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Sundaram Services Fund An open ended equity scheme investing in Services Sector
NFO Opens: August 29, 2018
NFO Closes: September 12, 2018
Scheme Reopens for Ongoing Subscription/Redemption - 26/09/2018
2
India Services
Re-defining the growth narrative
3
SERVICES PLAYS A LEADING ROLE IN THE ECONOMY
Source : CMIE, Sundaram Asset Management
• India is a unique case-study where the growth narrative shifted from
Agriculture to Services; instead of Industry
• Services account for more than 53% of the GDP but only ~35% of
Total Market cap of India.
GDP sectors, as a % of GDP
14
19
24
29
34
39
44
49
54
59
64
FY62
FY66
FY70
FY74
FY78
FY82
FY86
FY90
FY94
FY9
8
FY02
FY06
FY10
FY14
FY18
Agriculture Industry Services
15%
31%
54%
• Economic growth, rising per capita income, highly skilled manpower,
rising government spends and technological progress; all contributed
and redefined the Services growth story
Sectoral GDP (10 year moving avg. in % )
0
1
2
3
4
5
6
7
8
9
10
FY61
FY6
4
FY67
FY70
FY73
FY76
FY79
FY8
2
FY85
FY88
FY91
FY94
FY97
FY0
0
FY03
FY06
FY09
FY12
FY15
FY1
8
Total Agriculture Industry Services 7.9%
6.5%
5.5%
3.4%
4
INDIA AMONGST THE FASTEST GROWING SERVICES SECTOR
Source :Morgan Stanley, CEIC, Sundaram Asset Management, Japan is CY16
• Services growth in India is led by rising purchasing power, fast growth in social mobility and increasing urbanisation trends
• Outsourcing by foreign companies in the business services, BPO and IT services segment have given Services a significant boost
• Overall GDP India ranks 5th in 2017 and is among the top2 in services GDP growth, achieving 7.6 per cent growth.
Services growth across countries (CY2017) Services Sector as a % of GDP (CY2017)
0.4
1.5 1.5 1.6 2.2 2.3
2.9
7.6 8.0
Ja
pa
n*
UK
Italy
Fra
nce
Germ
any
US
Cana
da
Ind
ia
Chin
a
51.6 53.8
61.9 66.3 69.1 69.3 70.1 70.2
77.7
Chin
a
Ind
ia
Germ
any
Italy
Cana
da
Ja
pa
n
UK
Fra
nce
US
5
GLOBAL CONSUMER SERVICE SECTOR
US Consumer Service vs S&P 500
0
50
100
150
200
250
300
350
Sep
-10
Feb
-11
Jul-
11
De
c-1
1
May
-12
Oct
-12
Mar
-13
Au
g-1
3
Jan
-14
Jun
-14
No
v-14
Ap
r-1
5
Sep
-15
Feb
-16
Jul-
16
De
c-1
6
May
-17
Oct
-17
Mar
-18
US Consumer Services S&P 500
0
100
200
300
400
Oct
-10
Feb
-11
Jun
-11
Oct
-11
Feb
-12
Jun
-12
Oct
-12
Feb
-13
Jun
-13
Oct
-13
Feb
-14
Jun
-14
Oct
-14
Feb
-15
Jun
-15
Oct
-15
Feb
-16
Jun
-16
Oct
-16
Feb
-17
Jun
-17
Oct
-17
Feb
-18
Jun
-18
MSCI Japan Consumer Services Nikkie
Japan MSCI Consumer Service vs Nikkei
UK Consumer Service vs FTSE 100
90
110
130
150
170
190
210
230
Sep
-10
Feb
-11
Jul-
11
Dec
-11
May
-12
Oct
-12
Mar
-13
Au
g-1
3
Jan
-14
Jun
-14
No
v-14
Ap
r-1
5
Sep
-15
Feb
-16
Jul-
16
Dec
-16
May
-17
Oct
-17
Mar
-18
UK Consumer Service FTSE 100
US Consumer Service Index has delivered a CAGR of 15.4% vs 11.5%
of S&P 500.
MSCI Japan Consumer Service Index has delivered a CAGR of 17.8%
vs 11.5% of Nikkei.
UK Consumer Service Index has delivered a CAGR of 9.9% vs 4.1% of
FTSE 100.
Globally Consumer Service Index has outperformed key Indices…
Source : Bloomberg, Sundaram Asset Management
6
INDIA SERVICE SECTOR INDEX
141.4
578.8
110.5
206.6
0
200
400
600
800
Jan
-08
Jun
-08
No
v-0
8
Ap
r-0
9
Sep
-09
Feb
-10
Jul-
10
Dec
-10
May
-11
Oct
-11
Mar
-12
Au
g-1
2
Jan
-13
Jun
-13
No
v-1
3
Ap
r-1
4
Sep
-14
Feb
-15
Jul-
15
Dec
-15
May
-16
Oct
-16
Mar
-17
Au
g-1
7
Jan
-18
Jun
-18
Services Index BSE200 Index
Source : Bloomberg, Sundaram Asset Management
Service Index : Selected Service based companies from current BSE 200 Index and weighted it on historical market cap basis.
