Equitree Investor Presentation - Your Partners for Growth

Investor Presentation

ADVANTAGE EQUITREE - How are we different!

Successful track record of having delivered returns in excess of 40% IRR twice over in the last 8 years

Focus on value investing

Partners completely focused on investing – no other business

ventures.

Experienced Team with over 50 years of cumulative experience in

the market.

“Invest in Businesses rather than Stocks”.

Not Just Preaching – we invest along side our investors.

SOWING SEEDS OF GROWTH

VALUE INVESTING

VALUE INVESTING

FUNDAMENTALLY STRONG

COMPANIES

GROWTH AT REASONABLE VALUATIONS

IN DEPTH DUE DILIGENCE

LONG TERM INVESTING –

HEDGED AGAINST TRADING RISKS

ABILITY TO GENERATE ALPHA

RETURNS

VALUE INVESTING VS GROWTH INVESTING

Source: Robeco, MSCI, Seeking Alpha, Bloomberg

Value Investing has proven to generate far more outperformance in returns than chasing growth investing at any price!

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SMALL CAP INVESTING

HIGH GROWTH

POTENTIAL

ABILITY TO DO

RESONABLE DUE

DILIGENCE

FOCUED BUSINESS MODEL & CATER TO

NICHE MARKETS

EASY PROMOTE

ACCESS

REASONABLE VALUATION AS THEY ARE

LESS TRACKED

BENEFITYS OF SMALL

CAP INVESTING

Investment Period* Inception Exit IRR (%) **

1 2012 2014 42.1%

2 2015 2017 36.9%

At Equitree, we began investing in 2012, since then we have liquidated the entire portfolio twice since, and have returned profits to our investors. Our conviction in the research and hard on-the-ground data helps us to remain confident and hold investments even in difficult market scenarios. Thus, even when the small and mid-caps saw ruthless corrections, we remained confident in the companies held by us. This conviction, which allows us to hold investments even when the markets aren’t rewarding, is what helps us achieve the returns we do.

OUR TRACK RECORD

As on 30th June 21. Not verified by any regulatory authority/SEBI. Note - Individual portfolio performances may differ.

Investment Period - 3

1M Return

3M Return

6M Return

1Y Return

2Y Return**

Since Inception

(Oct 2017)**

3 4.1% 31.3% 55.6% 139.6% 37.3% 5.5%

*On Prop Capital

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Index at 17400; what to expect now?

Source: Ace Equity, Equitree Capital

Most investors seem to be over baffled by the headline indices and valuations

Correction is inevitable – but no point trying to time the market to perfection

Case in point – Astral Poly, one of our multibagger has seen over 25% correction at least four times in its journey to become a 100x investment over the last 10 years

Structural change in the economy underway – India is going through multiple structural changes (kindly refer to the annexure at the end of this ppt for details) which will lead the next leg of growth for the Indian economy as a whole

Any meaningful correction should be used as an opportunity to build a long-term portfolio with a staggered investment approach.

OUR INVESTMENT PHILOSOPHY

CHERRY PICKING OF COMPANIES

~ Investing in businesses we understand reasonably well.

~ Never Chase Momentum.

~ Invest before market identifies – Low or no Institutional Holding.

~ Deep conviction Contrarian Calls

LOW COST INVESTING

~ Investment generally tuned for long term capital appreciation resulting in to tax efficiencies.

~ Low transaction cost – Avoid unnecessary churning of portfolio.

LONG TERM HOLDING

~ Sit “tight” once you get it “right”

~ Minimum holding period of 3-5 years unless the economics of the underlying businesses change.

CREATING ALPHA

We just try to keep it simple!

OUR INVESTMENT METRICS

Large addressable market. Visible growth in

businesses – Look for 20%+ growth in revenues.

Businesses which have completed or are on the verge of completion of its expansion plans.

Improving Balance Sheets – Look for efficient working capital structure, debt reduction and improving ROE's.

Consistency of management track record.

Structural changes within the management.

Increasing promoter holding

Valuations at a discount to the intrinsic value.

Valuation mismatch with respect to its peers.

Historical valuation. Relative Valuation.

OUR INVESTMENT STRATEGY (1/3)

We are focused on macro themes firing the India growth story including:

Infrastructure spending

Domestic consumption

Global outsourcing

Within these, our preference is towards businesses across:

Engineering and manufacturing businesses across a diversified range of industries like railways, defense, oil & gas, auto etc.

