Motilal Oswal Nifty Alpha 50 ETF · NSE:MOALPHA50
Motilal Oswal Nifty Alpha 50 ETF — Motilal Oswal Mutual Fund — Investor Presentation (2018)
49 slides from Motilal Oswal Nifty Alpha 50 ETF's investor presentation, 2018
Slide 1: 30-year manthan, 1 mantra: QGLP
30-year manthan, 1 mantra: QGLP Think Equity Think QGLP Contest 2018 : Backdrop For more details & clarifications, email thinkQGLP@motilaloswal.com
Slide 2: The manthan (churn)
The manthan (churn)
Slide 3: The manthan – Knowledge churn
The manthan – Knowledge churn Wide-range of readings on business & investing 3
Slide 4: The manthan – Knowledge churn: Wealth Creation Studies
The manthan – Knowledge churn Rich learnings from 22 years of Wealth Creation Studies 4
Slide 5: Warren Buffett's investing process
Warren Buffett’s investing process a) A business we understand; b) Favorable long-term economics; c) Able and trustworthy management; and d) A sensible price-tag. — 2007 Annual Letter 5
Slide 6: The mantra: QGLP
The mantra: QGLP
Slide 7: QGLP in a nutshell
QGLP in a nutshell “QGLP – Quality, Growth, Longevity, reasonable Price” Quality of business x Quality of management Growth in earnings • Stable business, preferably consumer facing • Volume growth • Huge business opportunity • Price growth • Sustainable competitive advantage • Mix change • Competen
Slide 8: Q – Quality
Q – Quality High quality business x High quality management Quality of business Quality of management • Large profit pool • Unquestionable integrity – Impeccable corporate governance • Size of opportunity – Concern for all stakeholders (eg IT, Pharma, Financials) – Preferably paying full tax and • C
Slide 9: G – Growth in earnings
G – Growth in earnings • Understanding short-term Growth is a science but Understanding long-term Growth is an art • Growth is a lollapalooza of C, V, P, M i.e. Cost, Volume, Price, Mix (lollapalooza is a big effect from large combinations of factors) 9
Slide 10: G – Growth in earnings
G – Growth in earnings High earnings growth situations • Value Migration – flow of value (profit & market cap) from outmoded businesses to superior businesses (e.g. wired telephony to wireless, public sector banks to private banks, etc) • Sustained industry tailwind • Small base with large opportuni
Slide 11: L – Longevity
L – Longevity Longevity of both Quality and Growth • Long-term relevance of the company’s products & services • No breakdown of the business model in the foreseeable future • Extending competitive advantage period: — maintaining edge over peers through innovation, strengthening of brands, deepening
Slide 12: P – Price
P – Price Reasonable Price i.e. well below intrinsic value, leaving good Margin of Safety • Several valuation approaches possible • Some proprietary formulas – 1. Payback ratio Less than 1x is almost a sure shot formula for multi-bagger Payback ratio = Market Cap Next 5 years PAT 2. PEG (PE to [futu
Slide 13: QGLP: Case Studies
QGLP: Case Studies
Slide 14: QGLP Case Studies
QGLP Case Studies 1. RBL Bank 2. Alkem Laboratories 3. Sterlite Technologies Disclaimer The companies discussed here are for illustrative purposes only, and should not be construed as investment advice. 14
Slide 15: RBL Bank
RBL Bank
Slide 16: Company background
Company background • RBL Bank is one of India’s fastest growing private sector banks with an expanding presence across the country. • The Bank offers specialized services under six business verticals: 1. Corporate & Institutional Banking 2. Commercial Banking 3. Branch & Business Banking 4. Agri Bus
Slide 17: RBL Bank – QGLP in a nutshell
RBL Bank – QGLP in a nutshell QGLP – Quality, Growth, Longevity, reasonable Price Quality of business x Quality of management Growth in earnings • Massive value migration from state-owned banks • Long growth runway – RBL’s profits are to private banks a fraction of private banks’ profits • RBL has m
Slide 18: Q — Quality: Quality of Business
Q — Quality Quality of Business QGLP • Banking in India is a large and secular business – Under-penetrated: bank credit to GDP at 51% (China 250%; USA 150%) – 20-year CAGR: deposits 17%, credit 18% • Relentless Value Migration from state-owned banks to private banks Porter’s Five Forces – Moderate