796.0 844.2
4,650.3
493.4 510.5
1,019.5
0
1,000
2,000
3,000
4,000
5,000
Jun
-03
Jun
-04
Jun
-05
Jun
-06
Jun
-07
Jun
-08
Jun
-09
Jun
-10
Jun
-11
Jun
-12
Jun
-13
Jun
-14
Jun
-15
Jun
-16
Jun
-17
Jun
-18
Services Index BSE200 Index
India Service Index
delivered 5x returns in
10 years
India Service Index
delivered 50x returns
in 15 years
7
BAJAJ FINANCE – CASE STUDY
Profile
Key Catalysts
Plans to de-risk business model and significantly increase the proportion of
Secured Assets in its Loan Portfolio
Significant thrust on Consumption Financing via strong B2B relationship
Expanding presence in next 800 towns over 3-5 years
Robust risk management via Scorecard based underwriting using digitisation,
analytics, big data, artificial intelligence
Company is engaged primarily in the business of financing two-wheelers,
consumer durables, personal loans, small business loans, mortgages and loan
against securities
Company has a AUM of over Rs. 93,314 crores - operates through a network of
~60000 distribution/dealers & presence across 1300+ towns
Price Performance – Bajaj Finance vs BSE 200
Source : Bloomberg, Sundaram Asset Management
-
500
1,000
1,500
2,000
2,500
3,000
Jul-
12
Oct
-12
Jan
-13
Ap
r-1
3
Jul-
13
Oct
-13
Jan
-14
Ap
r-1
4
Jul-
14
Oct
-14
Jan
-15
Ap
r-1
5
Jul-
15
Oct
-15
Jan
-16
Ap
r-1
6
Jul-
16
Oct
-16
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Bajaj Fin BSE 200 Index
Curr Price / M Cap (Rs cr) BAJAJ FINANCE LT 2,488 1,42,457
Financial Summary : FY16 FY17 FY18 FY19e FY20e
Net Interest Income 3,974 5,469 7,226 9,996 13,323
PPOP 2,507 3,636 4,878 6,968 9,319
PAT 1,279 1,837 2,496 3,607 4,769
EPS 22.2 31.9 43.4 62.7 82.9
AUM 43,831 58,239 81,943 1,10,624 1,43,811
ROA % 3.2 3.3 3.3 3.5 3.6
RoE % 20.9 22.4 20.4 21.1 23
P/E (x) 29.0 32.7 50.2 39.7 30.0
8
QUESS CORP – CASE STUDY
Profile
Key Catalysts
Diversified growth across industries – IT, general staffing, facility mgmt. services,
Industrial asset mgmt.
Shift from unorganized to organized
Market share increase across segments of operations
Ability to add newer services through further acquisitions/partnerships
Quess Corp is best described as the Amazon of managed services as it seeks to
be relevant to clients across their complete breadth of flexi-staffing & managed
services requirements. It helps the company to manage their non-core activities
by leveraging their integrated service offerings across industries and
geographies.
Price Performance – Quess Corp vs BSE 200
Company has invested Rs14.2b over last two years to built scale & capabilities
across a wide spectrum of services.
Source : Bloomberg, Sundaram Asset Management
50
100
150
200
250
300
Jul-
16
Au
g-1
6
Sep
-16
Oct
-16
No
v-1
6
De
c-1
6
Jan
-17
Feb
-17
Mar
-17
Ap
r-1
7
May
-17
Jun
-17
Jul-
17
Au
g-1
7
Sep
-17
Oct
-17
No
v-1
7
De
c-1
7
Jan
-18
Feb
-18
Mar
-18
Ap
r-1
8
May
-18
Jun
-18
Jul-
18
Quess BSE 200 Index
Curr Price / M Cap (Rs cr) QUESS CORP LTD 1,073 15,546
Financial Summary : FY16 FY17 FY18 FY19e FY20e
Revenue 3,435 4,157 6,167 8,296 9,702
EBITDA 164 223 354 544 642
PAT 89 113 365 441 513
EPS 7.8 8.9 25.2 30.5 35.4
EBITDA Margin % 4.8 5.4 5.7 6.6 6.6
ROCE % 18.0 12.4 12.8 16.3 16.2
RoE % 29.1 19.0 22.4 16.7 16.4
P/E (x) 0.0 77.2 42.5 35.2 30.3
9
TRENT – CASE STUDY
Profile
Key Catalysts
Increasing penetration to aid higher volume growth and sustainable SSG to drive
industry leading revenue growth.
Private label – key differentiating factor that could help reap operational leverage
benefits.
A complete control of inventory aiding superior return ratios
The Company is one of the key players in branded retail industry in India with a
focus on pursuing robust business models in each of its retail concepts –
Apparels (westside, Zudio), Hypermarket (Star bazaar), fast fashion (Zara,
Massimo Dutti).
Price Performance – Trent vs BSE 200
A unique play on the women’s wardrobe through private labels. Partnerships
with global majors like Zara and Tesco enables them to implement best in class
practices in sourcing and supply chain.
