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Verbatim Notes from TIA’s 20-20 Investors Meet

October 20, 2018

Speaker #1 G Maran - Interglobe aviation limited

(I arrived 5 minutes late, so missed initial points)

● India’s aviation story is strong - Bombay airport busiest in the world

● Only in FY 18, Indigo posted negative EBITDA
● Company with a 43% market share at a 20%+ growth rate
● Next 5-10 years growth is visible
● You don’t find such stocks easily in 52 week lows
● Maybe currently price is down because the management is looking 100%
capacity utilisation and maybe sacrificing short term margins for long term

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Speaker #2 Ashish Kila - DCB Bank

2013 - Role of Management
2014 - 4C’s of Investing
2015 - Standard Valuation Matrix
2016 - Capacity to suffer
2017 - Side Car Investing

Where do you think Buffett have invested a chunk of their portfolio?

Banking Industry
● Buffett says banks are like a toll gate business. In the future, people would
continue to deposit, borrow and banks would make margin and fees out of every
So, should we go for private or public?
● Asset Quality in PSU Banks are poor
There has been value migration in banking. Earlier, size used to matter in banking, then
it moved to Speed and Agility and now its Chess - whoever has strategic advantage

HDFC Bank - Because of a high base, the CAGR growth possibility would be low for

Today’s idea is a bank which is in its infancy. It is DCB Bank. The new management led
by Murali Natrajan has turned around the working of the bank. Loan book re-aligned in
favour of secured assets.
● Granularity - how spread out is the loan book - 70% of the loan book is below 3
● Secured - 96% of the book is secured.

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Capacity to suffer
● When the bank said they want to double the branch network, the share price got
halved. Despite that, they continued with their plan - unfazed by street protests.
● “I am assuring investors that if on the way, the journey is wrong, we will be
flexible to change”

October 2012’s Top Management is still majorly intact. In fact, new members have been
added but most of the previous ones are still present.
● DCB’s NPA divergence is 0% compared to 23% for Axis Bank
● Deposits, ROA, ROE, GNPA, NIM, NII, Advances have all improved significantly
from 2009 to 2018. There is no pledged share.
● In terms of retail deposits, DCB is the highest with 79% of total advances to retail
vs corporate.
● DCB Bank is most balanced geographical branch distribution wise.
● The bank had no more than 8% of loan book with the top 20 borrowers. This
reduces client concentration risk. Lowest amongst all banks.
● DCB has negligible 0.1% restructured loan book.
● NIM of DCB is one of the best.
● Cost of borrowing has improved from 8.49% to 6.22%.
● GNPA is 1.79%, in line with other banks. It has reduced significantly after Mr
Natrajan took lead.
● Before branch expansion, they were doing 14-17% ROE and they expect to
return back to those levels soon.
● Market share is 0.18% with a long runway ahead.
● Book value is not as key as ROA to value banks. ROA numbers have
significantly improved.
● If you do a reverse DCF, the book has grown at 20% annually.
● in 2001, HDFC had similar numbers to DCB today. and HFC delivered 30%+
CAGR in PAT. So hopefully, DCB can also deliver the same.

Speaker # 3 Ekansh Mittal - Mannapuram Finance Ltd

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Most of you are well versed with this stock, but given the market correction and the
recent fall in NBFCs, we may take a contra bet on this stock. We need to find out why
NBFC stocks fell and then judge whether those factors are applicable to Mannapuram.

1. Growing @ 17-18% CAGR on Net Interest Income.

2. The company has done well to contain NPAs
3. Well capitalised with CAR of 26%.

2 important issues NBFC sector

1. Liquidity Issues
2. Margin issues

We’ll first go through Mannapuram and then look at these 2 issues.

● Mannapuram is 2nd largest gold loan NBFC is India.
● 75% AUM from Gold Loan. 15% from micro finance.
● Since FY14-15, they diversified into other segments.
● Liabilities side, 53% Bank Finance and balance is from NCDs and Commercial
● Gold Loan business of Mannapuram is the bread and butter.
● Starting FY 2012, regulations started coming in. The RBI decreased the LTV, etc.

Earlier, this company was giving out majorly long term loans. They would charge 24%
interest on a 75% LTV and take back principal and interest after 12 years. In case of
non repayment, they would take 2 months to auction the gold.

When gold prices started falling, the margin of safety started falling. They started facing
losses after auction. So now the company started low duration loans. 3 months and 6
months loan. So they have better MoS now.

● In FY 14, the auction loss was 524 crores - i.e Interest + Principal due - Value

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● In FY 18, it has made an auction gain of 41.35 crores.

● Coming to the issues - asset liability mismatch. It happens when you take a short
term loan and give out for long term loans.
● Unlike HFCs, there is not much asset liability mismatch in Mannapuram. Short
term nature of loans will help the company pass on increased cost of funds.
● In fact, its opposite for Mannapuram, the assets are coming for renewal faster
than liabilities.
● This puts Mannapuram in a better position than other HFCs or NBFCs.
● Starting FY 14, it started diversifying into other segments. Microfinance -
acquired Ashirvaad Finance. In house, they started home loan and CV Finance.
What it helps Mannapuram is that they have a brand equity, large branch
network and experience in small ticket lending.
● Contribution from new products at FY 14 was 0, FY 16 was 10% and now it is
● As far as the core gold loan growth is concerned, it has grown 15-16% in 18-19.
On the back of 15% growth in gold loan and 20-25%+ in new products, the
combined growth could be 20%+.
● Just like banking sector went from unorganised to organised, gold loan is still
dominated by moneylenders and there is runway for Mannapuram.
● The last 6 months, the Promoter has bought shares worth 36 crores. Other
directors are also holding shares of the company and are attending board
meeting and thus have skin in the game.
● Stock has fallen 40% in this correction.
● 8.65 TTM Earnings
● 1.56 times book value
● Dividend yield of 3%.

