Quest for Outstanding Investments India dedicated, long only, equity advisory with mission to...
-
Upload
melvin-simpson -
Category
Documents
-
view
216 -
download
1
Transcript of Quest for Outstanding Investments India dedicated, long only, equity advisory with mission to...
Quest for Outstanding Investments
India dedicated, long only, equity advisory with mission to preserve the purchasing power of
capital while also providing superior, sustainable returns over a long period
SageOne Investment Advisory Services
Quest for Outstanding Investments
Quest for Outstanding Investments 2
Who We Are
SageOne Investment Advisors:
Investment advisory firm with alignment of interest - we will commit
significant personal capital into same investments as clients
Managed by seasoned professionals who are passionate about investing
Downside risk management embedded in our DNA
Stable and Cohesive investment team with diverse capital market
experience
Focused on capital allocation for sustainable long term returns through
reasonably diversified investment portfolio where we have domain
knowledge
Quest for Outstanding Investments
Key Executive Team Members
3
Name & Education
Yrs of Exp
Role Background
Manish JainB Com, MBA, CWA
20 Fund raising, strategic partnerships and idea generation
Rated as the Best Analyst in India by Institutional Investor / Asia Money Polls.
Early identifier of global generics opportunity and instrumental in raising over US $700m for Indian pharma companies. Worked with employers such as Deutsche Securities, DSP Merrill Lynch and Barclays.
Samit VartakCFA, MBA, BE
17 Chief Investment Officer (CIO): Stock selection, sector/stock allocation, deciding on buying/selling timing, cash levels and idea generation
International experience in investments, M&A, strategic corporate planning, business valuation and management strategy consulting
Worked with employers such as E&Y TAS, Deloitte FAS, Gap Inc and PwC Consulting in the US.
Kuntal ShahB Engg (BE)
20 Researching deep value, asymmetrically rewarding investment ideas; Fund raising
Experience of advising assets totaling US $600m for family offices across multiple asset classes.
Early identifier and investor in India's mobile revolution & the carbon credit story. Guest lecturer / visiting faculty at leading business schools.
Quest for Outstanding Investments 4
Performance of Portfolio Managed by the CIO Since Inception
Inception on April 15, 2008 before the financial crisis related crash in the Indian market
* Not Annualized
** CIO Portfolio, CNX Midcap and Nifty returns are weighted by capital flow/timing as mentioned in the next slide. MF performance is not weighted by capital flow
***HDFC EF is a large cap fund managed by Prashant Jain, IDFC PEF is small/mid-cap fund managed by Kenneth Andrade and Reliance LTEF is a mid-cap fund managed by Sunil Singhania. These 3 are India's best MF managers
Returns
CIO's Portfolio Return**
CNX Midcap Wtd
Return** Nifty WtdReturn**
HDFC Equity Fund***
IDFC Premier Equity Fund-
R(G)
Reliance Long Term Equity
Fund(G)
15-Apr-08
Apr15 '08 - Mar'09 -20.0% -32.2% -38.1% -34.0% -35.5% -37.5%
FY10 51.9% 54.4% 32.2% 114.5% 109.8% 92.3%
FY11 19.4% 5.0% 14.5% 18.9% 12.9% 6.6%
FY12 7.9% -3.6% -9.4% -7.4% 4.0% -6.5%
FY13 38.3% -1.7% 9.0% 3.6% 10.8% 4.3%
FY14 (YTD) * 29.5% 2.5% 16.9% -5.4% -5.2% -10.5%
Annualized Returns (Apr'08 -Oct'13) 26.4% 4.6% 8.0% 7.9% 9.6% 2.0%
Quest for Outstanding Investments 5
Methodology Used In Measuring Performance
Capital flowed in/out of the portfolio (managed by the CIO) over the past 5 ½
years. Hence CIO returns are of actual portfolio weighted by capital and
timing of flow (XIRR)
To facilitate comparison, Nifty and Midcap Index returns are also weighted by
the above capital and time and hence are exactly comparable (XIRR)
The 3 Mutual Funds’ performance is not weighted by CIO’s capital and time.
Its based on their start and end NAV for each fiscal years (Apr – Mar) and
hence are not exactly comparable, though they are comparable when looked
over multiple years
Mutual Funds performance includes dividends but CIO and Index calculation
doesn’t (averaged ~ 1.5 % annually)
Quest for Outstanding Investments 6
1 MillionInvested in Apr '08 Would Be Worth
Apr 15' 08 Mar 31 '09 Mar 31 '10 Mar 31 '11 Mar 31 '12 Mar 31 '13 Oct 24 '13 -
0.50
1.00
1.50
2.00
2.50
3.00
3.50
CIO CNX Midcap Index Nifty IndexHDFC Equity Fund IDFC Premier Equity Fund-R(G) Reliance Long Term Equity Fund(G)
Quest for Outstanding Investments 7
How Are We Different?