Source : Bloomberg, Sundaram Asset Management
Affordable fast fashion, rising working women population, shift to organized players
-
50
100
150
200
250
300
350
Jul-
14
Sep
-14
No
v-1
4
Jan
-15
Mar
-15
May
-15
Jul-
15
Sep
-15
No
v-1
5
Jan
-16
Mar
-16
May
-16
Jul-
16
Sep
-16
No
v-1
6
Jan
-17
Mar
-17
May
-17
Jul-
17
Sep
-17
No
v-1
7
Jan
-18
Mar
-18
May
-18
Jul-
18
Trent BSE 200 Index
Curr Price / M Cap (Rs cr) TRENT LTD 338 11,232
Financial Summary : FY16 FY17 FY18 FY19e FY20e
Revenue 1,492 1,738 2,066 2,591 3,233
EBITDA 93 123 201 329 419
PAT 86 107 117 197 262
EPS 2.6 3.2 3.5 5.9 7.9
EBITDA Margin % 6.4 7.3 9.7 12.7 13.0
Westside ROCE % 22.1 22.4 21.8 28.9 29.1
RoE % 6.0 6.9 7.2 11.3 13.7
P/E (x) 61.1 82.9 98.2 57.0 42.9
10
SERVICES SECTOR CLASSIFICATION
Source : Sundaram Asset Management
Financial Services
Retail Lenders
Wealth Management
Insurance Provider
Healthcare services &
Fitness
Hospitals
Diagnostics
Trade, Tourism & Hospitality
Retail
Hotels & Restaurant
Tourism
Transportation
Aviation
Logistics
Business Services
BPM Services
Staffing
Other Services
Media, Entertainment
& Gaming
Telecom/Data Provider
Online Services
Services Sector
11
RETAIL CREDIT: A CATALYST FOR ECONOMIC GROWTH
• Consumer finance is still significantly under penetrated in India as households continue to
remain under-leveraged
• Government and RBI has taken various measures for greater financial inclusion like Jan
Dhan Yojana. Banking penetration has improved to 80% from 53% 3 yrs back.
• Private sector making significant headway across products and geography
• Regulatory reform, rising middle class, financial technology and greater financial inclusion are
set to be drivers for the sector
Retail credit underpenetrated
Source : Bajaj Finance, CSFB, RBI, Sundaram Asset Management
0% 20% 40% 60% 80% 100% 120% 140%
India
Brazil
China
South Africa
Thailand
Malaysia
Singapore
US
South korea
Ireland
UK
Canada
Australia
Netherlands
Denmark
FY09 FY16 FY26E
Others Mortgage Auto
CV's Personal Gold
SME
INR 19.3
lk cr
INR 42.8
lk cr
INR 208.4 lk
cr
Retail credit expected to see quantum jump
MFI has seen very high growth
NBFC
INR.2.8 lk
cr
Sector to see very high growth
Pvt Banks,
INR.8.8 lk
cr
Total M Cap
INR.41.4 lk cr
Total M Cap
INR.28.9 lk cr
FY16 2018 FY26
Pvt Banks,
INR.15.5 lk
cr
NBFC
INR.10.9 lk
cr
12
WEALTH MANAGEMENT: UNDER-PENETRATION A VAST OPPORTUNITY
• Higher wealth in the hands of new generation and expectation of lower inflation in India in future is
leading shift away from traditional and physical assets to financial assets.
• India is seeing increased awareness towards professionally managed wealth. Only 20% of the
HNIs are seen to take advice from financial consultants, showing the extent of under penetration.
• India has around 137,000 Ultra High Net worth Households (UHNH) with a potential net worth of
INR 138 lakh crores but total AUM of the top 10 wealth management firms is less than INR 6.9
lakh crores
• Mutual funds have seen traction of late with AUM growing to almost 25 lakh crores. This can grow
multi fold from current 12% of GDP.
Source : CSFB, IIFL quarterly presentation(Ultra High Net worth Households), Sundaram Asset Management
India’s AUM expected to grow at 18% CAGR by 2025 Equities share of financial savings very low Penetration is low compared to global peers
Scope to “Beat the market”
0%20%40%60%80%
100%120%
Un
ite
d S
tate
s
Ne
therl
and
s
Ca
nad
a
Sw
itzerl
and
Austr
alia
Sw
ede
n
Fra
nce
UK
Bra
zil
Germ
any
South
Afr
ica
De
nm
ark
Fin
land
Austr
ia
Japa
n
Ne
w Z
eala
nd
Spain
South
Kora
Ch
ina
India
Me
xic
o
MF AUM as % of GDP
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Uni
ted
Sta
tes
Sw
eden
Japa
n
UK
Can
ada
Fin
land
Fra
nce
Ger
man
y
Den
mar
k
Sw
itzer
land
Spa
in
New
Zea
land
Bra
zil
Sou
th A
fric
a
Indi
a
Sou
th K
ora
Mex
ico
Indi
a 20
13
Chi
na
Mutual fund equity AUM % of country market cap
0
10
20
30
40
50
60
70
80
FY14 FY15 FY16 FY17 FY18 FY25E
Mutual funds PMS AIF
13
INSURANCE: UNINSURED AND UNDERINSURED
India: Uninsured and underinsured
• Share of Insurance remains low with a large population being uninsured or underinsured
• With rising financialization, both life and non life insurers are expected to see good growth for
many years
• Top private players continue to gain market share and expand their competitive advantage
• Indian insurers are among the best placed globally with better growth prospects,
improving persistency rate, low interest rate risk, stable regulations and improving product mix.
