Emkay Investment Managers Ltd
Transcript of Emkay Investment Managers Ltd
Emkay Investment Managers Ltd
Emkay’s 12 An equal weighted twelve stock large cap oriented PMS strategy as on 30 April 2021
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Mitigating "Selection bias" and "Allocation bias"
● Selection Bias : Stock selection going wrong
» Picking up stocks outside the mandate to generate alpha
» Looking at under-researched stocks in search of the next multi-bagger
» Holding on to underperforming stocks despite evidence to the contrary
● Allocation bias : Allocation of weights to stocks going wrong
» Overweight on a few performing stocks
» Underweight on potentially high performing stocks
● Risk management framework gets triggered post facto
» No discipline to book profits/ cut losses
» It gets triggered, post the occurrence of the above events
● “Selection” bias and “Allocation” bias, if mitigated, can lead to
superior risk adjusted returns consistently
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Presenting Emkay’s 12 - pioneering the concept of “Smart Alpha”
Where every performing stock gets equal attention
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Mitigating “Selection bias” through a rigorous framework
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Value Migration
IT, Chemicals, Unorganised to Organised, Voice to Data etc.
Domestic Consumption
Auto, Building Materials, FMCG, Consumer Durables, etc.
Domestic Infra
Cement, Capital Goods, etc.
Emkay’s 12 – Key Investment Themes
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Key Investment Themes : Value Migration
Beneficiaries
● Value Migration is “the flow of economic and
shareholder value away from obsolete business
models to new, more effective designs that are
better able to satisfy customers’ most important
priorities”
● The framework tries to identify industries where
Value Migration is underway and helps pick
potential winners early in the cycle.
● Few examples: Onshore to Offshore IT services,
Private banks vs PSU banks, Chemicals, Voice
to Data, Organised vs Unorganised Retail,
Unorganised lending to Organised lending etc.
Low cost producers
Technology leaders
Efficient products/ delivery models
The portfolio seeks to achieve long term capital appreciation by investing in these themes
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Value Migration : Reliance Industries
Reliance Industries - FY 2020
Financial Performance
Financial
PerformanceFY 2020
Revenue (Rs Cr) 5,96,743
PAT (Rs Cr) 42,851
ROC 10%
ROE 9%
Market Cap * (Rs Cr) 13,09,731
Price * (Rs) 1,994
*As on 30 April 2021
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Reliance Industries Nifty 50
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Reliance Industries
● RIL’s strength lies in its ability to build businesses of global scale and execute complex,
time critical, and capital-intensive projects which will prove advantageous as it embarks
on large investments in all core segments.
● Reliance has changed the dynamics of telecom industries by moving the value of revenues from voice
to data through the launch of Reliance Jio.Jio Platforms has expanded its portfolio of services to
become a multiplay service provider, equipment supplier, content producer and developer in new
technologies (eg. Jio Glass).
● This has forced incumbents to aggressively roll out data networks and re-align their business
design/networks from being traditionally tailored for voice to increasingly cater to explosive data
demand as data climbs up the consumer priorities list for communication and as market value of
telcos increasingly gets linked to data growth.
● Due to value migration, global investors such as Facebook, Google, Qualcomm and Intel have
invested in Jio platform. It has raised approximately $20 billion from 13 global investors by selling
32.9% stake.
● With the acquisition of Future Group, the deal adds to Reliance Retail’s offline presence and they get
access to wide network, logistics and warehousing business. With control over the value chain,
Reliance can beat down prices to earn higher margins.
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Key Investment Themes : Domestic Consumption
● India’s GDP is expected to grow from
$2.7tn in FY19 to $5.0 tn by 2024.
● Domestic private consumption as a %
of GDP in FY19E stands at 60% which
is $ 1.6tn.
● The strategy aims to benefit from the
growth in GDP and the attendant
impact on domestic consumption
driven sectors.
● Few examples: FMCG, Consumer
Discretionary, Housing finance,
Auto & Auto Ancillary
The portfolio seeks to achieve long term capital appreciation by investing in these themes
Source: Emkay Research
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Domestic Consumption : Titan Company
Titan Company - FY 2020
Financial Performance
Financial
PerformanceFY 2020
Revenue (Rs Cr) 21,051
PAT (Rs Cr) 1,501
ROC 24%
ROE 23%
Market Cap * (Rs Cr) 1,32,453
Price * (Rs) 1,492
*As on 30 April 2021
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Titan Nifty 50
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Titan Company
● Eye on unorganised: Titan is a specialty retailer with strong presence in jewellery,
watches and eyewear, alongwith fashion accessories and fragrances among others.