This can be a good contra call. However, some risk concerns:

1. Impact of Kerala floods - gold loan book is secured so no problem, micro finance
may face issues but it is only 1% of the book.
2. Regulatory changes.

Speaker #4 Sanjay Santhanam - Asset Management Company theme

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This is not really a stock idea, but a sector idea. Lets look at it through the 2 listed
companies that we have in this space.
1. Asset Management Companies
2. HDFC and Reliance Nippon
Very impressive revenue and profit growth for both these companies. Also, the EBITDA
and PAT margins are significant for these companies. (Revenue for 800+ crores and
PAT of 500cr+ for example)
● In terms of growth for this industry, we can look at the average AUMs have
grown exponentially.
● How this growth has happened is majorly because of SIPs.
● Inflows come and go. In 2008, unfortunately there was huge outflows and this
industry will keep facing these outflows. But at the end of the day, we have seen
it flourish in the developed markets. So the path is not going to be straight but it
will be long.
● MF vs FD - for FD it has been 14% compared to 16% for MFs.
● Individual and HNI AUM is about half the total industry - this is a good sign.
Changes in Biz Models
● Direct plans allows in 2007 - Growth in direct has probably been coming from
HNIs rather than institutions which is a good thing.
● RIA as a new channel in 2013
● Aggregation of distribution - earlier if we had agents who had 50-60 Lakh AUMs
advising clients who had 20-40K of capital, it is now being aggregated onto larger
brands and also online platforms (FundsIndia, etc).
● This will lead to reduction of intermediaries for the industry.
There has been a small shift into passive management. From 2% in 2012 to 3.5% now,
ETFs have seen traction but is still insignificant. However, we need to keep an eye on
this for the next few years.

Listed Companies - One for each model

● HDFC is 2.0% and Nippon is at 8% - (% of ETF/Arbitrage to total AUMs)
● This should be a basket play, incorporating 2 different models

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On average 18% of HDFC revenues and 20% of Reliance revenues have gone into
funding payouts that cannot be debited to funds. New SEBI move on brokerage
restrictions may afford AMCs relief here and improve margins even as fees may

Impact of TER and Product Mix​​ - Both companies are at around 0.6% of AUM as
● Both AMCs together have 5.5 Lakh Crores AUM, grown at 17% CAGR
● Earning 3000crores as fees and at 40% PAT margin, they are earning 1400
crores as PAT.
● Next few years, if we take a conservative growth of 10% and fee rate comes
down from 0.6% to 0.45%, we can see that the current MCAP is at a 35%
discount to what the business can probably be worth.

Investment Case
● Even in a pessimistic scenario, we have valuation comfort
● Margin expansion than revenue expansion as regulator may not be happy with
the latter
● Channel consolidation is going to help
● Linked to capital markets growth - a beta play on markets
● Likely high dividend play over time

● Abuse of regulatory forbearance
● Growth to be chunky than linear
● Capital abuse in case companies bear losess than pass to investors in case of
Speaker #5 - GR Balaji

This is how I would start the session:

Risk Avoiding Behaviour (photo of a man wearing seatbelt)

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Risk taking behaviour (photo of boy not wearing seatbelt)

Banking is all about risk avoiding behaviour​​. ​I am going to talk about a very old bank
from Tamil Nadu.

The framework for long term wealth creation in banking is:

● Building granular liability franchisee
● Grow advances prudently - fastest growth is not always good, what is crucial is
prudent growth
● NPA - either you increase top line or reduce NPA, both reduce NPA ratio - which
metric the bank focuses on is key to determining fall in NPA levels
● Pays Less dividend
● Book Value

City Union Bank - survived for 114 years. N Kamakodi joined in 2013, focused on
● Advances - Rs. 28000 crores
● Gross NPA - 3.02%
● Net NPA - 1.7%
● Provision coverage ratio - 65%
● 10 Years advance growth - 20%
● and a fine capital adequacy.
● Post GST and E-Way Bill, lot of revenues are coming into the books of
SMEs/MSMEs especially with shift from unorganised to organised.
● Its a 2/3rd Tamil Nadu bank and balance in other southern states. All southern
states are very fertile and prosperous and thus its a good ground for the bank.

10 years
● NII growth @ 20%
● Other Income @ 20%
● Operating Expenses also grew @ 20%.
Its a steady growth play.

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● They clearly state that CASA is not their terrain. They are more of a relationship
based banking. However, even that is improving.
● Productivity numbers are also good - 8-9% productivity growth which is decent.
● One metric where they stand out is Cost to Income Ratio - almost 40%. The
management has guided that this is too strong.
● Even though we see slightly elevated NPA, but at 1.7% Net NPAs is smaller
compared to PSUs.
Broad expectation is a 15% growth in stock value.

