March 31, 2017 - questinvest.comquestinvest.com/new_launch/wp-content/uploads/2017/04/Quest-PMS... · March 31, 2017 Investment ... Performance Portfolio Strategies Quest Foundation

March 31, 2017

➢ Investment Outlook

➢ Investment Philosophy

➢ Valuation Fundamentals

➢ Performance

➢ Portfolio Strategies

➢ Quest Foundation

➢ Stock Picking – Case Studies

2

Synopsis

3

Investment Outlook

Resounding Victory in UP leading to political stability

➢ Development, social inclusion and probably ‘Hindutava’ have delivered Uttar Pradeshand in all likelihood will deliver general elections as well to Narendra Modi in 2019

➢ PM Modi’s ratings continues to be very high even after almost 3 years in government

Macro-economic stability

➢ Significant improvement in macro economic variables due to lower crude prices andpath breaking government initiatives

▪ Current account & fiscal deficit in control; inflation & interest rates in single digits

➢ Rupee, a barometer of economy, has proven to be one of the most stable EM currencies

➢ GST on track for implementation from July 1st, 2017

Mr Modi is expected to pursue his well thought out policies with greater vigor and

start planning for his second term and India of 2025

4

Victory in UP – India’s chance of 7 years of stability

Modi’s inclusive India stands for Governance and Development

➢ Changes being brought about is best described by the following excerpt from one ofPM Modi’s recent speeches

“We are bringing a shift from relationship-based governance to system-based governance, from

discretionary administration to policy-based administration, from random interference to technological

intervention, from favouritism to level playing field, from informal economy to formal economy”

➢ Changes often are imperceptible, specially if one is part of the change, and becomemore visible only in retrospect!

➢ India indeed is changing and markets are beginning to recognize the same

➢ More Indians are participating in the India equity story

▪ Clear shift in savings towards financial instruments - away from physical assets

▪ Domestic inflows are now indeed matching and overtaking the FII flows and thistrend is expected to continue

➢ India of 2020 and beyond likely to be far more prosperous and happy

It will not be a surprise if history talks of a pre Modi and a post Modi era a few

decades down the line!

5

India – Transitioning to a better future


Global Headwinds

➢ Rise of nationalists / populists in developed countries and the risk of ‘protectionism’

➢ Continued political uncertainty in Eurozone (impending elections in Germany andFrance) and Brexit related pain in UK

Local Risks

➢ Weak monsoon as El-Nino seems to be raising its ugly head third time in 4 years

➢ Implementation of GST can be disruptive in the short term

Growing risk of disruption

➢ Pace of innovation has increased manifold in the last couple of decades – Moore’s Law

➢ Impact of new developments / technologies such as digitization, internet of things,biotechnology, artificial intelligence etc. can be very profound and unpredictable

Ability to successfully navigate through these risks (and indeed opportunities) will

be crucial in delivering superior returns in the coming years

6

Emerging challenges for the markets


7

Investment Philosophy

➢ Our Passion to identify tomorrow's blue chip yesterday

➢ Quest’s out performance is due to consistently investing in growth oriented quality stocks at a reasonable price

➢ Avoid wasting time on understanding global macros – The Lesson of Oil

➢ Like governance - investing is a long term process

Our Investment Strategy

➢ Identify under researched mid-cap company whose intrinsic value is yet to be discovered by the market

➢ Look for fundamentally sound companies that are coming out of slow growth phase vs their long period averages and are moving into much higher growth trajectory

➢ Construct a reasonably concentrated portfolio and nurture the investment as a private equity investor over 3 to 5 years

➢ Remain invested though company’s journey from being a mid cap to a large mid-cap - gaining from earnings growth, P/E expansion and price discovery

