SUNDARAM ALTERNATE ASSETS LIMITED - Sundaram Emerging Leadership Fund (S.E.L.F) Portfolio - Sundaram Alternates
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
SUNDARAM ALTERNATE ASSETS LIMITED
Sundaram Emerging Leadership Fund (S.E.L.F) Portfolio
July 2020EXPERT SOLUTIONS SUNDARAM ALTERNATE ASSETS
HAND DELIVERED S.E.L.F Portfolio
S.E.L.F. Portfolio - Resilience
The past year has been the most challenging phase for both, the invested in retail / consumer durable companies. We see
economy and the markets. During this volatile period, S.E.L.F. meaningful returns from current levels in the discretionary
has managed to deliver a return of 15.2% against a 2.8% space as opposed to FMCG companies.
correction in the Nifty Mid-cap. In the last 2 years, our portfolio
3. Specialty chemicals: The chemicals sector benefitted from
managed to deliver a meaningful alpha of 12.1% over the
the healthcare crisis as well as a favorable global and
benchmark. Economic downcycles, pandemics, financial crisis
domestic agri-cycle. As global MNCs are resorting to a de-
and their impact on equity markets is an unavoidable part of
risking strategy from China, the ample outsourcing
investment strategy. However, our process-oriented approach of
opportunities available makes this space promising for the
investing in good business models with excellent cash-flows,
next 4-5 years.
attractive return ratios and clean management enables us to
identify companies that can reasonably withstand uncertainties 4. Healthcare: As a global health crisis is underway showing
and flourish in the aftermath through market share accretion. We minimal signs of subsiding, we expect healthcare companies
believe this will help deliver returns that meaningfully beat in drug manufacturing, API, diagnostics businesses to be the
benchmarks over a longer period. key beneficiaries. We avoid generic pharma export stories as
we see a risk of price decline in the post-Covid-19 world. We
S.E.L.F. Performance: Time-Tested
would like to stay invested in specialty chemicals and the
diagnostics space where there is a structural change.
20.0 18.0
5. Materials: We saw substantial jump in demand in building
15.0
15.2 14.8 materials at the end of the quarter. Paint, pipes, and cement
12.1
demand in rural and semi-urban markets have recovered
10.0 8.0 8.1
6.9
4.5
6.6
significantly reaching pre-Covid-19 levels. Agrarian economy
5.0 2.7 2.4
2.2
recovery appears to be helping the recovery momentum
0.0
while metros remain partially shutdown.
-2.8
-5.0
-5.8
-10.0
Overall, the result season was not as weak as anticipated in most
-9.5
sectors. Cost savings and recovery in June positively surprised in
-15.0 1Y 2Y 3Y 5Y Since Inception
many corporate results. Supported by rural recovery, the overall
S.E.L.F. NIFTY Midcap Excess Return demand scenario recovered higher than expected in the month
of June. Sustainability of the same would be critical as we move
forward with urban centers opening up.
Key observations from recent quarterly results and post-quarter Indian markets continued to pick-up during the month with Nifty
outlooks from managements: and the Sensex gaining by around 7.5% each. IT, Pharma and
Auto sector witnessed smart gains while financial services and
1. Financials: Moratorium numbers have meaningfully come
banking sector witnessing negative returns in the month. Markets
down and collection numbers have considerably improved
are expected to remain volatile with segments providing
during the month of June 2020 when compared to April
opportunities to make returns. Investors are advised to stay
2020. Q3FY21 will be a critical test for asset quality. Even
invested.
though moratorium has come down, defaults in non-
moratorium books cannot be ruled out. Interrupted unlocking Stock Performance
of urban centers due to increase in infections is a cause of
During the month, AU Small Finance Bank was the top
concern and might delay the process of recovery. Cost saving
performer in the strategy with an excess return of 31.0% over the
initiatives has prevented large erosion in profitability.
benchmark on the back of better than expected quarter results.