Most of the segments are characterized by the presence of significant unorganized market
● Long run way for growth: Titan is a strong play on the consumption theme and rides on the
long term opportunity of rising per capita income, increased discretionary spending, gains from
penetration and premiumization trends. Given Titan has 10% market share in jewellery shows
that it has significant headroom for growth
● Strong Fundamentals: Titan has consistently delivered ROCE of 20%+ and has demonstrated
tremendous discipline in investing the incremental cash in the business that continues to deliver
top quartile ROCE.
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Key Investment Themes : Domestic Infra
● Infrastructure are the basic systems that
undergird the structure of the economy.
● These systems tend to be capital intensive and
high-cost investments, and they are vital to a
country's functioning, economic development,
and prosperity.
● The strategy aims to identify companies
that are poised to benefit from the rise
in demand for infrastructure in the country
– both retail and institutional spending.
● Few examples: Cement, Capital Goods, etc.
Source: Emkay Research
The portfolio seeks to achieve long term capital appreciation by investing in these themes
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Domestic Infra : Ultratech Cement
Ultratech Cement FY 2020
Financial Performance
Financial
PerformanceFY 2020
Revenue (Rs Cr) 42,125
PAT (Rs Cr) 5,747
ROC 12%
ROE 16%
Market Cap * (Rs Cr) 1,81,032
Price * (Rs) 6,272
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Ultratech Cement Nifty 50
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Ultratech Cement
● Enough room for growth: Ultratech Cement has consolidated cement capacity
of 117mn tonne. With FY20 volumes of 82mn tonne or capacity utilisation of 70%,
Ultratech has enough room to grow volumes without adding new capacities.
● Working aggressively on cost cutting: Ultratech Cement is aggressively working on cutting
costs with recently commissioning 33MW WHRS plant and has already started working on
another 11MW WHRS and also 32MW solar power plant to cut power cost which is 23.6% of
total cost.
● One of the lowest cost manufacturer in India : Ultratech is one of the lowest cost producer
of cement in India. Low cost and premium pricing has helped Ultratech to consistently report
one of the highest EBIDTA/tonne of Rs1000+
● Strong Fundamentals: Ultratech’s RoCE is currently at 11%. However, as the capacity
utilisation rises, the RoCE is expected to improve to 16% by F23. RoIC will be better at 18%.
Despite high capex over last few years, net debt/equity is at just 0.2x and net debt/EBIDTA at
1x. The company is expected to be almost net debt free by FY23.
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Core Investment Framework
Leadership● Market-share Leadership
● Profit-pool Leadership (Apple vs Rest of the manufacturers)
● Cost efficient Leadership (Export oriented sectors like IT, Textiles, Chemicals)
● Growth Leadership (Companies with best growth in the sector like Private banks vs PSU Banks)
● Product Leadership
● Moat / Niche in the Business
How different is the company?
» Edge, Entry-barrier, Competition, Pricing-power
» Bargaining power of the industry
Strong Management Credentials
● Track record of past decisions
● Management Comments v/s Delivery
● Futuristic vision
● Avoid aggressive accounting policies
● Management background
Excellence
Strong Earnings Visibility & Quality
● How big the sector can be (3x, 4x....)
● Revenue/ PAT/ Cash-flow growth
● RoE, RoCE analysis
● High operating/ Free cash-flow generation
Ambition
● Identifying Price-Value gap with focus on margin of safety
● Comparative valuations
● Market-cap vs Opportunity size
Discipline
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Emkay’s 12
A Unique Strategy in the Indian Large cap investment space !
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Focus on large and mid cap companies
● >50% exposure in companies with Market capitalization >$ 3 bn
● Investment only in top 100 companies by market capitalization
● Companies with minimum turnover of INR 500 cr
Risk Management
● Equi-weighted portfolio
● >15% price movement in a month triggers review of the stock
● Focus on Liquidity risk
● No use of leverage
● Monthly portfolio review
Diversification across industries and companies
● < 30%* exposure in one sector
● <10%* exposure in one stock
● Maximum investment in 12 stocks
● <20%* exposure in turnarounds or special situation stocks
Earnings growth and Quality Filters
● ROCE > WACC
● Earnings growth > GDP growth
Strong risk
management
strategy with
focus on
Capital
Preservation
*At the time of initiation
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Typical issues faced by conventional large cap MF schemes
● Compressing alpha
» The average alpha generated by large cap schemes has been
3.1% over their respective benchmarks in the last 5 years.