8

Why Quest


9

Our Investment Philosophy

• Macro economic factors, technology, commodity prices, market movements

• Forecasting these is not our strength

Investment Universe

• Sound businesses backed by management with honesty and

integrity with respect to minority shareholders

Focus List

• Sound businesses backed by management with honesty and integrity with respect to minority shareholders that are available at

discount to their intrinsic value

Portfolio


➢ Herd-like stock selection can only lead to herd-like performance. To get to the top of the

performance distribution you have to escape the crowd – Howard Marks

➢ Keep all your eggs in one basket, but watch that basket closely. ― Warren Buffett

➢ Our portfolios are set up to outperform in bad times, and that's when we think our

performance is essential. Clearly, if we can keep up in good times and outperform in bad

times, we will have above average results over full cycles and below average volatility, and

our clients will enjoy outperformance when others are suffering. – Howard Marks

➢ In stocks as in romance, ease of divorce is not a sound basis for commitment. If you have

chosen wisely to begin with, you won’t want a divorce. – Peter Lynch

➢ A concentrated portfolio of strong and predictable companies acquired at a price that makes

sense will do the job. - Charles T. Munger

➢ You learn quickly in this business that you are not going to look smart all the time, which

invariably brings criticism. We always remind ourselves of a quote “I had rather lose clients

then lose clients’ money” – David Samara

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Few Quotes which describe our Philosophy


11

Valuation Fundamentals

12

QUESTPMS Companies – Composite PE

FY-2017E 22.0

FY-2018E 17.2

FY-2019E 13.3

Estimated weighted average CAGR growth

for 3 years till FY19

Revenue 11%

EPS 30%

Current Index - PEs

SENSEX NIFTY 50 Nifty-Midcap50Nifty Full Small100

Index Value 29620 9173 4383 6984

PE as reported by exchange (TTM basis)

22.6 23.3 49.7 63.3

QuestPMS portfolio companies’ revenues areexpected to grow at CAGR of ~11%, however,due to margin expansion, projected earnings areexpected to grow at a substantially higher ~30%CAGR over the next 3 years (FY16-19)

QuestPMS portfolio’s weighted average price-earnings multiple is 17.2 times FY18 and 13.3times FY19 earnings

(Source: Quest Internal Research)

QuestPMS Valuation Fundamentals

QuestPMS portfolio is trading at reasonable valuations providing margin of safety & giving us confidence in its ability to outperform in future as well


13

Performance

14Consistent outperformance across benchmarks and time periods

• The Above returns are of a Model Client as on Mar 31, 2017. Returns shown above are post fees & expenses. • Returns of individual clients may differ depending on time of entry in the Strategy. Returns above 1 year are CAGR• Past performance may or may not be sustained in future and should not be used as a basis for comparison with

other investments.

Period

XIRR Performance %

Portfolio Sensex Nifty50

BSE Midcap

Nifty Midcap

50

BSE Small Cap

NiftySmall100

3 Months 20.8 11.2 12.1 17.2 19.7 19.8 20.8

6 Months 14.3 6.3 6.5 7.1 10.7 12.9 13.8

1 Year 47.7 16.9 18.5 32.7 37.0 36.9 43.0

2 Years 26.3 2.9 3.9 15.4 14.0 15.1 11.5

3 Years 34.8 9.8 11.0 25.8 21.2 26.8 23.7

5 Years 26.8 11.2 11.6 17.3 13.8 16.8 15.6

Quest PMS Performance as on Mar 31, 2017 - XIRR

15

• The Above returns are of a Model Client as on Mar 31, 2017. Returns shown above are post fees & expenses. • Returns of individual clients may differ depending on time of entry in the Strategy. • Past performance may or may not be sustained in future and should not be used as a basis for comparison with

other investments.