Downside protection v/s upside participation: Prime focus on downside protection and
best businesses.
Quality wins out: As a long term investor, we struggle with the “everything has a price”
mantra. However, the fact is that companies with true franchise qualities such as
leading brands, low cost structures and strong balance sheets perform better over a
cycle than their lesser competitors.
In equities, if you can avoid purchases of bad business or overpay for good ones, the
winners will take care of themselves. We believe most strongly that the best
foundation for above-average long term performance is an absence of lemons which
permanently destroy capital. It is for this reason that a quest for consistency and
protection, not single-year greatness, is a common thread underlying our investment
process.
Quest for Outstanding Investments 8
How Are We Different?
Alignment of Interest: More than 85% of our CIO’s assets in listed equities are in the
same portfolio as yours. CIO will buy/sell at the same time and at the same price as for
the clients for all future buys/sells. This may not be possible in cases where CIO
already has a position along with existing clients.
No lock in clause. We want you to be our client because of our performance and not
due to any legal right to lock your funds.
Quest for Outstanding Investments 9
What We Bring To The Table
In-depth understanding of emerging trends and opportunities in key growth
sectors in India
Domain Knowledge
Current investors, who are leading business families, provide access,
reference check as well as links for business development
Strong Network of Business Families
Identified companies which are likely to perform across business and
economic cycles
Repository of Investible Ideas
Ability to add value through strategic inputs, networking and competitive
intelligence
Value-add Competency
Multi business cycle tracking of select businesses has provided knowledge
of “what to focus on” and “what not to do”
Separate the wheat from the chaff
Quest for Outstanding Investments 10
Investment Philosophy
“Invest in Companies that can compound their capital at an above-average rate while incurring a below-average level of risk and at attractive valuations”
Sustainable ROCE
High ROE with prudent debt level
Reinvestment opportunity
High Returns
Efficient capital allocation
Clear distribution & retention policy
Minority shareholder friendly
Quality Management & Integrity
Prudent leverage
Good margins w/ conservative accounting policies
High free cash flow
Superior Balance Sheet
Balance of valuation multiples compared to growth
High earnings/dividend yield
Margin of safety
Attractive Valuation
Quest for Outstanding Investments 11
Our Art of Stock Picking Supported by Science
Market Returns
Asset (Cash/Equity)Allocation
Right Sector Focus and Allocation
Stock Picking
EffectiveCash Levels
Long termMacro trend
WeakCorrelation
Source of High& Sustainable
Returns
AttractiveValuation
Superior Market ReturnsMore
of
Scie
nce
More
of
Art
Quest for Outstanding Investments 12
Jan
-99
Ma
y-9
9A
ug
-99
De
c-9
9A
pr-
00
Au
g-0
0N
ov-
00
Ma
r-0
1Ju
l-0
1N
ov-
01
Ma
r-0
2Ju
l-0
2N
ov-
02
Fe
b-0
3Ju
n-0
3O
ct-0
3F
eb
-04
Jun
-04
Se
p-0
4Ja
n-0
5M
ay-
05
Se
p-0
5Ja
n-0
6M
ay-
06
Au
g-0
6D
ec-
06
Ap
r-0
7A
ug
-07
De
c-0
7A
pr-
08
Jul-
08
No
v-0
8M
ar-
09
Jul-
09
No
v-0
9M
ar-
10
Jul-
10
No
v-1
0M
ar-
11
Jun
-11
Oct
-11
Fe
b-1
2Ju
n-1
2O
ct-1
2
-10%
-5%
0%
5%
10%
15%
20%
25%
0
1000
2000
3000
4000
5000
6000
7000
Outperformance by Cash Management
Outperformance (left axis) Nifty 50
Outperforming Nifty by Effective Cash Levels
Our cash/equity strategy (0 – 30%) has outperformed the market most of the times and only underperformed during peak of bull runs such as 1999-2000 and 2007-2008.