Businesses enhancing farm productivity

Pharma, Speciality Chemicals

Niche Consumer business

Bias Towards

De-risking

Focus Sectors

Proprietary Idea

Generation


Valuation / Economy / Market risk

Comparative 5-7 year valuations to build in the downside risk in a bear market

Focus on Price Earnings Growth; to define what price are we paying for kind of projected growth

Company / Management risk

Maintain a close tab on pledges being created / released by the management

Reference check on management background to get a sense of quality of numbers being reported

Appraisal of Environmental, Technological and Litigation risk

Liquidity risk

Hard cap of 10% allocation in a single company and 25% in a single sector

Investments are generally less than 1-2% of the Company's market cap.

Rupee cost averaging & Portfolio Monitoring

Timing the bottom is impossible hence we follow a staggered investment approach (not necessarily periodic) to

reduce volatility instead of making a lump-sum investment that might be poorly timed.

Despite the buy and hold strategy, we continuous monitor our portfolio stocks for any material developments

and realignment with our investment philosophy.

Biased towards downside risk profiling at the cost of leaving a potential upside!

Focus Sectors

Bias Towards

De-risking

Proprietary Idea

Generation

Proprietary Idea Generation

A combination of Top-down and bottom-up

approach

Running screens & filters on various

parameters

Continuous exchange of ideas with industry

experts

Attending industry events / exhibitions


Focus Sectors

Bias Towards

De-risking

Proprietary Idea

Generation

STOCK SELECTION – KEY PARAMETERS

Key Parameters we take into account before investing:

Leadership position.

Strong operating and free cash flow generation over 5-10 years.

Low leveraged companies (D:E < 0.5)

Strong return ratios (ROCE ≥ 18% and ROE ≥ 15%)

Low PEG ratio (preferably less than 1)

Historical 10/5-Year Valuation

360 degree due diligence

GENERAL PITFALLS WE AVOID

CHASING "NEW SUNRISE

INDUSTRIES" WITHOUT ADEQUATE

KNOWLEDGE

LEVERAGED BUYING

CHEAP VALUATIONS JUSTIFIED ON

STRONG FUTURE

PROMISES

EXOTIC DERIVATIVE PRODUCTS

FOLLOWING HERD

MENTALITY

SOME OF OUR SUCCESS STORIES

142

1,848

0

500

1000

1500

2000

Market Cap onRecommendation -

2016

Current Market Cap -Aug 2021

Stylam Industries (INR Cr)

790

33,265

0

10000

20000

30000

40000


2012


Aarti Industries (INR Cr)

377

39,790

0

10000

20000

30000

40000


2012


Astral Poly (INR Cr)

150

1,594

0

500

1000

1500

2000


2012


ADF Foods (INR Cr)

An astute investor with over 20 years of successful investing experience across private & public markets.

He spearheads all investments at Equitree and has created a niche in identifying investment opportunities early on and taking long term bets

Prior to co-founding Equitree, he has held senior positions in private equity firms like Nine Rivers Capital, Axis Holdings & Frontline Ventures

In early part of his career, he has also worked with global organizations like Chase Manhattan Bank and ABN Amro Bank

Pawan is a qualified Chartered Accountant and a Bachelor of Commerce from Mumbai University and is based in Mumbai

Over 20 years of rich experience as a practicing Chartered Accountant and a hugely successful entrepreneur

He lends the most uncommon “common sense” approach to investing at Equitree and helps in connecting dots and validating assumptions of diversified businesses across sectors

His experience as hugely successful real estate investor also comes in handy in defining risks & execution challenges

Prior to co-founding Equitree, he has been an in-house advisor to a number of small and mid-sized companies for their financial needs as well as tax matters

Ssuneet is a qualified Chartered Accountant and Bachelor of Commerce from Ajmer University and is based in Mumbai

Pawan Bharaddia

Ssuneet Kabra

FOUNDERS

SERVICE PROVIDERS

INVESTORS

EQUITREE (SEBI REGISTERED PMS) - POOL ACCOUNT

LINKED TO INVESTORS DEMAT

ACCOUNT

AUDITORS : M/S BASTAWALA AND

ASSOCIATES

LEGAL

PARTNERS: I C LEGAL

CUSTODIAN :

EDELWEISS CUSTODIAL

SERVICES LTD

BROKERS

1. AMBIT 2. JAINAM 3. PRABHUDHAS

LILADHER 4. PHILLIP CAPITAL

TAX STRUCTURE – DIRECTLY PAYABLE

BY CLIENT ON HIS/HER PROFIT

EQUITREE CAPITAL ADVISORS PRIVATE LIMITED 301, Tree Building 28, Above Mercedes Benz Service Centre, Senapati Bapat Marg, Raghuvanshi Mills, Lower Parel Telephone : +91224095 5100 Email: [email protected]

ANNEXURE

STRUCTURAL TRENDS TO WATCH OUT FOR

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Reduction in the level of debt

Financial health of corporates has improved during the pandemic as they were focused on conserving cash and

reducing costs which led to healthy cash flow conversion and ultimately reduction in the level of debt.