Key advantages of CUB:

1. 100 years, only 7 CEOs
2. Granular asset profile - top 20 borrowers at 9% - it is not chunky
3. Very specialised in trading and MSME segments
4. Strong presence in south India (415 branches in TN out of 539)
5. Continuously profitable and dividend paying companies
6. Secured loan is 99%
7. RBI - no divergence in reporting - shows less regulatory risk
8. MTM Losses - CUB has not availed the RBI dissension of deferring the losses of
treasury book
9. Relatively stable asset quallity
10. Why dividend play is less is because they maintain 15.6% of Tier 1 Capital

Changing biz landscape

● Large PSUs and Private Banks are slated to grow well in the future

Growth Drivers

1. Market share growth, shift to organised

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Key Risk
1. Slowdown in economy
2. Geographical concentration
3. Cyber attacks

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Speaker #6 Jiten Parmar - Sunflag Iron and Steel

Special Steel Manufacturer

● Price: 56
● 52 Week h/l : 100/49
● PE: 7
● Current market cap: 1000cr
● Debt: 330cr
● FY 18 Revenue : 2127Crs
● Net Profit: 140crs
● EBITDA: 254Crs
● Highest EBITDA amongst peers of Rs. 8000/tonne
● No loss in past 15 years except in 2013
● CRISIL recently upgraded
● Exports to several countries

Whilst many companies from the sector are stressed, conservative companies like
Sunflag are in a sweet spot.

Investment Summary

● Automobile sector is 80% of revenue

○ Trying to diversify into railways, metro, defence, ship building
● After long, they are doing a capex of Rs. 450 crs to increase capacity by 20%
and into specialisation which should translate into margins
● Capacity of 4 Lakh TPA
● Primary steel mfg process - integrated producer
● Impressive list of consumers

Automobile may come down to 50-60% of revenue and they will have higher margins in
other businesses

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● They have a JV with Daido Steel. Daido is a 10% equity holder in Sunflag. It is
opening new opportunities in the Japanese market.
● New JV with Stumpp Schuele and Somappa Springs called Ramesh Sunwire. In
the automobile sector but more about import substitutes.

Cash Flow Analysis

● Very decent cash flows
● Cash flows are close to net profit

Promoter holding is 49%, no reduction in last 4 years, no pledging. No major RPT.

Risk and Mitigation

● Rising raw material prices and INR depreciation
○ Raw material prices are going up
○ Company is a net importer and INR depreciation could impact negatively
○ They are able to pass on prices. Prices get revised in April and October
● Not paying dividend for last 4 years
● Susceptibility to cyclicality to steel and auto segment
● The company is making efforts to diversify the revenue segments
● Large capital of Rs. 180 crores
● Capex doesn’t work as expected
○ Company has been conservative in allocating resources so far. They have
significant experience in this area.
● Capex may lead to equity dilution and higher debt
○ No dilution, but debt may go up
● EVs in Indian market
○ It is a challenge, but it is slightly ahead of time
Speaker #7 Vijayanand Venkataraman - Cummins India Limited
● This is my 2nd best idea with a view of over 4-5 years

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● Last 5 years, nothing has happened. The revenue growth is flat. The ROEs have
● But this is due to cycles. Last 40 years, it has created significant wealth.
● With capital goods companies, you have to buy at the right time.
1. Engines (BS6 complaint engines, therefore they have an advantage)
2. Generators
3. Domestic
4. Exports

Investment case​ - cusp of industrial growth pickup

● The IIP (a benchmark for capex cycle) has been quite cyclical and around 5%.
● The cycle moves when there is good credit growth.
● What drives the genset market is the power situation.
● The Energy Deficit has significantly narrowed over the past few years.
● Whatever power capex we did in 2006-2008 has been absorbed now.
● But now, we don’t have coal and power plants in the capex phase.
● When the capex cycle starts, and power demand increases, how will we bridge
this deficit? That’s the play.
● Both EPS and P/E expansion likely.
● Bear case could mean very small downside.
EPS downward revisions broadly behind us. We were looking at Rs. 40 and now we are
looking at Rs. 32. So, most of the bad news has been discounted.

1. Delay in domestic capex recovery
2. Global slowdown could affect exports
1. Significant exports to Middle East could get affected by lower oil prices
3. Deferment in BS VI implementation for HV
1. Most auto companies are not in position to meet the deadline
Speaker #8 Jatin Khemani

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The company I’m going to talk about (name revealed at the end):
● Revenue moved from 120crores to 1300crores in 10 years - 25% CAGR
● Margins - Average EBIT margins are 13%.
● ROCE - Average 25%

They are into maize processing. They process corn into:

1. Starch - used in paper, textile, baking, etc - its a commodity biz and not so
2. Derivatives of starch: 6 products which is high value add business with decent
entry barriers
1. Sorbutil 70% solution - a polyol, bulk sweetener, sugar-free candies, etc
2. Malto Dextrin - bulking agent - used in dry beverage mixes, etc
3. Dextrose Monohydrate - Sweetner - used in dairy, brewing, etc
4. Liquid Glucose - the body of the cough syrups we drink
5. Maltose Syrup
6. (One more product)

Top supplier to all blue chip FMCG and Pharma companies.

