Annual Meeting April 11, 2019 Forward-Looking Statements This - - PowerPoint PPT Presentation
Annual Meeting April 11, 2019 Forward-Looking Statements This - - PowerPoint PPT Presentation
Annual Meeting April 11, 2019 Forward-Looking Statements This Presentation has been prepared for informational purposes only from information supplied by Fairfax India Holdings Corporation (Fairfax India or the Company) and from
Forward-Looking Statements
This Presentation has been prepared for informational purposes only from information supplied by Fairfax India Holdings Corporation (“Fairfax India” or the “Company”) and from third- party sources indicated herein. Such third-party information has not been independently verified. The Company makes no representation or warranty, expressed or implied, as to the accuracy or completeness of such information. Any graphs, tables or other data demonstrating the historical performance of Fairfax India or its Indian Investments contained in the presentation are intended only to illustrate past performance and are not necessarily indicative of the future performance of Fairfax India or its Indian Investments. This Presentation may contain forward-looking information within the meaning of applicable securities legislation. Forward-looking statements may relate to the Company’s or an Indian Investment’s future outlook and anticipated events or results and may include statements regarding the financial position, business strategy, growth strategy, budgets, operations, financial results, taxes, dividends, plans and objectives of the Company. Particularly, statements regarding future results, performance, achievements, prospects or opportunities of the Company, an Indian Investment, or the Indian market are forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as ‘‘plans’’, ‘‘expects’’ or ‘‘does not expect’’, ‘‘is expected’’, ‘‘budget’’, ‘‘scheduled’’, ‘‘estimates’’, ‘‘forecasts’’, ‘‘intends’’, ‘‘anticipates’’ or ‘‘does not anticipate’’ or ‘‘believes’’, or variations of such words and phrases or state that certain actions, events or results ‘‘may’’, ‘‘could’’, ‘‘would’’, ‘‘might’’, ‘‘will’’ or ‘‘will be taken’’, ‘‘occur’’ or ‘‘be achieved’’. We caution readers not to place undue reliance on these forward-looking statements which speak only as of their dates. We are under no obligation to update or alter such forward-looking statements as a result of new information, future events or otherwise, except as may be required by applicable law. Forward-looking statements are based on the opinions and estimates of the Company as of the date of this Presentation, and they are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward- looking statements, including but not limited to the following factors: oil price risk; geographic concentration of investments; foreign currency fluctuation; volatility of the Indian securities markets; investments may be made in foreign private businesses where information is unreliable or unavailable; valuation methodologies involve subjective judgments; financial market fluctuations; pace of completing investments; minority investments; reliance on key personnel and risks associated with the Investment Advisory Agreement; lawsuits; use of leverage; significant ownership by Fairfax may adversely affect the market price of the subordinate voting shares; weather risk; taxation risks; emerging markets; economic risk; and trading price of common shares relative to book value per share risk. Additional risks and uncertainties are described in the Company’s annual information form which is available on SEDAR at www.sedar.com and on the Company’s website at www.fairfaxindia.ca. These factors and assumptions are not intended to represent a complete list of the factors and assumptions that could affect the Company. These factors and assumptions, however, should be considered carefully. The preparation of financial statements requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, the reported amounts of income and expenses and the calculation of the Net Asset Value of the Company during the reporting periods. Financial information provided throughout this Presentation is prepared in accordance with IFRS, unless otherwise noted.