Negative returns only during peak of bull runs
Quest for Outstanding Investments 13
Sell Discipline
Fundamentals of business have deteriorated and our original assumptions
are no longer valid
Recent corporate actions that indicate diminished focus on creating
shareholder value
Price has gone beyond what’s warranted by fundamentals
Another stock with similar fundamentals (or valuation) but with much
attractive valuations (or fundamentals) has appeared on the horizon
Reducing exposure in the stock/sector or changing equity allocation
Quest for Outstanding Investments 14
Qualities We Look For In A Company
Our PE Edge enables us to effectively identify the below qualities in a company
Quest for Outstanding Investments 15
Top Down Elimination Process
Universe of 1600
companies
$ 2 mn - $ 50 bn. Total
capitalization of $ 1.25
trillion
150 companies
Market CapTop Down Elimination
Trailing PE: 26.6 x
Latest PB: 2.2 x
Avg Size: $ 776 mn
5-yr Avg ROE: 13.5%
5-yr Avg ROCE: 15.7%
Latest Div Yield: 1.5%
Key Average Ratios
Our Fishing Pond
“The pond we want to fish in is the one where all the fish are the high-return variety”
$ 16 mn - $ 4 bn. Total
capitalization of $ 98 billion
Trailing PE: 18.3 x
Latest PB: 3.6 x
Avg Size: $ 654 mn
5-yr Avg ROE: 26.4%
5-yr Avg ROCE: 28.3%
Latest Div Yield: 2.1%
Valuation as of Jan 7, 2013
Quest for Outstanding Investments 16
Indian Stock Universe
Although there are more than 6000 companies listed on major India stock exchanges, only about 1600 are frequently traded and have market cap of > $ 2 mn
Market Cap Range # Traded Companies w/ Mcap > $2 mn
Total Market Cap ($ mn)
Average Market Cap
($ mn)
Trailing 12 month P/Ex
Latest P/Bx
5-year Average ROE (%)
5-year Average
ROCE (%)
Latest Dividend Yield (%)
< $100 mn 986 33,807 34 24.0 1.8 10.7 13.6 1.7
$100 mn - 500 mn 335 77,694 232 30.7 1.7 15.3 16.5 1.4
$0.5 bn - 1 bn 108 74,059 686 32.3 4.7 17.7 19.8 1.1
$1 bn - 2 bn 65 90,265 1,389 26.1 1.5 19.1 18.8 1.6
$2 bn - 3 bn 33 82,839 2,510 22.5 4.0 21.4 22.3 1.4
$3 bn - 4 bn 14 48,478 3,463 29.1 8.2 30.8 32.6 1.0
> $4 bn 69 841,495 12,196 36.5 4.7 25.1 26.5 1.3
Total 1,610 1,248,638 776 26.6 2.2 13.5 15.7 1.5
Valuation as of Jan 7, 2013
Quest for Outstanding Investments 17
Our Targeted Stock Universe
Stocks above $4 bn are broadly covered to find significant mispricing. Our fishpond is about 150 companies with enough liquidity in the small to mid-cap range.
Note that 90% of the above companies have markep cap of between $50 mn and $3 bn. Majority (>80%) of our portfolio companies will be from this fishpond based on the management quality and financial parameters that we like. Above are their key ratios.
Market Cap Range # Traded Companies w/ Mcap > $2 mn
Total Market Cap ($ mn)
Average Market Cap
($ mn)
Trailing 12 month P/Ex
Latest P/Bx
5-year Average ROE (%)
5-year Average
ROCE (%)
Latest Dividend Yield (%)
< $100 mn 32 1,941 61 17.8 2.3 26.6 31.6 2.2
$100 mn - 500 mn 60 15,073 251 18.0 3.0 25.9 28.3 2.7
$0.5 bn - 1 bn 30 20,125 671 18.2 5.5 26.5 28.0 1.6
$1 bn - 2 bn 16 21,615 1,351 16.5 3.3 24.6 23.7 1.8
$2 bn - 3 bn 6 13,940 2,323 20.1 4.2 28.3 26.7 1.3
$3 bn - 4 bn 1 3,248 3,248 16.4 3.5 20.6 17.4 0.8
> $4 bn 5 22,208 4,442 29.0 6.8 33.0 27.9 0.6
Total 150 98,151 654 18.3 3.6 26.4 28.3 2.1
Quest for Outstanding Investments 18
Composition of Portfolio and Risk Mitigation
12 – 16* Stocks in $ 50 mn - $ 3 bn Market Cap Range
30-40% in 3 to 4 of ourHighest Conviction Ideas
40-60% in 9 to 12 ofhigh conviction ideas
0-30% liquidity** dependingOn market valuation level.
Less than 15% of portfolio in one stock at entry value
Less than 25% of portfolio in one/closely related sector/s
Less than 20% of portfolio in one business group
Boundaries
* Although majority of our portfolio (>80%) will comprise of stocks in the $50mn -$3bn market cap range, some portion (max 25%) could fall outside this range depending on attractiveness of available opportunities.
** We may trim partial position in stocks depending on market valuation (which drives our cash allocation) and individual stock valuation levels, though our core holdings would remain the same over the long term.