However, how companies cope with these initiatives is likely
Dixon Technologies generated a meaningful alpha of 27.4%
to be the key challenge going forward.
over the benchmark. Dixon is expected to participate in the
2. Consumers: As expected, food and staples have made an recently announced PLI scheme in mobile manufacturing by the
impressive recovery however not to a favorable extent due GoI. Natco Pharma fared well, beating the benchmark by 18.8%
to interrupted unlocking, but the trajectory remains positive. in light of the above-mentioned sectoral green-shoots amidst the
The festive period in Q3FY21 will be critical for the recovery pandemic. Orient Electric and Trent witnessed a 11.6% and
phase of the retail sector. News flow on vaccines and 9.1% correction respectively as the interrupted unlocking slowed
outcomes of trials act as an encouraging factor to stay down recovery in urban retail spends.
July 2020EXPERT SOLUTIONS SUNDARAM ALTERNATE ASSETS
HAND DELIVERED S.E.L.F Portfolio
Objective Target Investors
To seek long-term capital appreciation with investments in mid and Long term investors seeking high returns through investments
small cap companies. predominantly in midcap stocks and are comfortable with short
term volatility.
3Q Quality Approach To Stock Selection Performance (%)
1Y 2Y 3Y 5Y
Quality of Business
Scalability, Brand Strength, Cost leadership Strategy - S.E.L.F 15.2 2.7 2.2 6.9
Benchmark - Nifty Midcap -2.8 -9.5 -5.8 2.4
Quality of Management
Excess returns 18.0 12.1 8.0 4.5
Management Bandwidth, Corporate Governance,
Visionary Time-weighted rate of returns; Returns are in percentage points
Quality of Financials Performance Since Inception - June 2010 (%)
High ROCE, Excellent Cash flows, Low Debt Equity ratio
14.8
Sector allocation to capture the India Story 8.1
6.6
Industrial
Manufacturing
Pharma Strategy Benchmark Excess returns
Financial $
$
$
$
$
$
Services $
$
$
Time-weighted rate of returns; Returns are in percentage points
Value of ` 50 Lakhs invested at launch
Consumer
Goods
250
200
150
Key Features ` 2.01 Cr.
100
• Bet on Sundaram mid & small cap strength but yet differentiated
50 ` 0.96 Cr.
with a concentrated portfolio and attractive cap curve positioning.
-
• Portfolio with maximum of 25 stocks, Multi sector portfolio. Jun 2010 Fund Benchmark July 2020
• Stocks with market cap less than Rs. 500 billion.
• We like companies – “EASE” portfolio
i. Emerging leaders – clean and high quality promoters / Performance Measures - Since Inception
management. Strategy Benchmark
ii. Asset light & High ROCE businesses are preferred.
Arithmetic Mean 15.2 8.1
iii. Scalable companies: mid cap to large cap, small cap to mid
cap transitioning companies. Annualised Standard Deviation 16.6 18.4
iv. Excellent cash conversion from operations. Beta 0.7 -
• Identify stocks that are in early stages of their business cycle and Sharpe Ratio 0.5 0.1
could emerge as tomorrow’s large caps.