1. These customers prefer quality over cost.
2. These ingredients form less than 1% of the total cost - therefore, there is
stickiness in the business
3. Approval process for new vendor is 2-3 years
4. Top 10 clients contribute less than 30% of revenues

Starch/Derivatives Industry
● Industry size - Rs. 7000 crore per annum
● Industry growing at 7-8%
● Corn is widely available in India

What does it take to succeed in this industry?

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1. Multi Location Plants - save on logistics cost, capital efficient

2. Lowest Cost producer - Nearest competitor Kargil put up a plant at 2 times the
cost of this company. Upfront 4-5% cost advantage
3. Financial muscle to be able to do a&b without resorting to debt

How is competition faring?

1. Largest company used to be Riddhi Siddhi Gluco Boils - 50% Capacity
Utilisation, Loss Making
2. Anil Ltd - 1000cr topline and 1000cr debt - now bankrupt
3. Sukhjit Starch - 65% CU, raising debt to diversify
4. Cargill India - 60% CU, loss making
5. Gulshan Polyols - 75% CU, mainly in Sorbitol 70% solution

● Industry is at 50-60% CU, this company is always running out of capacity.

● 10 years ago, they had negligible market share, now they have 20% and are
capturing all market share growth.
● Optionality - New Product ​High Fructose Corn Syrup
● HFCS, a starch derivative, is a commonly used sweetener in aerated drinks.
China, US have high consumption of HFCS where in India HFCS is not FSSAI
approved. Therefore, we continue to use sugar.
● That’s why India’s per capita consumption of starch is merely 1.5kg versus 6.1kg
● HFCS costs similar to sugar at current price and isn’t as volatile as sugar.
● In the process of getting FSSAI approval and setting up a plant to HFCS.
● We are anyway not assigning any value to the HFCS division if it happens, it is
just a bonus.

Legacy Business - Oil Processing

● Second largest oil extractor after Ruchi Soya
● Lost Decade - inverted duty structure - massive dumping

Key Triggers

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1. GST - Under invoicing, importing and selling in different states

2. Increase in import duty from 5% to 54%
3. Export incentive of 10% to encourage refining locally
4. China’s import duty on US Soya, China abolishing ban on India edible oil
5. Government focus on farm income - key is processing of food and reduce

● For oil segment, Import duty increase has led to increase of EBIT margins from
0.7% in FY16 to 7.4% in FY18 at 30% capacity utilisation.
● At 0% incremental capital, revenue potential is Rs. 6000 crore.
● We invested because of maize processing division, and not Oil. But the Oil biz
also has potential.
● 0 long term debt, incremental ROCE is 25%.

Mr Manish Gupta is the sole driver of the company - family owns 64% stake, president
of the industry body - encouraging feedback from peers.

● MCap is at 2700 Crores

● TTM Net Profit is Rs. 216 Crores
● We are betting on EPS expansion. P/E re-rating is a pure bonus.

Risks and concerns

1. Capital allocation is not great
2. They have a textile unit, they spent Rs. 50 crore to break even it
3. There is a key man risk

Name of the company is ​Gujarat Ambuja Exports Ltd

Speaker #9 Balaji Vaidyanath
Company based out of Pune. It has been a wealth creator but not in a linear way.
Sanghvi Movers!

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● CMP: 110
● MCap: 480Cr
● EV: 1010Cr
● Equity: 8Cr

1. Largest crane rental company in India

2. 6th largest in the world
3. Fleet of 428 medium to large sized heavy duty cranes
4. Major clients are from wind sector
5. Other areas are steel, metro rail, infra projects

● It’s not a compounder but a cyclical stock. We’ve had 2 up-cycles and 2
down-cycles in the past 10 years.
● If you look at the 3rd cycle from march 14-15, the accelerated depreciation was
reinstated with 80% benefit and wind energy installations were high.
● In 2017, there was an abrupt change in the wind policy. Earlier it was a feed in
tariff method and later we moved to the auction regime and so the tariffs
collapsed. Tariffs collapsed from Rs. 5 to Rs. 2.5 per unit.
● Earlier we were doing 5400 MW capacity addition and now it is down to 700MW
● Some positive effects to kick in from FY 19.
● Once the regime change happened to auction, the wind energy tariffs fell - its
now in fact cheaper than solar.
● India’s energy target 2022 is 60GW from wind.

Why not solar, why wind?

● 90% solar panels are imported and there are talks of safeguard duty of 70% -
and thus prices can shoot to Rs. 3.3 per unit. This is good for alternatives like
● If you look at Inox Wind, they are talking of a turnaround. They are getting orders
and its good for suppliers like Sanghvi.
● The below 100MT market, there are many players but in the above 100MT,
Sanghvi is undisputed leader. They have 60% market share. In the 250MT
market, they have 80% market share.

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Best Case
● Gross Yield was 1.95% in the June 2018 quarter. Annualised is around 22% This
was 3% in FY16 - peak year. Probably was one of their worst months.
● If we take 27% gross yield, it coems to Revenue of 430 cr and 300crs EBITDA
● Giving past average 8x EBITDA - EV @ 2400 Crores vs Current EV of 1010
● 133% Upside

Worst Case
● If we liquidate, cranes are like ships - its easy to dismantle. At scrap value, we
are left with Rs. 320 crores which is Rs. 73/share. 33% downside

Why not Inox Wind or Suzlon, why Sanghvi?