Bangalore Terminal, 2008
Bangalore Terminal, 2018
Meerut Highway, 2014
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Meerut Highway, 2018
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Growth in Book Value
Note: Fairfax India’s 4 year compound annual growth in book value per share is calculated since its January 2015 IPO at $10 per share
Compound Annual Growth Rate 1 Year 4 Years
(Since IPO)
Fairfax India's book value per share (4.1%) 8.7% USD S&P BSE Sensex 30 (3.0%) 2.5% % Change INR / USD (8.6%) (11.3%) At December 31, 2018
China (29.3%) Sri Lanka (20.3%) Hong Kong (13.8%) Singapore (12.3%) Vietnam (11.2%) Thailand (10.8%) Indonesia (8.8%) Malaysia (7.6%) India (3.0%)
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Asian Equity Markets in 2018
(% change, in US$ terms)
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Major Indian Equity Indices in 2018
% Change
(in US$ terms)
Fairfax India's book value per share (4.1%) S&P BSE Sensex 30 (3.0%) Nifty50 (5.5%) S&P BSE 500 (11.2%) BSE midcap (20.5%)
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2018 Results
($ millions, except for per share data)
2018 2017 Income 167 610 Net earnings 96 453 Earnings per diluted share 0.63 2.94 Investments (excluding cash) 2,661 2,636 Common shareholders' equity 2,118 2,132 Book value per share 13.86 14.46
Income Increased
- Demonetization – curtailed shadow economy
- Goods and Services Tax – improving direct tax collection
- Disinvestment – from public sector undertaking companies
Expenses Decreased
- Insolvency and Bankruptcy Code – improve flow of capital and
recapitalize public sector banks
- Jan Dhan, Aadhaar, Mobile (JAM) – direct transfer of financial
benefits to beneficiaries’ bank account
- Reduction in Subsidies
India’s Structural Reforms
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4.6 3.4 3.0 3.4 3.8 4.2 4.6 5.0 2014 2015 2016 2017 2018 2019
Fiscal deficit as a % of GDP
3.3 1.2 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 2014 2015 2016 2017 2018 2019
Current account deficit as a % of GDP
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India’s Structural Reforms – Improvements in Deficits
(1) Sources: Bloomberg, IIFL Asset Management. All data is for the financial years ending March 31st.
Current Account Deficit (% of GDP) Fiscal Deficit (% of GDP)
- 7th largest country by GDP – expected to be in the top 3 by 2030(1)
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India’s Economy – Global Comparison
(1) Sources: HSBC – The world in 2030, IIFL Asset Management
20.4 14.1 5.2 4.0 3.0 3.0 2.8
- 1. United States
2018
Nominal GPD (US$ trillions)
- 2. China
- 3. Japan
- 4. Germany
- 5. United Kingdom
- 6. France
- 7. India
India’s GDP is projected to grow to ~$5.9 trillion by 2030,
- r 6.4% annually
26.9 5.4 5.4 4.8 3.1 2.2 2.1 2.0 USA Japan China Hong Kong UK France India Germany
- 7th largest country by market capitalization(1)
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India’s Economy – Global Comparison
Market Capitalization (US$ trillions)
(1) Sources: Bloomberg, IIFL Asset Management
- Once China reached $2,000 per capita GDP, it took only 6 years to triple to $6,300
and another 6 years to grow to $9,600
- India’s GDP per capita is following China’s with a lag of ~12 years
- China reached $2,000 in 2006, while India just surpassed that mark in 2018
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India’s Per Capita Income at an Inflection Point
(1) Sources: IMF, IIFL Asset Management
China GDP per capita
(US$ at current price)
India GDP per capita
(US$ at current price) 276 463 2,016 3,040 500 1,000 1,500 2,000 2,500 3,000 3,500 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020E 2022E 309 959 2,111 6,329 9,633 13,780 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020E 2022E
28% 9% 1%
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India – Compounding Machine
(1) Source: IIFL Asset Management
Number of Companies with 20+% 20 year CAGR in stock price % of Companies with 25+% 10 year CAGR in stock price
India US China
> 25% CAGR 93 17 3 3 India BSE 500 US S&P 500 China SCHOMP 1500 Japan TPX 500
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Summary of Investments
(1) Return calculated using the internal rate of return
Amount Fair Value at % of Annual Rate ($ millions) Ownership Invested Dec 31, 2018 Portfolio