Correlation 0.8 -
• India 2025 - Themes
i. Consumer discretionary Alpha 7.5 -
ii. Financial Services Tracking Error 11.0 -
iii. Chemicals
All data as of 31st July 2020 Source: Inhouse computation
iv. Cement
July 2020EXPERT SOLUTIONS SUNDARAM ALTERNATE ASSETS
HAND DELIVERED S.E.L.F Portfolio
Calendar Year Performance (%) Sector Bets (%) - Underweight/Overweight vs Benchmark
Consumer Goods 10.3
Strategy Benchmark Excess return
Cement & Cement Products 6.2
2010 2.9 9.4 -6.5 Fertilisers & Pesticides 5.5
2011 -11.6 -31.0 19.4 Industrial Manufacturing 5.2
2012 35.3 39.2 -3.8 Media & Entertainment 3.7
2013 23.0 -5.1 28.1 Pharma 1.9
Services 1.5
2014 71.4 55.9 15.5
IT -1.0
2015 6.3 6.5 -0.2 Telecom -1.1
2016 6.0 7.1 -1.1 Chemicals -1.4
2017 44.8 47.3 -2.5 Metals -2.2
Construction -3.0
2018 -11.3 -15.4 4.1
Power -3.4
2019 7.7 -4.3 12.0
Financial Services -4.5
2020 YTD -0.6 -9.5 8.9 Healthcare Services -4.5
Time-weighted rate of returns; Returns are in percentage points. CY2010 returns is from Oil & Gas -4.7
Inception date (June 2010) to December 2010 Automobile -10.3
Key Contributors to the Strategy Top Holdings - # Stocks -19
AU Small Finance Bank Ltd
Weighted Market Gain/Loss
Name of the stocks
Avg Cost (`) Price (`) (%)
PI Industries Ltd.
Dixon Technologies Ltd 2,133 7,634 258 Dixon Technologies Ltd
GMM Pfaudler Ltd. 1,699 4,075 140 Natco Pharma Ltd.
PI Industries Ltd. 982 1,761 79 Bajaj Finserv Ltd
Sector Allocation Market Capitalization (%)
Cash
1.7% Large Cap Mid Cap Small Cap Cash & Others
Others
20.6% Consumer
Goods 17 50 31 2
29.6%
All data as of 31st July 2020 Source: Inhouse computation
Fertilisers &
Pesticides
9.0%
Financial
Pharma Services
16.0%
11.2%
Industrial
Manufacturing
11.9%
Wt. Avg. Market cap 25,282 Crs
July 2020EXPERT SOLUTIONS SUNDARAM ALTERNATE ASSETS
HAND DELIVERED S.E.L.F Portfolio
Key Holdings
Dixon Technologies (India) Limited Valuation
Attractiveness of the Industry Dixon is currently trading at ~34x on FY22 EPS. An upside to add new
EMS (Electronics manufacturing services) industry has grown at a brisk customers and enter newer product categories look reasonable given
pace over the past 5-6 years (25%+ CAGR). We expect this trend to high asset turnover and impressive ROEs (20-25%).
continue in the coming years as well: A. Low penetration levels for most GMM Pfaudler Limited
categories, rising per capita income and improving electricity Attractiveness of the Industry
availability resulting in continued growth in India’s Consumer Durable GMM’s core business and market leadership (over 55% share) is in
market; B. Rising proportion of outsourcing as brand owners are niche glass lined reactors which contributed 69% of company’s
focussing on their core competencies of innovation, differentiation, revenues. Their key customer is pharma (ingredient and bulk drug
marketing and distribution; C. Rising labour cost in China; D. Various processors), chemicals and agrochemicals and other segments like
government initiatives (phased manufacturing programs, revising heavy engineering. GMM’s product is critical to its end-customers for
custom duties, etc). quality compliance.
Competitive advantage of the company Competitive advantage of the company
Dixon enjoys various advantages compared to peers: A. With recent GMM has a strong brand with customers due to its quality and better
client acquisitions, Dixon has achieved cost leadership and scale in throughput which enables it to command higher pricing when
several of its categories which has also opened export opportunities for compared to its peers. The end-user market is highly compliant and
the company in few segments. In the Lighting segment, Dixon is quality oriented. India is expected to become a large hub for chemicals,
amongst the top 4 LED bulbs manufacturers globally. Dixon is likely to and we expect to see significant capex addition aided by new orders
cater to 25% of semi-Automatic Washing Machine requirement in India for chemicals by global MNCs and a shift from China to India for
in FY20E. B. It has established strong customer relationships with incremental demand. GMM, being the leading supplier for equipment,
companies like Phillips (sourcing most of its India requirement from will be the leading beneficiary of the growing chemical industry. Apart
Dixon), Samsung (Assembles/ manufactures Washing Machines (WM), from that, GMM has an MNC parentage of Pfaudler Inc and will enable
Mobile Phones and LED TVs), Panasonic, etc. C. Dixon has showcased it to benefit from Pfaudler’s long term plan to source from India.