Quest for Outstanding Investments 19
Our Portfolio Flavour
As of October 24, 2013Our Portfolio Wtd
AvgCNX Midcap
Index Nifty Portfolio Sectors Weights
Average Market Cap (Crs) 5,313 9,611 83,042 Consumer 26%
TTM ROCE 35.7% 18.4% 16.7% NBFCs 22%
TTM ROE 33.7% 16.7% 14.6% Agriculture 21%
EPS CAGR 5 Yr (past) 41.0% 13.8% 11.0% Pharma 10%
EPS CAGR 3 Yr (past) 49.5% 21.8% 18.4% Manufacturing 9%
Net Sales CAGR 5 Yr (past) 28.5% 18.6% 15.7% Banks 8%
Net Sales CAGR 3 yrs (past) 33.1% 20.9% 17.1% Media 5%
Dividend Yield (%) 1.1% 1.8% 1.8% 100%
Total D/E* 0.27 1.37 0.68
TTM EV/EBIDTA 11.9 14.5 12.1
TTM PE 18.7 22.3 18.0
P/BV 7.05 3.79 7.02
* D/E is calculated excluding financial companies
Current portfolio contains 14 stocks
Quest for Outstanding Investments 20
Contact Us
Manish Jain
Mobile: +91 98202 67828
Email: [email protected]
Samit Vartak, CFAChief Investment Officer (CIO)
Mobile: +91 9970473951
Email: [email protected]
Kuntal Shah
Mobile: +91 98210 44456
Email: [email protected]
Mumbai Office:112, Highway Commerce CenterI B Patel Road, Goregaon (East)Mumbai 400 063Tel : +91 22 2686 6210
Pune Office:North Ct Bldg, 2nd FloorOpp Joggers Park, Kalyani NagarPune 411 006Tel : +91 20 3052 3459
Pune Office:North Ct Bldg, 2nd FloorOpp Joggers Park, Kalyani NagarPune 411 006Tel : +91 20 3052 3459
Quest for Outstanding Investments 21
Risk Factors
Risk Factors ( for detailed risk factors refer to PPM) Investments will be done in Indian Rupee denomination and investment returns are exposed to Rupee movement. Securities investments are subject to market and other capital market related risks and there is no assurance or guarantee that the objectives of the Portfolio will be achieved. The liquidity of the Portfolio’s investments is inherently restricted by trading volumes in the securities in which it invests. We do not plan to hedge currencies and shall provide Indian Rupee exposure with attendant risk and reward.
Disclaimer Presentation has been prepared from sources and data that Axis believes to be reliable and Axis makes no representations as to its accuracy or completeness. This Fund Information has been prepared solely as preliminary Information to determine investor interest regarding the Fund. It may not be used or reproduced for any other purpose. An offer or solicitation will be made only through the Private Placement Memorandum (“PPM”) and Subscription Agreement, and will be subject to the terms and conditions contained in such documents. The Fund Information does not constitute an offer to buy any securities and may not be used or relied upon in connection with any offer or sale of securities.The rates of return and other financial information set forth in the Fund Information are based on unaudited draft reports provided by executives and managers at the request of the Fund’s General Partner and does not reflect investment management fees or carried interest to be charged. Investment returns will be reduced by investment management fees, carried interest and other expenses charged by the General Partner, which will be detailed in the Fund’s PPM. The Fund Information is qualified in its entirety by the PPM, which will contain, among other things, a description of the risks of an investment in the proposed Fund. The investors should independently evaluate the investment risks and are solely responsible for their investment decisions. These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. Axis Holdings undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date thereof.
Note For US InvestorsThe Participating Shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended (“1933 Act”), or the securities laws of any state, and may not be offered, sold or otherwise transferred directly or indirectly in the U.S. or to or for the account or benefit of any U.S. Person as defined in Regulation S under the 1933 Act except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the 1933 Act and any applicable state laws. The Participating Shares are being offered outside the United States pursuant to the exemption from the registration requirements of the 1933 Act under Regulation S under the 1933 Act, and inside the United States in reliance on Regulation D promulgated under the 1933 Act. The Company will not be registered under the U.S. Investment Company Act of 1940, as amended (the “1940 Act”), since Participating Shares will only be sold to U.S. Persons who are “qualified purchasers”, as defined in the 1940 Act or as otherwise consistent with Section 3(c)(7) of the 1940 Act. The Participating Shares offered herein have not been approved or disapproved by the U.S. Securities and Exchange Commission (“SEC”), any state securities commission or other regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of this offering or the accuracy or adequacy of this Memorandum. Any representation to the contrary is a criminal offence.The Board does not intend to permit Participating Shares acquired by employee benefit plans subject to Title I of the United States Employee Retirement Income Security Act of 1974, as amended ("ERISA Plans"), and other benefit plan investors to equal or exceed 25 per cent of the value of Participating Shares of any Fund. Accordingly each prospective investor will be required to represent and warrant as to whether he is a “benefit plan investor” for purposes of the plan asset regulations under ERISA. Some Funds are not offered or sold in the U.S. or for the account or benefit of U.S. Persons. Details are set forth in the PPM