- f Return
(1)
IIFL (including 5paisa) 26.5% 277 625 27% 35.8% BIAL 54.0% 653 704 30% 5.2% Sanmar Debentures and 30.0% 300 610 26% 31.2% NCML 89.5% 174 165 7% (1.7%) Fairchem 48.8% 74 97 4% 11.5% NSE 1.0% 27 60 3% 44.4% Saurashtra 51.0% 30 25 1% (9.6%) Catholic Syrian Bank - first tranche 19.7% 60 63 3% 27.3% Investments completed at December 31, 2018 1,595 2,350 100% Seven Islands - completed Mar 2019 41.4% 72 CSB - payable within 12-18 months 110 Total investments completed and committed 1,777
Fairfax India – Intrinsic Value
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(1) As of April 5, 2019
5 Year Compound IIFL Holdings Limited Annual Growth Book value per share 20% Earnings per share 25% Fairfax India average cost per share Rs 218 Current market price per share(1) Rs 452 Price/earnings ratio on expected earnings 13.3x
- Private sector
bank with 418 branches and 270 ATMs across India
- 51% FIH
- wnership –
first $60m invested in Q4 2018
- Private
- Warehousing
- Collateral
management of agri commodities
- NBFC
- 90% FIH
- wnership
- Private
~$1.78 Billion Investments Completed (or Committed)
$174m
- India’s 3rd
largest airport
- Monopoly asset
- Real estate
assets
- 54% FIH
- wnership
- Private
$653m
- PVC and
caustic soda producer
- 30% FIH
- wnership
- 7-year
debentures
- Private
Fairfax Financial Holdings Limited holds a 33.7% equity interest and 93.8% voting interest in Fairfax India
$277m
- Loans and
mortgages
- Wealth
management
- Capital markets
- 27% FIH
- wnership
- 9% FFH
- wnership
- Public
$300m $72m
- Ocean-
going tankers
- 41% FIH
- wnership –
purchased March 2019
- Private
Fairfax India Investments
$30m
- Container freight
station
- Non‐vessel
- perating
common carrier business
- 51% FIH
- wnership
- Private
$74m
- Specialty
chemical manufacturer
- 49% FIH
- wnership
- Public
$170m (& 5paisa)
SANMAR
BIAL
Note: not pictured above is a $27 million investment in National Stock Exchange of India
IIFL Finance IIFL Wealth IIFL Securities
Diversified NBFC – home, gold, commercial vehicle and SME business loans AUM of $5.2 billion Largest private wealth manager in India with AUM of $23.0 billion Largest Alternative Investment Funds platform in India Stock broking and financial advisory Financial product distribution Investment banking
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IIFL Holdings (including 5paisa Capital)
(1) Average ROE over the last 5 years
(Rs billions - IGAAP/Ind-As)
Mar 31, 2014 Dec 31, 2017 Dec 31, 2018 Total assets 145.1 392.1 429.3 Shareholders' equity 21.9 64.0 77.3 30% Revenue 28.2 60.7 70.6 21% Net earnings 2.9 9.8 11.9 34% Return on equity 13.3% 15.2% 15.4% 16% (1)
Twelve months ended
Compound Annual Growth
Ownership % 26.5% Amount invested $277 Fair value - Dec 31, 2018 $625 Annual rate of return 35.8% Multiple of net investment 2.3x
Loans and mortgages
- Loan book grew 33% in 2018 to $5.2 billion – driven by small home
loans and loans to SMEs
- Continued diversification into a more retail-focused loan portfolio
- Asset quality deteriorated slightly – net non-performing assets of 1.5%
- Well capitalized – capital adequacy ratio of 20.7% compared to its
statutory requirement of 15%
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IIFL – Business Update
- IIFL took several steps to further strengthen its NBFC’s financial
position in response to tightened liquidity in 2018:
- Reduced commercial paper borrowings from 24% of liabilities to 12%
- Increased longer term debenture funding and bank borrowings
- Sold some loan assets to banks
- Divested its entire commercial vehicle loan business
- Slowed down loan disbursements
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IIFL – Business Update
Wealth and Asset Management
- Emerged as the largest private wealth manager in India – less than 10 years since
its inception
- Largest manager of Alternative Investment Funds in India, with AUM of $2.0 billion
- 396 bankers help manage the assets of 10,000+ high net worth individuals and families
- AUM of $23 billion – an increase of 25% in 2018
- Net earnings grew 6% in 2018 to $58 million
- Transitioning from transaction-oriented to annuity-based revenue model
Capital Markets
- Another excellent year – completed 12 transactions including 4 IPOs
- Ranked 1st in private sector equity issuances in India in 2018
