses, from chemical compounds and textiles to cement.
The company originated as a textile manufacturer in India in 1947. Nonetheless, it has grown into a top-tier diversified player with a dominant position in a variety of industries. It is one of the most important manufacturers of viscose rayon fibre on the planet and one of India’s largest Chlor-alkali, linen, and insulator players.
Aside from that, it is also India’s largest cement manufacturer and a leading financial services player through its subsidiaries, UltraTech Cement and Aditya Birla Capital. Despite investments in subsidiaries/associated events and ongoing CAPEX, the corporation has a strong stability sheet due to its improved operational efficiency over time.
Its revenue has expanded at a CAGR of 20.3% over the last five years, while web revenue has grown at a CAGR of 15.8%.
Grasim has also set aside over Rs. 26 bn. in capital expenditure (CAPEX) for its Viscose Staple Fibre (VSF) business for FY 2022.
In the long term, the company intends to expand its value-added goods portfolio to establish a significant speciality chemical compounds phase. By 2025, the goal is to increase the percentage of VSF and chlorine value-added merchandise to 40%.
Through its subsidiaries, Align Retail Commerce (ARTPL) and Avenue Meals Plaza (AFPL), it has a strong presence in the home organised F&G (meals and groceries) retail industry.
ARTPL procures grocery items from local agricultural product market committees and delivers them to ASL, whereas AFPL operates fast-food outlets outside D-Mart stores. Avenue E-Commerce is the company’s wholly-owned subsidiary dedicated to its e-commerce operations.
The company’s market position has grown over time as a result of its consistent same-store growth, retail productivity, and short gestation for new stores.
Strong procurement abilities, low-cost items, and high-cost management have improved; meanwhile, high stock turnover and revenue per sq. ft have translated into industry-leading retail store productivity.
As a result, during the last five years, the company’s gross sales have expanded at a CAGR of 22.4%, while web revenue has grown at a CAGR of 28%.
Going forward, its strong merchandising and value offer, as well as the benefits of economies of scale, are expected to increase its market share over the medium term.
HDFC Financial institution
HDFC Bank is one of India’s largest NBFC by property and market capitalisation. It accounts for around 10% of the entire banking industry’s market share.
It is active in the brokerage business via HDFC Securities, which also acts as a third-party distributor of mutual fund items, insurance coverage, initial public offering, fixed deposits, bonds, and non-convertible debentures.
Furthermore, HDB Monetary Providers, a non-deposit-taking non-banking monetary organisation, provides loans against property, business vehicle and growth tools loans, and small and medium-sized enterprise finance.
Even in the year 2020, when the whole banking sector was affected by the pandemic, HDFC went out to large corporations for their funding needs. The bank was able to achieve this because of its strong stability sheet.
Its web income has increased at a CAGR of 20% over the last five years. Income growth has also been consistent, with a CAGR of 15.3%.
In the future, an increase in asset mix, solid Current Account Savings Account (CASA) development, and a strong restart of bank card issuances are expected to support margins. Given its increased interest spreads and healthy charge revenue, the bank is also likely to maintain its relatively high profitability.
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