● In 2011, the windmill market share was 20% and yet they were making EBITDA
were 70%
● In the years of 18 and 19, at the worst they did EBITDA margins of 35-40%.
● If they don’t do Capex, we get a higher value than the current mcap.
● At the worst year, they generated CFO of 136 crores - 7 of 10 years they were
CFO positive.
● Last 3 years average CFO is 250crores with a EV of 1010 crores - so you’re
talking about a 25% Cash flow yield for a stock.

Cyclicals are bought when things are bad, when visibility isn’t great and when visibility is
great, you get out.

Speaker #10 V S Venkatesan

Multibagger stock traits:

1. Low Equity Capital
2. High Promoter Holding

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3. High Sales to Net Profit Percentage

4. High Reserves and Surplus
5. Zero Debt
6. Product Pricing Power
7. Inelastic Demand

Rajan Effect

1. News Headline: Reducing Exposure to large borrowers to Rs. 10,000 crore by

2019 is a tall order. This has opened an opportunity for one company.

The company is CRISIL. I like this company because all they have is computers. Once
your paper is rated, its like an AC. Every year you have to pay AMC.

Low Equity Capital, 20% Net Profit.

On a 7 Crore capital, 237 crore profit.

Technically and Fundamentally, this stock is set for a big move.

Other shares less than 10 crores : Borosil Glass, La Opala

Speaker #11 Anand Mohan - V2 Retail Limited

Apparel Retail Chain. For Middle Class, Debt Free, In expansion mode, Learning from
mistake and focus on Tier 2 and 3 cities.

● For 8 years from 2007-2016, nothing happened in the stock because of legacy

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● Originally this company, started as Vishal Retail Limited - did a successful IPO,
borrowed heavily, went bust, forced to sell original venture - it is crawling up
again now.
● Until 2011, when they went bust, they were a multi product outlet. 2012 onwards
after selling their legacy brand Vishal, they got into retail of apparels, added
stores slowly, focused on tier 2 and 3 cities.
● Now they growing out of cash flows, want to minimise high inventories. Using
technology to identify what products are moving, etc. Reducing inventory holding
period from 180 days to 100 days.
● Vishal store size was 20000 sqft, now V2 is just fashion so its just 12000 sq ft.
Led to increase in revenue/sq ft. Working capital days is now at 39 days.
● It is now debt free. They ensured cash break even in 1 month and complete
payback in 42 months.
● Next focus on increasing private labels - currently it is 12.25% of sales, want to
double it by 2010.
● Number of stores increased from 49 to 71 in the past few months.

For me, how can they achieve growth?

1. Huge scope of growth in organised retail
2. Increasing disposable income
3. Under penetrated consumption market
4. Focused on apparel business alone
5. Expects to double store counts
6. Right merchandise
7. Focus on profitable growth - focus on % increase in PAT than % increase in
8. They are at 71 stores, want to go to 250 in the near future

What can go wrong?

1. Liquidity Crunch
2. Slow down
3. Monsoon failure
4. Competition from Online retailers like Amazon, Flipkart and others

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Speaker #12 Shagun Jain - Vinati Organics Ltd

● Sales in 2009 were 190 cr to 743 crores in 2018

● EBITDA from 20% to 31% same period
● NPM from 13% to 19% same period
● We estimate by 2022, a turnover of 1500 crores with an EBITDA margin of 30%.
● 75% of revenue comes from exports.

There are some tailwinds, which we will discuss

● Average ROE in the last decade has been 32% and ROCE 28%
● Plans to do capex and is confident of doing it via internal accruals.
● Receivables - yes, they are on an increasing trend but they are comfortable in
the 60 to 90 days space.

Why this stock?:

1. Good corporate governance
2. Operating cash flows
3. ROE>20%
4. Good Corporate Governance
5. Consistent growth

Tests - company passes this

● RPT - it is less than 1% of the revenue
● Group / Promoter entities
● Change in name of the company - no change
● Management remuneration and employment numbers - nothing to worry
● Pledge of shares - nothing to worry
● Receivables - less than 90 days
● Statutory dues & taxes - all paid
● Cash flow from ops - good
● Goodwill & other intangibles - usual practice is amortise the R&D over 4 to 5
years, but Vinati has expenses it in the 1st year
● Criminal proceedings against promoters - nothing

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● Capex

What interested me most here

Who earns the most?
1. A plain MBBS doctor
2. Specialist like MS/MD
3. A super specialist like Dm/MS(Cardio)(Neuro) etc
You guesses it right - a super specialist. Like it to the chemicals space.

Majorly 2 lines of ​products​ for this company

1. Monopolistic products - ATBS (used for water treatment, oil & gas industry,
paints etc) it has 55% market share and 35% EBITDA margin and IBB ( it is a
raw material for ABTS) it has 65% market share and 20% EBITDA margins
2. Import substitution

What is so different in it?