Source : Morgan Stanley, Motilal Oswal, Max Financials, Sundaram Asset Management
UK Japan
France
Australia
Italy Korea
U.S Canada
Germany
Spain
Malaysia
Brazil
Thailand
China
Mexico
India
Indonesia 0.0
1.8
3.6
5.4
7.2
9.0
-200 300 800 1300 1800 2300 2800 3300 3800 4300
Lif
e In
sura
nce
Pen
etra
tio
n (
%)
Premiums Per-capita (USD)
General insurance premium have grown at 16% CAGR in last 18 years
Sum Assured to GDP 270 260
226
166 149
106 96
60
US
Japa
n
Sin
gapo
re
Kor
ea
Mal
aysi
a
Ger
man
y
Tha
iland
Indi
a
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
63 62 62 51 48 46 44
37 38 38 49 52 54 56
FY12 FY13 FY14 FY15 FY16 FY17 FY18
LIC Private
Private insurers: Increasing share of premiums
14
HEALTHCARE: QUALITY SERVICES AT AN AFFORDABLE PRICE
Source : WHO, ASTERDM DRHP, Sundaram Asset Management
17.1
4.7
0.0
5.0
10.0
15.0
20.0
USA U
K
Bra
zil
Ru
ssia
Vie
tnam
Ch
ina
Ind
ia
Mal
aya
sia
Thai
lan
d
Ind
on
esi
a
83.1
30.0
020406080
100
UK
Thai
lan
d
Ch
ina
Mal
aya
sia
Vie
tnam
Ru
ssia
Un
ite
dSt
ate
s
Bra
zil
Ind
on
esi
a
Ind
ia
Total Healthcare as a % of GDP
Govt. spend as a % of Total Healthcare spend
Per 1,000 populations
Healthcare market size (INR lakh crores) Average total medical exp. Per medical case
0
1
2
3
4
India China Bahrain KSA Kuwait UK USA
Beds Phyisician
0
4
8
12
16
20
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
F
2020
F
19.3
3.1
3400 6600
20000
35000
0
5000
10000
15000
20000
25000
30000
35000
40000
1996 2004 2014 2020E
• India has seen significant underinvestment in healthcare, mainly from the government,
with a shortage of 17 lakh hospital beds compared to global average
• Private players, both domestic and international, are recognizing the attractiveness of
industry and making significant investments here.
• Govt.’s Ayushman Bharat scheme providing Rs 5 lac medical insurance cover to almost
half the population will improve health cover
• A large population in need of healthcare, increasing penetration of health insurance and rising income levels offer significant scope for the healthcare industry in India
15
DIAGNOSTICS: INCREASING TREND OF EVIDENCE-BASED TREATMENT
Source :Dr.Lal Pathlabs DRHP, Sundaram Asset Management
2014-15 2019-20P
Diagnostic Service Industry Size
INR 37,700 cr
INR 70,000-75,000 cr CAGR
14-16%
48%
37%
15%
Standalone Centres Hospital based Diagnostic Chain
Large Chains 35%
Regional 65%
Highly fragmented Industry - Shift towards organised
5,655 17,250
32,045 57,750
0%
20%
40%
60%
80%
100%
2015 2020
Organised Unorganised
Improving market share for Organised players Growth in number of samples at a leading laboratory (crores)
1.90 2.17
2.63 2.93
3.47
4.67
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
FY14 FY15 FY16 FY17 FY18 FY20E • India’s spends as a % of GDP at 4.7%, stand much lower than global peers, with the US
the highest at 17.1%
• Metros, Tier 1 & 2 cities broadly contribute 67% of the diagnostics industry and the rest
33% come from the Rural segment
• The Indian diagnostics industry is expected to grow at a CAGR% of ~14-16%, touching
INR 75,000 crores in 2019-20
• Increase in the incidence of lifestyle diseases and evidence based treatment, rising
awareness and affordability of healthcare are the key drivers
16
RETAIL: PLAYING THE RISING CONSUMER WAVE
India’s retail industry, USD bn.
Source : India Brand Equity Foundation, Edelweiss Research, Sundaram Asset Management
Retailing jumps when GDP/ capita crosses USD 2000. Sector has just started becoming organized
• The pace of shift from unorganised to organised is accelerating due to increasing preference for the
brands/organised industry, and decreasing unit economics for unorganised players under the GST
regime.
• With GST, the organised segment share is expected to grow to 13% from single digits and the
sector is expected to reach INR 89.7 lakh crore by 2020
• India's demographics apart, increasing consumer demand, rising purchasing power, growing private
investment and favourable government investment and regulation drive growth.