» Large cap schemes have been waylaid by ETFs with shorter timeframes
● High expense ratio
» Regulator defined, rigid expense ratios
● Unwieldy “diversified” portfolio
» Average number of stocks in the top few schemes is 40-50
» Leads to “closet indexing” rather than alpha generation
● Rapid flows in and out of the scheme
» Fund managers have to manage sufficient liquidity most times
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Financial Snapshot – Emkay’s 12 v/s Nifty 50
Emkay’s 12 CAGR 12%
Nifty 50 CAGR 5%
Note: Emkay’s 12 portfolio went live on 1st August’19. The back tested performance data is for
illustration purpose only. All fund data have been rebased to 100 from FY-2010.
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Emkay 12 Nifty 50
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20
FY2020 Sales Growth (%) Ebitda Growth (%) PAT Growth (%) ROCE (%) ROE (%)FY22E
P/E* PEG*
Emkay’s 12 11.9 15.5 29.8 34.1 24.5 34.9 0.8
Nifty 50 0.0 5.7 2.5 10.9 11.4 19.9 0.7
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SchemeEmkay 12
(Rebased)A1 (G) A2 (G) D (G) F (G) H (G) I (G) K (G) S (G) M (G) Nifty 50
From Apr’09 Apr’09 Jan’10 Apr’09 Apr’09 Apr’09 Apr’09 Apr’09 Apr’09 Apr’09 Apr’09
To 1st April, 2021
Minimum -21.41 -29.73 -20.36 -27.88 -31.10 -34.05 -27.84 -24.56 -27.03 -26.83 -29.20
Maximum 68.41 78.17 56.02 71.12 85.42 74.95 77.66 79.19 82.50 94.54 80.13
Average 15.89 12.24 11.10 10.01 10.70 10.13 13.26 11.10 12.56 16.02 9.72
Std. Deviation 14.22 18.26 14.54 16.01 16.96 21.59 17.16 16.26 18.27 20.45 15.59
No of
Observations 86 85 78 85 85 85 85 85 81 85 86
More than 10% 66.28% 51.76% 55.13% 45.88% 48.24% 42.35% 52.94% 51.76% 55.56% 58.82% 51.16%
More than 15% 50.00% 40.00% 43.59% 34.12% 35.29% 38.82% 42.35% 36.47% 44.44% 42.35% 33.72%
1 Year Monthly Rolling from 2009 (Rolling Return From 29-04-2009 to 31-03-2021)
Emkay’s 12 vis-à-vis leading Large Cap MF schemes
Source : Independent analysis done by MSJ MisterBond Pvt Ltd
Average of Peers is 11.9% Average of Peers > 10% is 51.4% Average of Peers > 15% is 39.7%
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3 Year Monthly Rolling from 2009 (Rolling Return From 29-04-2009 to 31-03-2021)
SchemeEmkay 12
(Rebased)A1 (G) A2 (G) D (G) F (G) H (G) I (G) K (G) S (G) M (G) Nifty 50
From Apr’09 Apr’09 Jan’10 Apr’09 Apr’09 Apr’09 Apr’09 Apr’09 Apr’09 Apr’09 Apr’09
To 1st April, 2021
Minimum 4.05 -2.10 0.98 -1.96 -3.10 -8.96 0.75 -2.37 -1.11 0.99 -2.01
Maximum 31.07 28.32 26.44 20.55 22.70 24.57 24.89 24.54 29.50 29.38 20.32
Average 15.54 11.68 12.96 9.09 9.63 8.58 12.14 10.35 12.35 14.51 9.11
Std. Deviation 6.05 7.19 5.54 5.52 6.05 8.06 5.68 6.15 7.99 7.28 4.86
No of
Observations 71 71 64 71 71 71 71 71 67 71 71
More than 10% 85.92% 54.93% 70.31% 39.44% 49.30% 43.66% 71.83% 47.89% 56.72% 71.83% 45.07%
More than 15% 49.30% 28.17% 39.06% 14.08% 19.72% 19.72% 29.58% 25.35% 32.84% 49.30% 8.45%
Source : Independent analysis done by MSJ MisterBond Pvt Ltd
Emkay’s 12 vis-à-vis leading Large Cap MF schemes
Average of Peers is 11.25 % Average of Peers > 10% is 56.21% Average of Peers > 15% is 28.65%
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SchemeEmkay 12
(Rebased)A1 (G) A2 (G) D (G) F (G) H (G) I (G) K (G) S (G) M (G) Nifty 50
From Apr’09 Apr’09 Jan’10 Apr’09 Apr’09 Apr’09 Apr’09 Apr’09 Apr’09 Apr’09 Apr’09
To 1st April, 2021