1. Clean and green process with 0 wastage
2. 20% ROI for any investment
3. A barrier to entry
4. Enter into niche product segments with revenue potential less than 1000 crores
where barriers to entry are high
5. Have a pipeline of 15-20 products to hit the market every few years

1. Unique procès for each product, the time to market is quite long
2. Concentrated customer profile, which can lead to a sharp dip in revenues if they
were to lose one
3. Raw materials are crude derivatives and any fluctuations is a pass through to
customers. It may not happen in the future

Compiled by Akshat Jain | Twitter: @akshat96jain


Speaker #13 Dhruvesh Sanghvi - JM Financials

● IB, Wealth & Securities Business

Investment Banking
1. Robust and growing primary market over long period
2. Increasing M&A and PE activity in India

Broking and Wealth Management​ - together these businesses have low fixed costs, so
operating leverage will kick in when growth happens and deleverage when there is poor

Lending Biz​ - Developer Financing Market - where JM finances projects of builders

Developers together have taken loans of 4 Lakh Crore out of total credit industry size of
104 Lakh Crores.

Will NBFCs stop lending to builders?

● According to me, there will be decreased competitive scenario and over time the
prudent lenders will prosper in the future.

Other lending Biz​ - Corporate Credit & Structured Finance, Capital Market Lending,
● Total Loan Book increased from 3000 crore in 2014 to 14300 crore in 2018.
● Their lending practices are more prudent compared to others and competition is
envisaged to decrease.
In terms of ​ARC​, this is a good opportunity, but it is being valued at a very bearish
● Basically, ARC business is buying bank’s assets, revive it and if they do it
successfully, they will get rewarded.
● Nearly 12500 crores AUM acquired @ 50-60% discount. Large portion of this
book is 3-4 years old and in the next 3-4 years we will see a good portion come
out of it.

Compiled by Akshat Jain | Twitter: @akshat96jain


● For a normal person, JM is a broking company but looking at their book, we see
they are more of a lending company.
● In terms of their lending biz, they have grown well.

Total PAT From 121 crore in 2012 to 631 crore in 2018. Asset liability mismatch is not
an issue - they say their balance sheet alone can repay every CP.

1. Multiple businesses
2. Conservative management, strong relationships
3. Horizon of 4-5 years with the business structure
4. High liquidity, low leverage on balance sheet
5. ARC can provide optionality
6. Valuations comfortable

A 5000 crore networth business at a valuation of 6000 crores.

Compiled by Akshat Jain | Twitter: @akshat96jain


Speaker #14 Varinder Bansal

Agriculture = Industrial Product

Agriculture is one of the most important sectors. Just like rice, a small revolution is
happening in Sugar.

Sugar companies have 3 divisions usually:

1. Sugar Crushing
2. Distillery
3. Power

● EDM, Balrampur, Dhampur etc all are adding capacities in distilleries. There is a
clear tailwind for ethanol.
● There is more demand thanks to the fuel blending requirement in addition to the
20-25% rise in ethanol sale prices.
● Ethanol blending volumes are rising.
● If the molasses price is Rs. 3000/3500 per tonne for C/B and we estimate
83%/137% (respectively) ROE for distilleries.

● All these ethanol companies are putting up new capacities in ethanol.

Take ​Balrampur Chini​, the sugar segment has seen high sales but EBIT is very poor.
Distillery business has been marginally growing.
● The realisations for Sugar biz has been around Rs. 30, but distillery biz has been
slowly growing.
● The realisation for distillery is growing, and so are volumes - expected to almost
double in 4-5 years time from 8.1 crore litre in 2018 to 17 crore litre in 2022.

Even with ​Dhampur Sugar​, sugar has been facing issues due to profitability. But the
company has plans for capacity expansion in distillery of 100KLPD thus expanding total
capacity to 400 KLPD.

Compiled by Akshat Jain | Twitter: @akshat96jain


So Dhampur will be more ethanol, less sugar compared to Balrampur.

One dark horse for us could be ​BCL Industries.

● MCap: 200 crores

● Balance Sheet: 500 crores
● Annual Sales: 900 crores
● Promoter holding: 63.8%, no pledge

The company has 3 divisions:

1. Edible oils
2. Distillery
3. Real Estate

● Their ratio numbers are comparable to Balrampur and Dhampur. So things look
ok there.
● Distillery is where they are making EBIT. Also, edible oil is having a boost due to
import duties.
● Distillery volumes are rising along with 20-25% better realisations.
● The profit could jump for this company from 20 crore to 60 to 100 crore just
because of ethanol.
● If you want to play safe, go to Balrampur Chini.

1. Government
2. Execution risk / delays
3. Environmental concerns

Compiled by Akshat Jain | Twitter: @akshat96jain


Speaker #15 Ravi Padmanabhan - Tata Elxsi

Providers of design and technology services for product engineering and solutions

Services include:
1. Design
2. Product Engineering
3. Big Data Analytics
4. IoT
5. Content Development
6. Systems Integration

IoT is a crucial technology - we can use it in multiple ways to track things.

Industries served
1. Automatic - 60% of revenues
2. Broadcast and Media - 30% of revenues
3. Communication, Healthcare, etc

Tata Elxsi licenses their software patents to manufacturers.