• Ecommerce will be a threat to some, pose challenges to some and present an opportunity to the rest given
omni channel necessity. Online retail is expected to touch INR 4.8 lakh crore by 2020
17
TRAVEL, TOURISM AND HOSPITALITY: ENERGISED BY VIBRANT INDIAN GROWTH
Source : WTTC, Tourism India, Sundaram Asset Management; Lemon Tree DRHP
Foreign tourist arrivals are increasing in India
Tourism total cont. to GDP (INR Lakh Crore) Hotel Utilisation set to improve India has massive shortage of hotel rooms
Region
Supply of
hotel rooms
(Lakh)
Population
(crore)
Penetration
Rooms per
1000
World 162 734.9 2.2
USA 50 32.1 15.7
India 2 121.1 0.2 50%
55%
60%
65%
70%
75%
80%
85%
90%
-15
-10
-5
0
5
10
15
Dec
-12
Apr
-13
Aug
-13
Dec
-13
Apr
-14
Aug
-14
Dec
-14
Apr
-15
Aug
-15
Dec
-15
Apr
-16
Aug
-16
Dec
-16
Apr
-17
Aug
-17
Dec
-17
Apr
-18
Occupancy rate (%, RHS) Average room rate (% YoY)
134.8
188.5
6.6 9.3 17.4
34.0
0
50
100
150
200
1998 2008 2018 2028E
United States China India Thailand UK
-5.0
-
5.0
10.0
15.0
20.0
3
4
5
6
7
8
9
10
11
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
FTA YoY Gth% - (RHS)
• From INR 17.4 lakh crore contribution to GDP in 2018, Indian tourism is expected to touch
INR 33.9 lakh crore by 2028
• This sector has multiplier effects into hospitality, recreation, retail and food & beverage sectors
• Rising FDI and foreign leisure tourists are drivers, supported by Govt’s policies
• Improved connectivity through Air, Surface is an enabler
18
AVIATION: TAKING OFF AS THE FASTEST GROWING MARKET
• After the liberalisation measures taken by the government in 2003, the Indian
travel market saw rapid growth
• 2016 witnessed India overtaking Japan as the third biggest aviation market in
the world, according to the CAPA Centre for Aviation.
• As the fastest growing aviation market, total passengers handled grew by 17%
p.a. of which 75% were domestic passengers growing by 21% p.a
• The expanding middle class, Rail travel substitution, strong tourism growth,
population growth and economic prosperity are the key drivers
• Total aircraft movements in India are expected to grow to 4.3mn by 2023
Source : World Bank data, CMIE, Sundaram Asset Management
Total Aircraft movements in India in millions
Air transport, passengers carried in millions
140 124
0
100
200
300
400
500
600
700
800
900
1977 1987 1997 2007 2017
India China United States Japan
- 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0
FY0
2
FY0
3
FY0
4
FY0
5
FY0
6
FY0
7
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
FY1
9e
FY2
0e
FY2
1e
FY2
2e
FY2
3e
19
TRANSPORTATION AND LOGISTICS: FACILITATING AND BENEFITTING FROM GROWTH
Source : Alvarez Marsal, Sundaram Asset Management
Size of Logistics Industry (INR Lakh crore)
World bank Logistics performance Index:
E-tail market in India (INR thousand crores) E-tail logistics Market Size (INR thousand crores)
6.9
34.5
379.5
0
50
100
150
200
250
300
350
400
FY11 FY15 FY21E
+47 +51
+57%
0
5
10
15
20
25
30
FY15 FY2050
70
90
110
130
150
170
190
210
230
250
2015 2017 2020 2023
Global India
INR 9 lk cr
INR 559 lk cr
INR 20 lk cr
INR 1070 lk cr
• Govt. policies on E-way bill and GST, push towards faster deliveries (same day, just in time
deliveries), multiplicity of Stock Keeping Units (SKUs), supply chain redesign is shifting
industry towards Organised players
• The sector sees strong demand from E-tail, Retail, Auto FMCG and pharma sectors of the
economy
• Logistics industry has invested significantly in improving the infrastructure as evident from
sharp improvement in World Bank’s Logistics Performance Improvement ranking from 54 to
35.
• Expected to touch INR 20 lakh crore by 2023, translating to a CAGR% growth of 10.5%
LPI Ranking 2010 2012 2014 2016
India 47 46 54 35
China 27 26 28 27
USA 15 9 9 10
Rebased to 100
20
TEMPORARY AND GENERAL STAFFING: CLOSELY WEDDED TO THE INDIAN GROWTH STORY
Source : KPMG, Motilal Oswal, Quess Corp DRHP, Sundaram Asset Management
2.1
6.5 6.8 7.6
11.3 12.1
India Russia Brazil China UK USA
Share of staffing services as a % of GDP
Revenue of temporary staffing market (INR ‘000 crores)
38.5 45.7
54.3
64.6
76.9
91.8
2014 2015 2016 2017 2018 2019
• India's Temporary and General staffing services is a nascent industry which has grown at
20% CAGR over last 10 years
• India’s share of staffing services at 2% of GDP versus BRIC nations, such as Russia, Brazil
and China, business services stands at more than 6% of GDP
• These companies offer security services, facility management services, cash management
services, industrial asset maintenance services in addition to flexi staffing.
• Increasing competition, margin pressure for companies and the need for flexi-staffing are
the key forces helping this industry
• Growth in sectors like Telecom, Retail, BFSI, Healthcare and BPO segments drive the
demand for this sector
• Industry is dominated by large number of unorganized players who are losing market share
to the organized segment post GST implementation and other labor reforms.