IIFL – Business Update
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- IIFL’s business units will be divided into three separate companies,
each to be listed on the Indian stock exchanges
- Strategic considerations include:
- Each business now has critical mass required to operate independently
- Provides more flexibility to retain high quality talent and ensure alignment of
interests through stock options and employee share plans
- Allows each business to raise capital as needed
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IIFL – Group Reorganization
Bangalore International Airport
- South India’s busiest airport
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Bangalore International Airport Limited (BIAL)
(1) Average ROE over the last 5 years
(Rs billions - IGAAP/Ind-As)
Mar 31, 2014 Dec 31, 2017 Dec 31, 2018 Total assets 35.5 57.0 67.4 Shareholders' equity 7.8 23.0 30.0 33% Revenue 6.5 15.0 16.1 21% Net earnings 0.7 6.9 8.5 71% Return on equity 8.6% 29.9% 28.4% 27% (1)
Twelve months ended
Compound Annual Growth
Ownership % 54.0% Amount invested $653 Fair value - Dec 31, 2018 $704 Annual rate of return 5.2% Multiple of net investment 1.1x
BIAL – Business Update
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- India’s 3rd largest and world’s 2nd fastest growing airport
- Passenger traffic grew 29% in 2018 to 32 million
- Aero revenue has grown at compound rate of 21% since 2009
- Dependent on regulated tariffs, which are set for 5 year ‘control periods’
- Non-aero revenue has grown at a compound rate of 17% since 2009
- Real estate monetization – 460 acres available for development
BIAL – Business Update
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Tariff order for second control period (2016 – 2021):
- Issued in August 2018
- Generally favourable
- $100 million increase in revenue compared to original proposal
- 30% non-aero subsidy for both first and second control periods
- Approval of capital expenses
- Short term negatives
- Lower aero revenue due to overachievement to date
- Already in BIAL’s plans
- Expanding capacity to 65 million passengers – second runway in 2019 and
second terminal in 2021
Sanmar Chemicals Group
Major PVC and Caustic Soda Manufacturer
SANMAR
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Sanmar Chemicals Group SANMAR
(Rs billions - IGAAP/Ind-As)
Mar 31, 2014 Dec 31, 2017 Dec 31, 2018 Total assets 91.4 102.9 117.6 Shareholders' equity (deficit) 17.9 (18.2) (23.4) Revenue 36.4 42.4 46.6 5% Net earnings (loss) (2.7) (5.6) (6.2)
Twelve months ended
Compound Annual Growth
Ownership % 30.0% Amount invested - debentures $299 Amount invested - equity $1 Fair value - Dec 31, 2018 $610 Annual rate of return 31.2% Multiple of net investment 2.0x
- Chemplast continued strong performance
- Sales grew 7% to $469 million, EBITDA grew 41% to $86 million
- TCI (Egypt) completed expansion on time, on budget
- Sanmar agreed to repay Fairfax India loan in 2019
- Principal plus interest of ~$400 million
- Fairfax India will reinvest ~$200 million to increase its ownership to 43%
- Highly accretive capex projects in pipeline at Chemplast (India)
Sanmar – Business Update
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National Collateral Management Services Limited
Storage & Preservation Procurement & Supply Chain Collateral Management Finance Testing & Certification Commodity and Weather Intelligence & Consultancy
34
National Collateral Management Services (NCML)
(1) Average ROE over the last 5 years
(Rs millions - IGAAP/Ind-As)
Mar 31, 2014 Dec 31, 2017 Dec 31, 2018 Total assets 4,424 16,227 17,352 Shareholders' equity 2,545 6,176 7,505 26% Revenue 3,324 10,797 14,511 36% Net earnings 156 417 244 10% Return on equity 6.1% 6.8% 3.2% 7% (1)
Twelve months ended
Compound Annual Growth
Ownership % 89.5% Amount invested $174 Fair value - Dec 31, 2018 $165 Annual rate of return
- 1.7%
Multiple of net investment 0.9x
- Successful bids for 16 silo contracts from the Food Corporation of
India will increase capacity by 800,000 MT
- Land acquisition is nearing completion and construction has commenced
- Strong performance from several business divisions – growth in profit
(before tax):
- Supply Chain Management
+19%
- Testing and Certification
+443%
- NCML Finance
+12%
- Collateral Management has cut back on the riskier parts of its portfolio