● Innovation - fixed dose pen for drug delivery - they are looking at 10% of
revenues as contribution.
● Driverless cars - in connected cars, i.e cars with in-vehicle infotainment and cars
that connect with external environment - tata elxsi has a lot of tools. They are
working on it and has tools such as being able oto find out if the driver is sleepy,
● 14 out of the top 20 vendors (OEM manufacturers), they already have a

Compiled by Akshat Jain | Twitter: @akshat96jain


Last 10 years, growth after 2014 has been quite good. TTM is 1500 crores. Last few
years, they have been maintaining 20-25% margins. Net Profit is around 286 crores vis
a vis 240 crores last year.

More than 90% of revenue is from outside India and JLR share is 24%, though it is
expected to be lesser in % terms in the future.

1. Major deal with Panosonic
2. Smart home tech
3. IP based revenues to double from 5% to 10%
4. Positive growth in automotive segment.

20% eps growth possible in the next 3 years.

P/E of 21, Debt free company with high ROE. Stable stock with consistent

Compiled by Akshat Jain | Twitter: @akshat96jain


Speaker #16 Nalinakanthi V - Divis Labs

● Pharma has come a long way in the past few years. Last 3-4 years, the sector
has gone through grind due to regulatory issues, etc.
● One space within pharma that has been relatively resilient has been the CRAMS

● Divis Labs’ focus has been always on niche segments, custom synthesis and
● Carotenoids, Peptides, etc are product differentiators for them.
● Over the years, they have built very strong R&D capabilities for them. Their
ability to identify niche products.
Investment Case
1. Strong R&D capabilities and cost advantage
2. Niche product portfolio and leadership - 70% market share for 2 crucial products
3. Sound biz model, best in class margins
4. Kakinada capex
5. Current utilisation of 85%
6. Debt free, cash rich company (FCF of 500 crores)
7. Consistant dividend payer - 30% payout ratio
8. Management team
9. Promoter holding at 52%
10. MFs have added the stock over the last 5 months

● Improvement in sales, ROE, asset turns expected over the next few years.
● CRAMS business tend to be bulky - in a quarter with some approval, there will be
higher sales than the average - this is one thing to be kept in mind.
● Currently the stock is trading at 38.8 times.

1. Regulatory - they have been typically been able to solve them within 1 year
2. US dependency is high - however, Divis’ supply is critical for the US market too
3. Currency fluctuation

Compiled by Akshat Jain | Twitter: @akshat96jain


Speaker #17 Varadha - Majesco

A software services company now getting into products
● They are getting into cloud products for mid-tier insurers in the property, etc
● Just like the in-car entertainment has gone about a radical change, the same is
going to happen in areas like insurance.
● This is starting out in the US and we have a bunch of companies in India
capitalising on this trend.
● Best companies are where capex is done, operating leverage is yet to kick in and
pricing power is improving.
● Typically, a company is interesting where sales is improving, margins are
expanding and net working capital is improving materially in a trend.
● P&L for Majesco - operating leverage kicking in, OPM improving from negative in
Sept 2015 to 8%+ in June 2018

They tied up with IBM for re-selling and systems integration opportunities.
● The company has broken even
● Their revenue growth has picked up
● The cloud subscription model is causing operating leverage to kick In
● In FY18, they did a QIP, so they now have ample liquidity.
● Less than 20 days back, they got a new CEO who is an ex-Computer Associate
management member (is a foreigner) - so right now its a board driven company.
● This company is also listed in NASDAQ. This also helps in terms of compliance.
● Product capex is done - Margins have been jumping 200-300 bps which is typical
of SAAS companies.

1. Capex done
2. Margins growing with sales
3. Currency depreciation
4. Acquisition of “reference-able” customers
5. IBM Watson Deal gives a $35 MN oprionailty with 60% incremental margins

Compiled by Akshat Jain | Twitter: @akshat96jain


1. Consolidation of insurers
2. Potential teething issues with software
3. Loss of 1-2 anchor/reference-able clients

1. At 60-70% to peers
2. Earnings cycle going up rapidly
3. At some point, this sector will catch the fancy of investors and re-rate especially if
a new IPO comes along

Some mental models

Convergence of S-Curve and J-Curve for Majesco
● J Curve - When a company is making investments into R&D Capex, EPS drags
and for a high op leverage biz, EPS can go up dramatically when investment
cycle is complete
● S Curve - when product development is done and sales is kicking in, margins
and profit and cash flows jump up substantially

Rule of 40 in SAAS
● Gross Profit = Growth + EBITDA - the higher the number the better it is. Ideally
● Majesco has been growing cloud biz by 40-60% with a 15% + margin and hence
scores well.

Scuttle Butt
1. Friends in US Insurance space have spoken good about the product
2. Majesco’s promoters have been SH friendly
3. Majesco’s products score well on the administration size

Compiled by Akshat Jain | Twitter: @akshat96jain


What can go wrong?