21
BPM AND IT-NICHE SERVICES: SET TO TAP INTO ABUNDANT OPPORTUNITIES
India most attractive for services globally
Source : India Brand Equity Foundation, Statista, CIMB, Sundaram Asset Management
India BPM revenues (INR lakh crore)
3.0
3.2
2.5
2.8
2.3
3.3
1.5
1.6
2.0
1.4
2.8
2.5
1.4
1.2
1.5
1.9
1.3
1.2
0 1 2 3 4 5 6 7 8
Thailand
Indonesia
Brazil
Malaysia
China
India
Financial Attractiveness People skills and availability
Business environment
0.68 0.81
0.97 1.10
1.23 1.38
1.59 1.68
1.79 1.93
-
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
ER&D spend (US$bn) CY 2015 CY 2016 CY 2017 CY 2018e Global 1000 companies' R&D spend
680 680 702 730
%change 5.10% 0.00% 3.20% 4.02%
India total ER&D revenues 22 24 27 31
%change 11.90% 10.60% 12.10% 13.80%
India exports - IT & BPM 85 91 97 104
%change 8.80% 7.10% 6.60% 7.50%
India exports - ER&D 20 23 25 28
%change 11.10% 12.50% 11.10% 12.80%
Third party India exports -ER&D 8 9 10 11
%change 14.70% 12.70% 12.40% 13.20%
ER&D India is a preferred destination for global ER&D Spending :
0
20
40
60
80
100
120
CY1
1
CY1
2
CY1
3
CY1
4
CY1
5
CY1
6
CY1
7
CY1
8e
CY1
9e
CY2
0e
CY2
1e
CY2
2e
CY2
3e
CY2
4e
CY2
5e
CY2
6e
CY2
7e
Market volume in billion (US dollars)
Big data market size revenue forecast worldwide
• Increasing spends by companies on BPM Services to establish themselves in the market
place and sharpen their competitive edge over their peers and has seen tremendous growth
and has matured in its value chain
• From a simple outsourcing model on labour cost arbitrage to a complex one with myriad
offerings including high end niche services like research, analytics, big data, digital
transformation, Cloud, mobility etc.
• India’s large talent pool ensures sufficient supply for IT/ BPM services
• India is market leader commanding 38% of total outsourcing market of BPM services
22
SERVICES SECTOR CONTRIBUTES SIGNIFICANTLY TO EXPORTS
Source : CEIC, Sundaram Asset Management
• India's services sector has grown manifold in product offerings and value creation
• India's technology related services tend to nearly 75% of all fortune 500 companies
• Government has started SEIS (Services Export Incentive Scheme) to encourage services exports
Services exports as a % of total exports
30
32
34
36
38
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY1
7
FY18
23
MEDIA AND ENTERTAINMENT: RIDING ON THE DEMOGRAPHIC WAVE
Media spend as a % of GDP
Source : KPMG, Sundaram Asset Management
Indian M&E industry Size in lakh crores
0.4%
0.9% 1.0%
0.8% 0.9%
0.8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
India UK US China Japan World
Internet users(in crores) - Adoption of high speed 4G
8%
11%
9%
20%
14%
8%
12%
6%
12% Auto
BFSI
Consumer durables
E-Commerce
FMCG
Media & Entertinment
Others
Retail
Telecom
E-Commerce leads digital ad spends :
0
20
40
60
80
100
2016 2017 2018 2019E 2020E 2021E
Wired Wireless
Segment 2016 2017 2018E 2019E 2020E 2021E
Television 0.6 0.7 0.8 0.9 1.0 1.2 14.7
Print 0.3 0.3 0.4 0.4 0.4 0.4 7.3
Filmed Entertainment0.1 0.2 0.2 0.2 0.2 0.2 7.7
Digital Media 0.1 0.1 0.1 0.2 0.2 0.3 30.8
Animation 0.1 0.1 0.1 0.1 0.1 0.1 17.2
Online Gaming 0.03 0.04 0.04 0.05 0.06 0.07 18.2
Others 0.1 0.1 0.1 0.1 0.1 0.1 14.3
Total - Industry 1.3 1.4 1.6 1.8 2.1 2.4 13.9
CAGR
- 2016-21 %
• The Indian digital media expected to grow at a rapid pace with a CAGR of 30.8% until 2021.
• Urbanisation, youth penetration, rising literacy, education, digitization and regionalization,
spending power and need for entertainment options are the growth drivers
• Over The Top (OTT) streaming media players have disrupted the broadcasting space
globally. In India, both broadcasters and content providers are launching their own OTT
offering to benefit from this transition.