- This division had a pre-tax loss of $0.5 million in 2018
NCML – Business Update
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FAIRCHEM SPECIALITY LIMITED
Renewable Specialty Chemicals
Aroma Chemicals Nutraceuticals Oleochemicals
Fairchem Speciality Limited
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(1) Average ROE over the last 5 years
(Rs millions - IGAAP/Ind-As)
Mar 31, 2014 Dec 31, 2017 Dec 31, 2018 Total assets 6,604 10,358 12,896 Shareholders' equity 2,188 4,615 5,231 20% Revenue 6,660 9,678 12,164 14% Net earnings 305 394 666 18% Return on equity 13.9% 8.5% 12.7% 10% (1)
Twelve months ended
Compound Annual Growth
Ownership % 48.8% Amount invested $74 Fair value - Dec 31, 2018 $97 Annual rate of return 11.5% Multiple of net investment 1.3x
Fairchem Speciality (consolidated)
- 2018 was an excellent year – revenue grew by 37% to $194 million and net
income by 71% to $10 million Fairchem (former Adi)
- Further improvements to plant operations in 2018 resulted in a 60%
increase in capacity
- Revenue grew 4% and net earnings grew 65%
Privi
- Returned to operations in a record 29 days after a major fire in 2018
- Revenue grew 48% and net earnings grew 59%
Fairchem Speciality – Business Update
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Saurashtra Freight Private Limited
World Class Container Freight Station
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Saurashtra Freight Private Limited
(1) Average ROE over the last 5 years
Ownership % 51.0% Amount invested $30 Fair value - Dec 31, 2018 $25 Annual rate of return
- 9.6%
Multiple of net investment 0.8x
(Rs millions - IGAAP/Ind-As)
Mar 31, 2014 Dec 31, 2017 Dec 31, 2018 Total assets 950 2,127 2,242 Shareholders' equity 186 1,955 2,046 66% Revenue 634 1,166 1,405 18% Net earnings 54 (14) 77 8% Return on equity 29.1%
- 0.7%
3.8% 13% (1)
Twelve months ended
Compound Annual Growth
- A turnaround year for Saurashtra despite headwinds
- Ease-of-doing-business initiatives have eased customs procedures,
reducing dwell-time for container freight stations
- Grew revenue by 20% and returned to profitability after losses in 2017
- The newly launched Non-Vessel Operating Common Carrier
(NVOCC) business is progressing well
Saurashtra – Business Update
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SME BANKING RETAIL BANKING TREASURY OPERATIONS CORPORATE BANKING
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Catholic Syrian Bank (CSB)
To be invested - next 18 months $110 Ownership once funding is complete 51.0% Invested October 2018 $60 Fair value - Dec 31, 2018 $63
(Rs billions - IGAAP)
Mar 31, 2014 Dec 31, 2017 Dec 31, 2018 Total assets 153.2 158.7 177.4 Shareholders' equity 7.7 9.5 13.0 12% Revenue 5.0 5.1 5.3 2% Net earnings 0.3 (0.9) (0.8) Return on equity 3.5%
- 9.0%
- 6.5%
Twelve months ended
Compound Annual Growth
- Received all regulatory approvals to acquire a 51% fully diluted equity
stake in CSB
- Mr. Rajendran (CEO since December 2016) continues to make
improvements to human resources, asset quality and liability franchise
- Created plan focusing on profitability, productivity, efficiency and asset quality
- We have retained Paresh Sukthankar, former Deputy Managing
Director of HDFC Bank, as an advisor
- Bank is carrying higher provisions for NPAs under Indian GAAP
compared to the requirement under IFRS
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CSB – Business Update
2nd largest tanker private shipping company in India
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Seven Islands Shipping
Ownership % 41.4% Amount invested - Mar 2019 $72
(Rs millions - IGAAP/Ind-As)
Mar 31, 2014 Dec 31, 2017 Dec 31, 2018 Total assets 2,285 8,871 9,541 Shareholders' equity 837 4,679 5,211 47% Revenue 1,028 4,296 4,527 37% Net earnings 180 934 545 26% Return on equity 21.5% 20.0% 10.5% 25% (1)
Twelve months ended
Compound Annual Growth
(1) Average ROE over the last 5 years
- Outstanding first generation entrepreneur in Captain Thomas Pinto
- Excellent track record – compounded 5 year revenue growth of 37%
and net earning growth of 26%
- Compelling valuation at a EV/EBITDA ratio of 5.4x, price/earnings
ratio 15.1x and price/book ratio of 1.5x
- Niche and focused business model
- Part of our investment is infusing growth capital into the company
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