1. Exodus of 1-2 key people
2. Losing a “reference-able” customer
3. Trump effect

Compiled by Akshat Jain | Twitter: @akshat96jain


Speaker #18 Vetrivel

Long term winners - Structural tail winds
1. Must have franchise - demography, supply & demand benefits - low penetration
2. A long term trend - and/or India to align with the world
3. Premiumization: beneficiary of per capita GDP/Inc growth

1. Largely self funded Sales & Profit growth
2. Capital allocation/return ratios
3. Industry top 3
4. Competent management
5. SH Friendly mgmt

Sustain Thrust
1. Large size of opportunity
2. Long product cycle
3. Increasing margins, Cash flow and return ratios
4. Land & expand opportunity
5. Recurring revenues/captive consumers

Stock is: ​Zee Learn

1. Pre-school : Kidzee - Franchise & learning kits
2. K12 schools Mount Litera Zee School: Management fee/royalty/learning kits/Sign
Up - revenue streams are multiple
3. Flexi Staffing (Liberium)
4. School infra leasing (DVPL - subsidiary)

What ZL does not do: Not a software edutech co like Educomp or Everronn.

● Recently acquired majority stake in MT Educare (coaching, test prep company,

● Kidzee is Asia’s largest pre school chain
● MLZS is India’s 2nd largest K12 school

Compiled by Akshat Jain | Twitter: @akshat96jain


● Additional revenues straight away travel to EBITDA. Return ratios from low single
digit, now in mid teens.
● Potential to do 3x EBITDA in 5 years and 10x ebitda in 10 years

1. Pledging by promoter - Zee group is always a risk
2. High Capex is an entry barrier
3. Govt fixing school fees
4. MT Educare and future acquisitions integration

Compiled by Akshat Jain | Twitter: @akshat96jain


Speaker #19 Saurabh Kumar - Apollo Hospitals

Today’s stock is about the 30% portfolio of mine where there is no performance for 3-4
years but there’s some story around it.

● Last 5 years - Revenue is 5x up

● PAT went up 3.4x in 6 years and back to same level
● CFO is 6x up and 1.5x-2x PAT
● Not much equity dilution
● Debt is the highest in 10 years, margins are falling.

Apollo Hospitals
1. 10000 bed capacity hospital
2. 3000+ pharmacy chain
3. Clinics - diagnostics, dental clinics, etc

Perception is that since it is a hospital, capex is heavy. Low ROCE, there is a capitalism
- socialism debate, etc.

Why interested?
1. Value can emerge when nothing seems to go right, negativity gets priced in and
positivity gets priced in efforts but not share price
○ Policy Changes
○ Political Intervention
○ Sentiment Impact
○ Profit eating emerging business
○ Bloated liabilities
○ Loss making new hospitals
○ State related issues
○ Rising interest rates

Compiled by Akshat Jain | Twitter: @akshat96jain


2. Share of hospital vs pharmacy - there is a change in share of pharmacy in

revenue and EBITDA.
3. Hospital biz takes 3-5 years to operate at high utilisations
4. As pharmacy store gets older, the margins improve

Both these biz are on an operating leverage concept.

● The more than 8 year old stores work on a 25% return on capital whereas
blended it is around 18%.
● Therefore, new stores have ample space to improve margins.
● For hospitals, fixed asset going 2.5x up but yet to generate sales optimally.
● Pharmacy store count has almost doubled in the last 3 years. Stores which are 4
years old, they work on lesser margins and these stores have scope to expand to
7%+ margins.
● If we see demographic age distribution of India, people in the age band of 30
years+ need more and more healthcare, so that’s a good market opportunity.

Valuation​ - its a 20-25% CAGR story, mainly driven by the lucrative pharmacy business.

Compiled by Akshat Jain | Twitter: @akshat96jain


Speaker #20 Subash R - Colgate Palmolive

In a portfolio, we cannot have 11 Sehwag’s - we need a Rahul Dravid stock as well.
1. Steady Compounding
2. Index to deliver 9 to 11% CAGR
3. Objective is to beat the index by 2%
4. Manage risk well, return will follow

The Company
● Non Discretionary daily use product
● Strong brand
● Legacy company
● Stable Demand
● Asset Light
● Debt Free
● Dominant Position
● Market Leader

● Steady earnings growth, consistently paying dividend

● Ratios - very good EBITDA margins, consistent
● Ideally, every company should have a consistent dividend payout history

Consistently this stock moves up, consolidates, corrects a bit, then moves, etc etc etc
● 2009 - 1758 crore sales
● 2018 - 4300 crores
● Sales is up - 2.45x
● EPS - 2.32x
● MCAP - 4.49x

Entry decision on trailing P/E - enter when P/E is at 52 week low.

Compiled by Akshat Jain | Twitter: @akshat96jain


Speaker #21 - Shyam Sekhar

(The notes for this speaker are courtesy of the twitter handle: @jaganmsna)

● The company in discussion has a 8000 crore mcap and 3% dividend yield
● The financialization space in India is going to look bright as people reduce
additional exposure to RE
● Money going into financial assets - 40% currently, should cross 50% in the next
10 years
● Share of equity in savings will continue to increase
● Likewise, digital infra to also expand
● Convergence is the key - HDFC Bank is trying, but their digital infra isn’t

The stock to ride is: ICICI Securities

● Best tech platform
● Client base doubling every 5 years
● IPO overpriced but selloff over done

● Brokerage biz is very profitable but risky

● FInancial product distribution is also a LOB
● Private wealth management, Estate planning products are good

● ICICI Securities is thus a high quality business with a long runway at a good price
● PE: 14 for high ROE
● EV 7300 Crore

Compiled by Akshat Jain | Twitter: @akshat96jain