• Indian M&E sector reached INR 1.4 lakh crore in 2017, a growth of almost 11.6% over
2016.With its current trajectory, expected it to cross INR 2.5 lakh crore by 2021,at CAGR of
13.9%
24
ONLINE SERVICES: INVESTING IN UNICORNS
Growth in GMV of online food delivery companies Graduate entry level job search has completely moved
online Etail will continue its 40% CAGR for a long time (USD billion)
E-tailing, travel and fintech has dominated fund
raise in 2017
2017-20
CAGR
Online Sector gth 2012 2017 2020 (%)
Unorganised retail 370 632 822
9.2
Organised B&M retail/E-tail 28 67 119
21.1
E-tail 1 16 50
46.2
Total 399 715 991
11.5
42%
26%
18%
8% 5%
1%
E-tailing
Travel
Fin-tech
Services
Others
Classified
0
1000
2000
3000
4000
5000
0
5000
10000
15000
20000
25000
2017 2018 2019 2020 2021Orders per month in Cr - (LHS)Annual online food delivery GMV (Rs cr) - (LHS)Implied revenue of food delivery companies (Rs cr)
Source : Kotak Securities, Axis Capital, Jefferies, Nomura, Sundaram Asset Management
• With increasing penetration of smartphones and cheap data rates, India has seen explosion
in online services and emergence of many home grown unicorns
• These players have led to disintermediation of system by providing services such as
retailing, food, travel, recruitment, education etc to consumers anytime, anywhere through
their phone
• These companies have raised $24bn from large private equity players in last 5 years but
after attaining a certain scale and profitability they will list in equity market
• Given “winner takes all” attribute of online services, only 2-3 players will survive in each
segment and they will make the most moolah in long term.
25
ONLINE SERVICES: INVESTING IN UNICORNS
Source : Kotak, Sundaram Asset Management
Credit Services
Investment Services
Marriage Services
Hiring Services
Transport Services
Food Supplier
Convenience Services
Retail Services
Marketplace Services
Zomato & Swiggy
Book my Show
Grofers, Big Basket
Flipkart & Amazon
Flipkart – Walmart & Amazon – Catamaran
Venture
Grofers - Sequoia Capital,
SoftBank Corp & Big Basket – Abraaj Capital,
IFC
Book my Show - Stripes Group, SAIF, Accel India
Zomato - Temasek,
Vy Capital & Swiggy - Naspers,
Coatue Mgmt.
Policy Bazaar &
Value Research
Matrimony &
Jeevansathi .com
Naukri & Shine
Lynk, Delhivery,
OLA
Policy Bazaar - Temasek,
Tiger Global etc…
Matrimony- Mayfield, Canaan
Partners etc…
Naukri - Sherpalo
Venture, ICICI Venture
Delhivery – Carlyle, Nexus
Venture, OLA - Falcun
Edge Capital,Tekne Capital etc…
Bank Bazaar Experian
26
SERVICES SECTOR OVER THE YEARS HAS ATTRACTED THE HIGHEST AMOUNT OF FDI
Source : CMIE, PE-deals – Jefferies, Sundaram Asset Management
• The Services sector has consistently attracted steady FDI flows with record flows in FY18
• Services contributed 51% of total FDI flows
• Financial services accounted for 15% of total FDI
FDI inflows into Services (USD Bn.)
S.No Date Company
Fund
Raised in
CY18 (US
$ mn)
Category Investor (s)
1 May-18 Flipkart 2000 E-tailing Walmart
2 Feb/Jun-18 Swiggy 310 Services Naspers, DST Global, Meituan-Dianping
3 Feb-18 Bigbasket 300 E-tailing Alibaba, Abraaj, Bessemer Venture
4 Jun-18 Policy Bazaar 200 Fin-Tech Softbank, Info Edge
5 Feb-18 Zomato 150
Services/
Classified Ant Financial
6 Feb-18 Gaana 115 Services Tencent Holding
7 Feb-18 LendingKart 87 Fin-Tech Fullerton Financial Holdings
8 Mar-18 Grofers 62 E-tailing Tiger Global, Softbank
9 Feb-18 Udaan 50 E-tailing Lightspeed VP, Lightspeed India
Online Services Companies which raised US$ 50 Mn or more in CY18 YTD
0
5
10
15
20
25
30
35
40
45
50
FY09 F10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Services Non Services
27
SUNDARAM SERVICES FUND – FUND DETAILS
1
• An open-ended Equity Scheme
• The Fund will invest in companies that are part of the Services sector of the economy. Services sector includes Healthcare,
Fitness, Tourism & Hospitality, Transportation & Logistics, Staffing, Wealth management, Insurance, Retail credit, Media, Retail,
Internet & Online services, Aviation, Legal, Architecture, Design services, etc.
• The Fund will invest in a well diversified portfolio of large cap, mid cap and small cap stocks – Multi cap portfolio offering
investment opportunity across the cap curve
• Scheme opens for subscription on 29/08/2018 and will close on 12/09/2018
• Scheme reopens for ongoing subscription/redemption - 26/09/2018
• Benchmark – S&P BSE 200 Index
• Fund Managers - S Krishnakumar, Rahul Baijal & Rohit Seksaria
28
INVESTIBLE UNIVERSE
• 31 companies
• Aggregate Market Cap : INR 30.6 lakh crores
Large Cap
• 40 companies
• Aggregate Market Cap : INR 6.6 lakh crores
Mid Cap • 122+ companies
• Market Cap: INR 4.0 lakh crores +
Small Cap
Source : Sundaram Asset Management, Excluded IT-Services which has a Market cap of 16 lakh crore
The above numbers indicate that 193+ companies are engaged in Services with a
total market capitalization of Rs.41.2 lakh crore +
29
MULTI CAPS OFFER THE BEST RISK RETURN TRADE OFF
Rolling return analysis – 5 years
Source : Sundaram Asset Management; A common start date (April 1, 2003) has been chosen which is from commencement of the most recent index: BSE Small Cap Index
BSE 200 has the highest average return among the 4 indices and the joint highest number of positive
return periods and the second lowest minimum return.