Slide 19: Q — Quality: Quality of Business (continued)
Q — Quality Quality of Business (continued) QGLP • RBL has more than doubled customer base in last two years to ~5 mn • RBL’s GNPA (1.4%) and NNPA (0.8%) at reasonable levels • CASA ratio is steadily recovering over the last 4 years — from 18% in FY15 to 24% in FY18 • RBL’s return ratios – on a st
Slide 20: Q — Quality: Quality of Management
Q — Quality Quality of Management QGLP Unquestionable Integrity • High quality of underwriting and disclosure • High skin in the game – outstanding ESOPs at 9.4% of capital base, and ~50% of employees covered under ESOP plan • Senior management own over 5% of the bank Demonstrable Competence •
Slide 21: G — Growth in earnings: Long growth runway
G — Growth in earnings • Long growth runway — RBL’s profit is a fraction of total private sector bank profits QGLP (INR crores) FY18 FY21 E Private sector banks’ PAT 45,000 75,000 (@18% CAGR – last 10-year) RBL Bank’s PAT 635 1,725 40% CAGR RBL PAT as % of total 1.4% 2.3% 21
Slide 22: G — Growth in earnings
G — Growth in earnings • Vision 2020 on track : 30-35% CAGR in advances with 1.5% ROTA • Assets to double from INR 62,000 crores to INR 128,000 crores QGLP • Expect FY18-21 EPS CAGR of 34% 22
Slide 23: L — Longevity
L — Longevity Longevity of Quality • High focus on Effective Risk Management and Asset Quality QGLP Longevity of Growth • Multi-decadal opportunity for private banks in India • RBL’s small base in a large profit-pool sector helps ensure longevity of earnings growth 23
Slide 24: P — Price
P — Price Valuation rich, but defendable considering robust PAT growth • Current P/E 33x and P/B 3.3x QGLP • FY21 P/E 14x and P/B 2x • 3-year target price of INR 1,145 at exit P/E of 30x • Robust 30% return CAGR; BUY INR crores FY18 FY21 E CAGR Total assets 62,000 1,28,000 28% ROTA 1.1% 1.5% PAT 635
Slide 25: Expect RBL Bank's stock outperformance to continue
P — Price Expect RBL Bank’s stock outperformance to continue QGLP 25
Slide 26: Risks & Concerns
Risks & Concerns • Loan book is not sufficiently seasoned • 14% of RBL’s FY18 loan-book is micro-finance • Attracting and retaining human capital will remain a challenge 26
Slide 27: Alkem Laboratories
Alkem Laboratories
Slide 28: Company background
Company background • Alkem is one of the largest pharma companies in India with a domestic market share of 3.4%. • Currently, it has 14 manufacturing facilities across five locations in India and two manufacturing facilities in the US. • Over time, Alkem has built a strong capabilities in R&D, marke
Slide 29: Alkem Labs – QGLP in a nutshell
Alkem Labs – QGLP in a nutshell QGLP – Quality, Growth, Longevity, reasonable Price Quality of business x Quality of management Growth in earnings • Alkem has a strong domestic franchise: • India, US and Rest of World all in 7th rank in India Pharma Market growth mode • MR productivity is one of the
Slide 30: Q — Quality: Quality of Business
Q — Quality Quality of Business Porter’s Five Forces – Fairly favourable competitive landscape for pharma QGLP Force Comment Sector Score 1. Inter-firm rivalry Medium 0.5 2. Bargaining power of customers Medium 0.5 3. Bargaining power of suppliers Low 1 4. Threat of new entrants Low 1 5. Threat of
Slide 31: Q — Quality: Quality of Management
Q — Quality Quality of Management QGLP Competence • 7th largest company in the Indian pharma market with market share of 3.4% v/s no. 1 ranked Sun’s market share of 6.2%. • 13 brands feature among the top 300 brands in India – best-in-class • Company has also embarked on acquisitions in the US a
Slide 32: G — Growth in earnings
G — Growth in earnings • FY15-18 CAGR: Sales 20%, EBITDA 35%, PBT 28%; PAT CAGR lower at ~18% due to higher taxation 13% in FY15 to 26% in FY18 QGLP • Improving MR productivity: In spite of hiring of 1,500 MRs over the last 2 years, EBITDA margins are up 500bp over FY15-18 to 16.5% • Expect 12-15% r
Slide 33: G — Growth in earnings
G — Growth in earnings Sales (INR crores) 0% EBITDA (INR crores) cpek 9 8,288 fo car 999 853 362 410 «422 FY13. FY14- ss FY15)-sFY160—«SFY17—«sFY18 «= FYI9E-FY20EsFY21E FY13. FY14. «ss FYIS) «F160 FY17—«sFY18 «= FYI9E_-FY20E«~FY21E 24% PAT (INR crores) RoCE & RoE 22% ROCCE eee ROE 20% ofo oe? 1,255