Minimum 2.23 -0.69 4.95 -1.72 -1.92 -4.65 0.54 0.20 -0.01 2.69 -0.79
Maximum 26.62 21.02 18.38 15.43 17.18 19.15 20.13 18.12 22.03 23.97 15.36
Average 15.88 13.50 13.18 10.41 11.26 10.59 13.64 11.96 14.07 16.48 9.88
Std. Deviation 5.08 4.52 3.00 3.56 4.00 5.64 4.07 3.46 4.60 4.50 3.27
No of
Observations 55 55 48 55 55 55 55 55 51 55 55
More than 10% 90.91% 80.00% 85.42% 60.00% 65.45% 56.36% 81.82% 72.73% 90.20% 94.55% 56.36%
More than 15% 69.09% 43.64% 31.25% 7.27% 12.73% 27.27% 49.09% 18.18% 52.94% 61.82% 1.82%
More than 20% 21.82% 3.64% 0.00% 0.00% 0.00% 0.00% 1.82% 0.00% 3.92% 23.64% 0.00%
5 Year Monthly Rolling from 2009 (Rolling Return From 29-04-2009 to 31-03-2021)
Source : Independent analysis done by MSJ MisterBond Pvt Ltd
Emkay’s 12 vis-à-vis leading Large Cap MF schemes
Average of Peers
is 12.79%
Average of Peers
> 10% is 76.28%
Average of Peers
> 15% is 33.8%
Average of Peers
> 20% is 3.67%
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Significant outperformance over well known Large Cap Mutual Funds
Emkay’s 12 CAGR 12%
MF Avg CAGR 7%
Nifty CAGR 5%
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*Source : Independent analysis done by MSJ MisterBond Pvt Ltd
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Emkay's 12 Mutual Funds Nifty 50
Note: Emkay’s 12 portfolio went live on 1st August’19. The back tested performance data is for
illustration purpose only. All fund data have been rebased to 100 from FY-2010.
10-years performance for the portfolio has been
significantly above well-known Large Cap Mutual Funds
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Emkay’s 12 - Portfolio Snapshot
Market Cap
*Data as on 30 April 2021
Top Sectors
31.2%
10.1%
8.3%8.9%
8.5%
8.6%
8.0%
7.3%7.8% Financial Services
Cement
Oil & Gas
Pharmaceuticals
IT
Gems & Jewellery
Specialty Chemicals
Auto & Auto Ancillary
FMCG
Top 5 Holdings
Divi's Laboratories Ltd. 10.1%
Ultratech Cement Ltd. 9.6%
ICICI Bank Ltd. 9.0%
Reliance Industries Ltd. 8.4%
Titan Ltd. 8.3% 98.7%
1.3%
Large Cap
Cash
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Emkay’s 12 Strategy - Performance Update
Inception Date : 1st August 2019 Data as on 30.04.2021
3M 6M 12M Since Inception
Emkay'12 (Model Portfolio) 6.3 19.1 41.3 18.8
Emkay'12 (TWRR) 6.0 18.9 38.9 16.7
Nifty 7.3 25.7 48.4 17.9
Outperformance (Model v/s Nifty) -1.0 -6.5 -7.1 0.9
Outperformance (TWRR v/s Nifty) -1.3 -6.8 -9.4 -1.2
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
3M 6M 12M SinceInception
Emkay'12 (TWRR)
Nifty
Outperformance (TWRR v/s Nifty)
-10.0
0.0
10.0
20.0
30.0
40.0
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60.0
3M 6M 12M SinceInception
Emkay'12 (Model Portfolio)
Nifty
Outperformance (Model v/s Nifty)
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Emkay’s 12 Strategy : a “Smart Alpha” large cap portfolio
Key features
Focus on risk
adjusted returns
Steady performance
over medium term
framework
Low portfolio turnover
Lower portfolio volatility
and high liquidity
Portfolio of 12
structural growth
companies
Possible alternative to
Large cap MFs
• Emkay’s 12 is an equal weighted twelve stock large cap oriented strategy.
• A buy and hold strategy focusing on companies with wider economic moat and dominant position in the sector.
• Combination of value and growth to deliver medium to long term wealth creation.