its ability to successfully enter newer product categories – Mobile Currently, GMM is focusing only on India due to strong and continuous
Phones (in FY16), Security Systems (FY18). D. Dixon’s manufacturing order flows over the last 2 years. The company’s strategic plan highlights
facilities are flexible with standardized equipment used to manufacture the expectation to grow revenues from Rs. 6 bn+ in FY20E to Rs.10 bn+
in FY23E and Rs.13 bn + in FY25E implying a 3-year CAGR of 20%+
various products.
on a base of 25% in the last year, highlighting the growth momentum
Earnings Analysis
ahead.
We expect Dixon's revenues to grow at 30% CAGR over FY19-22E Earnings Analysis
(assuming only contribution margins are recorded as revenues from new
We expect GMM to deliver 20% revenue CAGR over FY20-22E and an
Mobile Phone contract and excluding Fully Automatic WM) driven by
EPS CAGR of 35% over the next 2 years aided by improved margins on
LED TV, Lighting and Washing Machine segment. Ramp up of Xiaomi
operating leverage and lower taxes. The company delivered healthy
and Samsung contract should drive LED TV growth while focus on
return ratios of above 30% ROCE and excellent cash flow conversions
battens, down lighters and exports should aid its lighting growth.
over the last 3 years.
Further, higher procurement from Samsung should drive Washing
Key reason to invest
Machine revenues. We expect 34% and 44% CAGR growth for EBITDA
and PAT respectively, largely driven by operating leverage benefits. India is expected to become a large hub for chemicals, and we expect
to see significant capex addition aided by new orders for chemicals by
Key reason to invest
global MNCs and a shift from China to India for incremental demand.
Rising penetration and import substitution are likely to drive significant MNC parentage, strong orderbook with good visibility of order flows
growth in the domestic manufacturing of consumer durables over the aided by firm capex plans of end users. Management initiatives to
next 10 years. Dixon is an excellent play on this story given its scale in expand offerings in non-GL equipment revenues (services and export
TV, Washing machine, LED, etc. Rising penetration, increasing markets) and exports with expanded capacity can add meaningfully to
proportion of outsource manufacturing and customer additions should growth numbers. China’s exit from many chemical segments along with
aid Dixon in growing faster than the consumer durable industry. Dixon Indian companies getting strong approvals is one of the key catalysts.
recently commenced Mobile Phone assembly for Samsung, providing Valuation
scale in its mobile phone business. Dixon recently won a contract to
Currently, the stock is trading at ~32x FY22 P/E, which we consider a
assemble LED TVs for Samsung. Reduction of import duty for open cell
fair valuation.
panels (key input for LED TV) should fillip domestic manufacturing in
PI Industries Limited
the LED TV segment. Imposition of import duty by USA on Chinese
Lighting products provides export opportunity for the company. We Attractiveness of the Industry
expect revenue CAGR of 32% over FY19-22 period. The Custom Synthesis and Manufacturing Solutions (CSM) business is
July 2020EXPERT SOLUTIONS SUNDARAM ALTERNATE ASSETS
HAND DELIVERED S.E.L.F Portfolio
benefitting from A. Pollution control norms which led to capacity driving growth in Agri inputs shows visibility of growth pick up in the
closure thereby leading to more outsourcing to Indian companies, B. next 18-24 months.
Global innovators focusing more on outsourcing which should benefit Key reason to invest
players in the value chain.