Sensex BSE Mid Cap BSE Small Cap BSE 200 Rank
Periods 3,775 3,775 3,775 3,775
Average Return (% p.a) 12.4 12.0 11.1 12.5 1
Minimum Return (% p.a) -1.5 -6.5 -11.7 -2.0 2
Maximum Return (% p.a) 42.7 49.7 58.2 43.7 3
% of Positive Return Periods 98 87 83 98 1
30
MULTI CAPS OFFER THE BEST RISK RETURN TRADE OFF
VIRTUOUS CYCLE VICIOUS CYCLE VIRTUOUS CYCLE
Source : Bloomberg, Sundaram Asset Management . Data as of June 30, 2018
Apr-03 Jan-08 CAGR (%) Jan-08 Oct-13 CAGR (%) Oct-13 Jun-18 CAGR (%)
S&P BSE Sensex 3,168 20,873 49% 20,873 21,165 0% 21,165 35,423 12%
S&P BSE 200 375 2,725 52% 2,725 2,490 -2% 2,490 4,608 14%
S&P BSE Midcap Index 950 9,817 63% 9,817 6,107 -8% 6,107 15,451 22%
S&P BSE Small Cap Index 885 13,516 77% 13,516 5,896 -13% 5,896 16,032 24%
31
INDIA SERVICE SECTOR INDEX – OUTPERFORMED ACROSS CYCLES
Source : Sundaram Asset Management Service Index : Selected Service based companies from current BSE 200 Index and weighted it on historical market cap basis.
796.0 844.2
4,650.3
493.4 510.5
1,019.5
0
1,000
2,000
3,000
4,000
5,000Ju
n-0
3
Jun
-04
Jun
-05
Jun
-06
Jun
-07
Jun
-08
Jun
-09
Jun
-10
Jun
-11
Jun
-12
Jun
-13
Jun
-14
Jun
-15
Jun
-16
Jun
-17
Jun
-18
Services Index BSE200 Index
Virtuous Cycle Vicious Cycle Virtuous Cycle
Begin End Returns Begin End Returns Begin End Returns
Apr-03 Jan-08 CAGR Jan-08 Oct-13 CAGR Oct-13 Jun-18 CAGR
Services Index 100 796 55% 796 959 4% 959 4650 39%
BSE 200 Index 375 2,725 52% 2,725 2,490 -2% 2,490 4,608 14%
VIRTUOUS CYCLE VICIOUS CYCLE VIRTUOUS CYCLE
32
DISCLAIMER
Past performance may or may not be sustained in the future
General Disclaimer: This document is issued by Sundaram Asset Management; an investment manager registered with the Securities and Exchange Board of
India in India and is produced for information purposes only. It is not a prospectus, scheme information document, offer document, offer and solicitation, to name
a few, to buy any securities or other investment. Information and opinion contained in this document are published for the assistance of the recipient only; they
are not to be relied upon as authoritative or taken as a substitution for exercise of judgment by any recipient. They are subject to change without any notice and
not intended to provide the sole basis of any evaluation of the instrument discussed or offer to buy. It is neither a solicitation to sell nor shall it form the basis of
or be relied upon in connection with any contract or commitment whatsoever or be taken as investment advice. The information and opinions contained in this
communication have been obtained from sources that Sundaram Asset Management believes to be reliable; no representation or warranty, express or implied,
is made that such information is accurate or complete and it should not be relied upon as such. Sundaram Asset Management neither guarantees its accuracy
and/or completeness nor does it guarantee to update the in formation from time to time. This communication is for private circulation only and for the exclusive
and confidential use of the intended recipient(s) only. Any other distribution, use or reproduction of this communication in its entirety or any part thereof is
unauthorized and strictly prohibited. By accepting this document you agree to be bound by the foregoing limitations. This communication is for general
information only without regard to specific objectives, financial situations and needs of any particular person who may receive it and Sundaram Asset
Management is not soliciting any action based on this document. Sundaram Asset Management in the discharge of its functions, may use any of the data
presented in this document for its decision-making purpose and is not bound to disclose the same. Copies of the Statement of Additional Information, Scheme
Information Document and application form with key information memorandum may be obtained from the offices of Sundaram Mutual offices and its authorized
distributors or downloaded from www.sundarammutual.com For scheme specific risk factors, asset allocation, load structure, fund facts and taxation aspects
please refer scheme information documents available online and at branches/Investor Service Centres; also at www.sundarammutual.com.
Statutory: Mutual Fund: Sundaram Mutual Fund is a trust under Indian Trusts Act, 1882 Sponsors. Liability for sponsors is limited to ₹ 1 lakh. Sponsors:
Sundaram Finance.
Investment Manager: Sundaram Asset Management Company. Trustee: Sundaram Trustee Company.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully
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