EMKAY’s
12
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Fund Managers – Emkay L.E.A.D.
Kashyap Javeri is a fund manager with more than a decade of experience in company and sector research.
He brings exceptional insights into stocks and economy. Prior to joining Emkay Investment Managers,
he was a rated BFSI analyst in Emkay Institutional Equities for eight years and also worked with Sharekhan
Ltd as midcap analyst. Kashyap brings with him immense in-depth knowledge on not only variety ofmanufacturing and services sectors but also on banking and economics.
Sachin is a seasoned fund manager with over two decades of experience in the Indian equity markets.
By virtue of his extensive research, Sachin realised early-on the need for a framework in which companies
with evasively tricky standing needed to be filtered out very objectively, leading to the development of E-Qual
Risk, EIML’s proprietary module which helps us to evaluate and compare listed companies on various
aspects of governance. Sachin shares his knowledge and insights through various media interactions acrossprint and digital platforms.
Sachin Shah Co-fund Manager
Kashyap Javeri Fund Manager
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Our Team
EGFSL: Emkay Global Financial Services Ltd | EIML: Emkay Investment Managers Limited
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Our reach & research across
Institutional Clients
Stocks Research Coverage Industries Research Coverage
Non-institutional Clients
member investment team with collective experience of years
As on 30 April 2021
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About Emkay Global Financial Services Limited
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Promoters
Krishna Kumar Karwa, Managing Director
A rank holder from the Institute of Chartered Accountants of India (ICAI), Krishna
is the promoter and Managing Director of the Company. He has rich and varied
experience of more than three decades in all aspects of the Equity Capital Markets
and overlooks the Research, Equity Asset Management and Corporate Advisory
divisions at Emkay.
Prakash Kacholia, Managing Director
A qualified Chartered Accountant of the 1987 batch, Prakash is the Promoter and
Managing Director of the Company. He has a rich experience of more than three
decades in the Capital Market and overlooks the Derivatives business and Retail
division at Emkay. He has been on the board of the SEBI Committee on
Derivatives. He has also served as a Director on the boards of Bombay Stock
Exchange Limited, BOI Shareholding Limited and Central Depository Services
(India) Limited.
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The figures speak for themselves
Institutional Clients
Stock Research Coverage
(Active + Soft coverage)
Sectors (Asset Mgmt, Retail, Insurance
are among the other sectors under coverage)
Data as on 30 April 2021
Non-institutional Clients
Branches Franchisees
Employees Pan India
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Collaboration with DBS Vickers Securities
Emkay Global Financial Services Ltd. signed an
exclusive agreement with DBS Vickers Securities
(Singapore) Pte. Ltd., a wholly owned subsidiary of
DBS Bank, the largest bank of South-east Asia, for
sharing of knowledge, co-branding of research and
it’s distribution to the global clients of DBS Vickers.
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Contact Us
Emkay Investment Managers Ltd
7th Floor, The Ruby, Senapati Bapat Marg, Dadar - West, Mumbai 400028. India
CIN: U67190MH2010PLC203819 | PMS: INP000004458
Website: www.emkayim.com
For Sales
Ashu Tomar +91 98673 03861
Samir Merchant +91 99876 06786 | Kyra Ahuja +91 98219 14842
For Support
Namrata Momaya +91 22 6617 5453 | Email: [email protected]
Janhavi Surve +91 22 6612 1279 | Email: [email protected]
Disclaimer: This document has been prepared by Emkay Investment Managers Ltd (EIML) for information purposes only. This document and the
information contained herein shall not be disclosed or reproduced in whole or in part for any other purpose or furnished to any third party without the
express prior written permission of EIML.
EIML does not represent or warrant (express or implied) of any nature nor takes any responsibility or liability of any kind for any error or inaccuracy or any
losses suffered on account of information contained in this document. Information and/or data contained in this document is obtained from sources believed
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this document to verify the veracity / appropriateness of the information before taking any investment decisions. Past Performance if mentioned herein, is
not an indicator of future performance. Performance related information enclosed in this document is not verified by SEBI.
EIML and its group companies, its directors and employees shall have no liability for any misstatement or omission (by reason of negligence), opinions,
derivations, information or matters (express or implied) contained in the document. Each recipient of this document are advised to consult and/or make its
own independent evaluation and/or investigation before taking any investment decision.
PMS Investment products are subject to market risks, investors are advised to read all the PMS scheme related documents carefully before investment. For
further details, please visit: www.emkayim.com