PI Industries has seen 12% top-line CAGR over the last five years with
Competitive advantage of the company 14.7% CAGR in the CSM business and agri inputs being 7.2%. As PI’s
Over the years, the company has built relationships with several largest brand goes generic, growth in the agri inputs space did see a
innovators. PI initially started off with Japanese innovators and slowdown. However, with strong new launches and the base stabilizing,
progressed to include innovators in the US and EU. The company has growth is expected to rebound going forward. It also saw 14% / 16%
gone through a massive learning curve over the years. With capacities CAGR in EBITDA / PAT during the last five years. With the above
coming up in its multi-purpose plants at Jambusar, the company should catalysts in place, top line / EBITDA / PAT in the next two years should
be able to capitalize on the opportunities ahead. grow at 20% / 22.5% / 24.5% respectively.
Earnings Analysis Valuation
Tailwinds visible in the CSM space and impending new launches The stock currently trades at ~39x FY21E P/E.
Customer Services
Reporting Statements and Monthly performance Statements Transactions, Holding & Corporate action reports, Annual CA certified
Servicing Statement of the account & Online access
Why Sundaram PMS ? Fund Facts
1. Strong Track Record Investment Horizon Above 3 years
2. Low Churn Benchmark Nifty Mid-Cap
3. Time Tested Stock Selection Process
Fund Manager Madanagopal Ramu
4. Reach Across Country
5. Transparency
6. Strict Adherence to Risk Guidelines
7. Shared Research Capabilities
Disclaimer
General Disclaimer:
Performance is as of July 31, 2020. Returns are on time weighted rate of return basis. All returns are in percentage. Performance disclosure is at aggregate portfolio
level and the portfolio information (i.e. market cap, sector allocations, etc.) is at model client’s level. Securities investments are subject to market risks and there is no
assurance or guarantee that the objective of the investments will be achieved. Past performance of the portfolio manager does not indicate its future performance.
Performance related information provided herein is not verified by SEBI.
Detailed Disclaimer:
This document is issued by Sundaram Alternate Assets Limited registered with the Securities and Exchange Board of India. This document is produced for information
purposes only and not a complete disclosure of every material fact and terms and conditions. It does not constitute a prospectus or disclosure document or an offer or
solicitation to buy any securities or other investment. All opinions, figures, charts/graphs, estimates and data included in this document are as of July 31, 2020 and are
subject to change without notice. It should not be construed as investment advice to any party. The statements contained herein may include statements of future
expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that
could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Investors shall be fully responsible/ liable for
any decision taken on the basis of this document. Clients under Portfolio Management Services are not being offered any guaranteed/assured returns. The name of the
strategies do not in any manner indicate their prospects or return. The investments may not be suited to all categories of investors. The material is based upon information
that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Neither Sundaram Alternate Assets Limited
nor any person connected with it, accepts any liability, losses and/ or damages arising from the use of this material. The recipient of this material should rely on their
investigations and take their own professional advice. Opinions, if any, expressed are our opinions as of the date of appearing on this material only. While we endeavour
to update it on a reasonable basis there may be regulatory, compliance, or other reasons that prevent us from doing so. The Portfolio Manager is not responsible for
any loss or shortfall resulting from the operation of the strategy. The recipient shall understand that the aforementioned statements cannot disclose all the risks and
characteristics. The recipient is requested to take into consideration all the risk factors including their financial condition, suitability to risk-return, etc. As with any
investment in securities, the value of the portfolio under management may fluctuate depending on the various factors and forces affecting the capital market. Disclosure
Document shall be obtained and read carefully before executing the PMS agreement. For tax consequences, each investor is advised to consult his / her own professional
tax advisor. This document is not for public distribution and has been furnished solely for information and must not be reproduced or redistributed to any other person.
Persons into whose possession this document may come are required to observe these restrictions. Distribution Restrictions – This material should not be circulated in
countries where restrictions exist on soliciting business from potential clients residing in such countries. Recipients of this material should inform themselves about and
observe any such restrictions.
July 2020You can also read