Quest PMS Performance as on Mar 31, 2017 - Absolute

Consistent outperformance across benchmarks and time periods

Period

XIRR Performance %

Portfolio Sensex Nifty50

BSE Midcap

Nifty Midcap

50

BSE Small Cap

NiftySmall100

3 Months 20.8 11.2 12.1 17.2 19.7 19.8 20.8

6 Months 14.3 6.3 6.5 7.1 10.7 12.9 13.8

1 Year 47.6 16.8 18.5 32.6 36.8 36.8 42.9

2 Years 59.5 5.9 8.0 33.1 29.9 32.5 24.2

3 Years 144.8 32.3 36.8 99.0 77.8 104.1 89.1

5 Years 228.3 70.2 73.2 122.1 90.5 117.7 106.3

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• The Above returns are of a Model Client as on Mar 31, 2017. Returns shown above are post fees & expenses. • Returns of individual clients may differ depending on time of entry in the Strategy. • Past performance may or may not be sustained in future and should not be used as a basis for comparison with

other investments.

Quest PMS Performance as on Mar 31, 2017

Consistent outperformance across benchmarks and time periods

328.3

170.2 173.2

222.1

190.5

217.7206.3

100

150

200

250

300

350

QUESTPMS

Sensex Nifty50

BSE Midcap NiftyMidcap 50

BSESmall Cap

NiftySmall 100

Growth of Rs. 100 Lacs Invested in QuestPMS v/s Investments into various indices

(In Last 5 years)

17

Quest Foundation

Quest Foundation

Stated objective

➢ Quest Founders have publicly pledged to use all their profits for charitable andspiritual activities; contributed over Rs. 31 crores in ~5 years

➢ Quest Foundation presently operates Iyengar Yoga classes from a 4,000 sq. ft.premises in Sion

➢ Quest Foundation also runs Nutun Gyan Dhara, a free public library with over5,000 titles on various subjects like spirituality, healthcare, etc.

➢ Currently Quest Foundation is actively associated with

− Sion Hospital – Mumbai (Medical)

− SNDT College – Wadala – Mumbai (Education)

− Tribal Integrated Development Trust – Mumbai (Tribal work)

− Shri Ram Hospital – Gondal – Gujarat (Rural Healthcare)

− Bellur BKS Iyengar Trust – Bangalore (Education and Medical)

− Chinmaya Mission – Mumbai (Spiritualism)

18Our obligation to Society

Disclaimer

➢ Investors are NOT BEING offered any guaranteed / assured returns.

➢ Investments in equities are subject to market and other risks.

➢ Value of investments may go up or down due to various factors and forces affecting

the capital market.

➢ Our past performance does not indicate the future performance of the portfolio

manager and/or the portfolio management scheme.

➢ Investors are urged to apply appropriate caution while making investment in the

QuestPMS.

➢ There is no capital guarantee in the QuestPMS.

19

Thank you

20

Quest Investment Advisors Private Limited For more information contact:

Hiten Sampat - Landline +91 22 24066700 (B)/703 (D) Mobile +91 9820131125 Email - [email protected]

188/3, Gurukrupa Building, 1st Floor, Next to Jain temple, Jain Society, Near Sion Hospital, Sion, Mumbai - 400 022

21

Stock picking case studies

Biocon Limited

22

Investment Date: 02-July-2015

Rationale at time of Investment:

• Biocon is the only Indian company with rich biosimilarpipeline targeting the regulated market

• It restructured its domestic formulation business and wasexpected to reap significant benefits

• Syngene (listed subsidiary of Biocon) expected to sustaingood growth supporting Biocon financials in the shortterm

Current Outlook:

• Biocon is on-course to file 4 biosimilars for approvals inUS & EU markets in FY 2017 with market size of thesemolecules being over US $ 30 bn. It has also receivedapprovals for Insulin Glargine from advance regulatedmarkets like Japan and Mexico

• Biocon is expected to receive regulatory approvals for itsInsulin plant in Malaysia which will ease the currentcapacity constraints. Once these biosimilars get launchedin US & EU, it will propel Biocon amongst the top leagueof players in Indian Pharma industry

• Domestic formulation business has revived strongly withmargins improving from low single digits to currentdouble digit margins

• Biocon’s Management is confident of achieving US$ 1 bnrevenue by FY2019 (CAGR of ~19% over FY 15-19)

Source: Internal Research

Valuation then: At the market price of Rs. 461,stock was available at PE of 16x on FY 2017Eearnings