Slide 34: L — Longevity
L — Longevity • Indian Pharma Market has the potential to grow at 10-15% for long; Alkem has the ability to grow faster than the market • Alkem’s continued investments in building manufacturing/technology QGLP assets imply sustained growth visibility • Enough headroom to improve margins — US busines
Slide 35: P — Price
P — Price • P/E of 39x FY18 • We believe the valuation is defendable considering: — 25% Earnings CAGR over FY18-21E QGLP — expansion in RoE by 250 bps over the next 3 years — Lean Balance Sheet with Net D/E of 0.1x • Target Price of INR 3,700 (35x FY21E EPS) • Expect 3-year return CAGR of 20-25% INR
Slide 36: Expect Alkem to recover from recent underperformance
P — Price Expect Alkem to recover from recent underperformance QGLP 36
Slide 37: Risks & Concerns
Risks & Concerns • Near-term threat to earnings – — Regulatory risks in the US and — Price-cap initiative from the Indian government • Higher than anticipated rise in prices of key starting materials sourced from China 37
Slide 38: Sterlite Technologies
Sterlite Technologies
Slide 39: Company background
Company background • Sterlite Technologies is a leading global provider of optical fibre, the fastest known medium for high-speed data networks. • It manufactures optical fibre from sand, and is forward integrated to offer broadband services and network & telecom solutions. • In India, 45% of all da
Slide 40: Sterlite Tech – QGLP in a nutshell
Sterlite Tech – QGLP in a nutshell QGLP – Quality, Growth, Longevity, reasonable Price Quality of business x Quality of management Growth in earnings • Steady Value Migration from voice to data • 5G wave will drive global demand for • One of 7 global, fully integrated companies which optical fibre c
Slide 41: Q — Quality: Quality of Business
Q — Quality Quality of Business • Steady value migration from voice to data QGLP • Inclination of consumers towards high-speed internet • One of 7 global, fully integrated companies which make optical fiber • Cost leadership • Order Book of INR 5,200 cr, +73% YoY, executable over 1.5-2 years Porte
Slide 42: Q — Quality: Quality of Management
Q — Quality Quality of Management Unquestionable Integrity QGLP • Strong Board of Directors comprising of 50% Independent Directors • No significant Related Party Transactions • Concern for minority shareholders – 15% Dividend Payout despite capex Demonstrable Competence • Power transmission b
Slide 43: G — Growth in earnings
G — Growth in earnings • 5G wave will drive global demand for optical fibre cables • Robust opportunities in Bharat Net / NFS / Smart Cities space QGLP • Expect 20% CAGR in India OFC demand • Sterlite Tech is doubling Optical Fibre capacity from 30 mn fkm (fibre km) to 60 mn fkm in 3-4 years • Manag
Slide 44: G — Growth in earnings
G — Growth in earnings Order Book & Revenue (INR cr) m Revenue m Order Book Book-to-Bill 1.2x 3,018 EBITDA (INR crores) « ah 1,545 of 1,295 2,275 3 i Lh : : } | | FY16 FY17 FY18 Fyi9 FY21 PAT (INR crores) RoE 33% 33% 33% 25% 203 20% 7 i i FY16 FY17 FY16 FY17 FY18 Fy19 FY21
Slide 45: L — Longevity
L — Longevity • Long track record with marquee clients • Presence in China confirms sustainable competitive advantage QGLP • 5G rollout globally offers long growth runway • Company is growing inorganically as well 45
Slide 46: P — Price
P — Price • Stock is currently trading at TTM P/E of 35x; FY18 P/E of 41x • No case for major de-rating given – QGLP — FY18-21 earnings CAGR of 30% — RoE robust at 30%+ • FY21E target price of INR 700 offers 27% return CAGR INR Crores FY18 FY21 E CAGR Revenues 3,205 6,631 27% EBITDA Margins 24.6% 23
Slide 47: Expect Sterlite Tech's stock outperformance to continue
P — Price Expect Sterlite Tech’s stock outperformance to continue QGLP 47
Slide 48: Risks & Concerns
Risks & Concerns • Optical Fibre prices tend to be contingent on action of Chinese manufacturers • Demand growth may taper off once 5G rollout is complete 48
Slide 49: Think Equity Think QGLP Contest, 2018
Best wishes for your participation in the Think Equity Think QGLP Contest, 2018 For more details & clarifications, email thinkQGLP@motilaloswal.com
Motilal Oswal Mutual Fund — Investor Presentation (2018) on 6ix