Tata Steel has reduced debt by a whopping ~ Rs 30,000 crs in FY21 and SAIL has reduced debt by ~ Rs 16,150 crs in

Q4FY21. These are the kind of numbers that the companies would have achieved in 4-5 years.

TRENDS TO WATCH OUT FOR – Improving financial health (1/3)

Source: Mint, Equitree Capital

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Source: Elara Securities, Equitree Capital

Improvement in Net debt-to-equity across market caps

Operational cash flow growth healthy

CFO/EBITDA conversion ratio highest in 5 years

…same is the case with FCF-to-PAT conversion ratio

PAT to GDP rose to 3.1% in FY21, which was the highest in seven years thereby, improving the RoE of the NIFTY50

index


Nifty50 ROE expected to bounce back to 15% in FY23 Listed India PAT/GDP coming off two decade lows

Nifty50 EPS expected to grow at a CAGR of 21% over FY20-23


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ONGC has earmarked a massive Rs 30,000 crs towards capex for FY22 to increase its crude oil output.

Tata Steel unveiled plans to invest Rs 50,000-60,000 crs over the next five years to enhance capacities.

The capex plan for Indian Oil is at Rs 28,500 crore this fiscal.

Hindustan Petroleum expects to spend as much as Rs 15,000 crore annually, higher than the annual average of Rs 9,750 crore over FY17-21.

Chemical maker Deepak Nitrite’s subsidiary Deepak Phenolics plans to invest Rs 700 crore in the downstream operations of phenol and acetone to make solvents in India.

Specialty chemicals maker Aarti Drugs Ltd announced a capex of nearly Rs 600 crore

Indian companies have drawn up extensive capex plans as plants are running at near-full capacities and on the

back of improving economic outlook.

TRENDS TO WATCH OUT FOR – India on the cusp of capex cycle

New private project announcements revive to some extent

Share of private project announcements finally rising after a decade of decline

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TRENDS TO WATCH OUT FOR – Government capex set to pick up pace (1/4)

Central government capex as a % of GDP

Annual Highway (National + State) awards & construction Railways annual capex (budgetary support) trend

Source: Jeffries, Equitree Capital

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Source: Mint, Equitree Capital

Government’s capex, as a percentage of total, expected to rise in FY22BE after staying flat for four years

…with FY22BE expected growth at 26% YoY

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National Infrastructure Pipeline (NIP) worth ~ Rs 111tn coupled with is expected to drive upcoming government capex


Source: Jefferies, Equitree Capital

The government’s production linked incentives (PLI) – led capex is likely to see investments of over ~Rs 2 tn in the following sectors as announced by the government.

TRENDS TO WATCH OUT FOR – PLI Scheme


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Low labour cost in India vs China and the world’s frustration with China is set to benefit countries like India, Vietnam and Thailand. Global companies are now looking at India as a manufacturing/sourcing hub post the outbreak of Covid-19 to reduce dependence on China.

It is noteworthy that India’s merchandise export reached an all-time quarterly high of $95billion in three months ended June contributed by non-rice cereals, iron ore, gems & jewellery, petroleum products, engineering goods and organic and inorganic chemicals.

SECTORS THAT WILL BENEFIT THE MOST

• CHEMICALS

• TEXTILE

• AUTO ANCILLIARY

• PHARMA

• ELECTRONIC MANUFACTURING, AMONGST OTHERS

TRENDS TO WATCH OUT FOR – China +1 Strategy

This presentation is intended as a general introduction to Equitree Capital Advisors Pvt Ltd. (ECAPL) and the contents of this presentation are for information purposes only. Further, the contents of this presentation are provisional and may be subject to change. This presentation is produced solely to the specified recipient for the purposes of its internal review. ECAPL does not provide investment advisory or similar services to members of the general public other than clients of ECAPL. Under no circumstances should any information presented in this presentation be construed as an offer to sell, or solicitation of any offer to purchase, any securities or other investments. Nothing contained in this presentation constitutes investment, legal or tax advice. This presentation does not contain information that an investor should consider or evaluate to make a potential investment.

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Equitree Investor Presentation - Your Partners for Growth