Current Valuation: At CMP of Rs. 1132, sharetrades at P/E of 36.6 times FY 2018 earnings

80

120

160

200

240

Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17

Biocon

Nifty

BSE MID_Cap


Kirloskar Ferrous

23

Investment Date: 28-May-2014

Rationale at the time of Investment:

• Post the expansion, KFL would be one of the largestfoundries, with capacity of 1.5 lac tons – tomanufacture intricate engine blocks for marquee clientslike Daimler, Volvo, HINO, M&M and all major domestictractor manufacturers. It is also one of the mostefficient pig iron manufacturer

• Higher contribution from casting business (highermargin) will transform the company from primarily acommodity player to a value added auto componentcompany

Current Outlook:

• We expect gradual improvement in utilization of newfoundry to increase profits. Improved profitability andefficient management of working capital will helpmaintain its borrowings at current levels despiteincreasing sales

• Acquisition of iron ore mine by the company (to beauctioned by the government in the near future) canhave a very substantial positive impact on the Pig Ironbusiness

• Company is confident of achieving superior marginsresulting in faster growth in bottomline vis-à-vis toplinegrowth

Valuation then: At Rs. 32, share was available atP/E of 8 times FY 2015 earnings

Current Valuation: At CMP of Rs. 96, share tradesat P/E of 11.4 times FY 2018 earnings

90

140

190

240

290

May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Nov-16

KirFerro

Nifty

BSE - Midcap



KEC International

24

Investment Date: 20-Dec-2011


• A global infrastructure EPC major with presence in thearea of power transmission/systems, railways andwater. Company is also into manufacturing of powerand telecom cables

• Present in 45 countries across South Asia (includingIndia), Middle East, Africa, Central Asia and America

• It is a dominant player in transmission line towers inIndia and many other countries overseas

Current Outlook:

• Topline expected to grow @ CAGR of ~10% for next3 of years (FY16-19)

• Improvement in EBIDTA (by 50 bps) coupled withinterest savings (Interest to Sales to improve by 25bps) would enable PAT to grow at faster pace thantop line. Earnings are expected to grow @ CAGR of~30% for next 3 years (FY16-19)

• Savings in interest is expected to be on two counts –reduction in working capital requirements anddecrease in interest rate on borrowings

Valuation then: Was available at 5 times FY 2012estimated consolidated EPS of Rs. 6.54


50

200

350

500

650

Dec-11 Aug-12 Apr-13 Dec-13 Aug-14 Apr-15 Dec-15 Aug-16

KEC International

Nifty

BSE - Midcap



The Ramco Cement (TRCL)

25

Investment Date: 06-JULY-2015


• Cement demand was languishing in Southern Indiadue to political instability & capacity overhang.Demand revival seemed inevitable & prominentplayers like TRCL expected to be prime beneficiaries

• Company was planning to increase its usage ofpetcoke to reduce its fuel cost and improve margins

• Company had plans to expand regionally by furtherpenetrating into newer regions like Orissa

Current Outlook:

• Ramco Cement has emerged as one of the mostefficient cement player in India and has clockedhighest EBITDA per ton in the country in 1H FY 2017

• Company’s current capacity utilization is around 60%and higher operating leverage benefit will be realizedonce these utilization levels improve (with strongdemand emanating from AP/Telangana region) goingforward

• Company continues to work on improving its freight(100% coastal shipping used to transport clinker toWest Bengal unit) and fuel cost (optimum use of pet-coke which is still 15-20% cheaper than coal onK/Cal basis)

• Company is expected be net debt free within next 2years

Valuation then: Was available at 18 times FY2017 estimated consolidated EPS of Rs. 19.1


80

110

140

170

200

Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17

Ramco Cem

Nifty

BSE MID_Cap



Documents

March 31, 2017 - questinvest.comquestinvest.com/new_launch/wp-content/uploads/2017/04/Quest-PMS... · March 31, 2017 Investment ... Performance Portfolio Strategies Quest Foundation