Giants) Pg 1 PRIVATE & CONFIDENTIAL Ambit Asset Management - PowerPoint PPT Presentation

August 2019 Portfolio Management Services Ambit Good & Clean Smallcap Fund (Emerging Giants) Pg 1 PRIVATE & CONFIDENTIAL Ambit Asset Management

Ambit Asset Management: An Overview Ambit’s Investment Philosophy Investment offerings focusing on the Quality o Companies with robust capital allocation track record and high quality of financial metrics o High quality of their accounts and corporate governance. o While the objective is to generate returns, the even bigger goal is to better manage drawdowns Process-Driven Approach o Highly qualified team of MBA’s, CA’s & CFA’s with deep-dive equity research experience & specializations across various sectors. o 5-member highly experienced & distinguished Investment Committee in place to review all investment decisions. o Full-fledged support of Ambit Group with over 230+ experienced employees spread across investment banking, institutional equities, equity capital markets, private equity, private wealth, among others. Multiple products as per the investment horizon of the investor Ambit Good & Clean Smallcap Fund Good & Clean India Fund Coffee Can PMS (Emerging Giants)  Primarily Mid-cap stocks  Primarily Large-cap stocks  Primarily Small-cap stocks  Investment Horizon: 3-5 years  Investment Horizon: 8-10 years  Investment Horizon: 5-6 years  Cross cyclical winners with high ROE, high  Great companies with proven track record of  Finding the next Coffee Can companies reinvestment companies high ROE, high reinvestment companies Pg 2 PRIVATE & CONFIDENTIAL Ambit Asset Management

Ambit’s Emerging Giants: Philosophy of selecting the right companies 1 Consistent Track Record 2 Strong Corporate Governance • • Delivers consistent growth while Well diversified and respected Board maintaining superior return ratios • Minority friendly • High quality entrepreneur and management 1 • Dividend Policy 2 team • Timely and robust disclosures on corporate • Operates in a niche / or high opportunity governance issues segment maintaining its competitive Characteristics of advantages Portfolio company 5 3 5 Power of compounding 3 Market Leaders • • Concentrated portfolio with 15-20 stocks and Most companies in our portfolio companies 4 intended churn of less than 2-3 stock per dominate their market niche/ geographies year on average • Relentless focus on specific product/ • This allows the portfolio to benefit from service, allowing them to excel in their circle Power of Compounding of competence 4 Clean Accounting • Use our proprietary forensic accounting framework ( to filter out firms with suspect financials) Pg 3 PRIVATE & CONFIDENTIAL Ambit Asset Management

Portfolio Composition & Characteristics  Stellar track records of capital allocation in terms of RoE Cash Consumer 12% Discretionary Consumer 24% Durable  Low debt with the median portfolio company cash positive 6% Auto & Auto Components  Median market cap of the portfolio is ~Rs1,700 cr. 8% Chemicals Homebuildi  Growth potential above the comparable index 13% ng 12% Financials Industrials  Reasonable valuations for quality stocks 12% 13% Net Debt/Equity P/E Past 5Y Growth RoE Comparison with Indexes FY18 FY19 FY20E Revenue PAT Current Emerging Giants (-0.1x) 25x 18x 10% 19% 20% 1.3% BSE Smallcap 1.6x 21x 16x 4% 13%* Nifty 1.2x 23x 18x 8% 5% 12% Source: Bloomberg, Company, Ambit Capital Research; Index statistics as per Bloomberg; All Portfolio statistics are weighted average except for Debt/equity; Blended forwards are based on Ambit estimates, while Index estimates are based on Bloom estimates; * PAT growth for BSE Small Cap is based on positive earnings; Pg 4 PRIVATE & CONFIDENTIAL Ambit Asset Management

Why Small caps?  T he BSE500 experiences heavy annual churn: On average, as much as 30% of the BSE 500 constituents get churned over a 5 year period* Small caps have outperformed their larger peers historically in India  Moreover, the bulk of the outperformance for BSE500 entrants occurs prior to their entry in the index! Top50 Top 500 Small-Cap (501-1500) 30% 27.3% Relative performance of BSE500 inclusions pre and post inclusion 25% 20.7% 75.2% 80% 20.1% 20% 18.2% 70% 14.9% 60% 15% 13.6% 49.5% 50% 10.3% 41.2% 9.7% 10% 40% 7.8% 30% 5% 20% 10% 0% 15Y CAGR 10Y CAGR 5Y CAGR 0% -10% -7.5% -9.0% -9.3% -20% Year -3 Year-2 Year -1 Year +1 Year+2 Year +3 Source: Bloomberg, Ace Equity, Ambit Capital Research. Ending Period June 30, 2018. Median CAGR of BSE 500 Inclusions (Relative to BSE 500) Method: We calculate returns by assuming a purchase of three baskets of stocks – Top 50 (largest 50 stocks by market-cap), Top 500 (largest 500 stocks by market-cap) and Small-caps (501-1500 ranked stocks by market-cap). Stocks are rebalanced annually each July end as per the bucket criteria over July’2003 - June’2018. Equal amounts are assumed to be allocated to each stock. Dividends received are reinvested; Transaction costs assumed: 3% for Small-caps; 1% for Top500 and 0.5% for Source: Bloomberg, Ace Equity, Ambit Capital Research. Relative returns (to BSE 500) are medians CAGR of stocks Top50; that have been included in the BSE 500. For prior returns, returns are measured until 1 quarter preceding the quarter of entry . Period of BSE500 constituent data analyzed – 2002-2018.Only firms with both pre and & post inclusion pricing data are considered. *Annual 5 Year churn over 2002-2013 (closing period ends in 2018) Pg 5 PRIVATE & CONFIDENTIAL Ambit Asset Management

Price discovery is inefficient in small caps Smallcaps are largely undiscovered with low analyst coverage and lower liquidity resulting in valuation disconnect with fundamentals 60  Under-owned with low Institutional ownership No. of Analyst covering the stock  Large-Caps, with an Institutional ownership of ~55% are over-owned by Mutual 50 Zee entertainment ANR:38; P/E 35x Funds & FIIs vs. ~10% in case of Small-caps Jubilant Foodworks  Un-discovered with low analyst coverage: 40 ANR 32; P/E 93x  On average only 1 analyst cover a small-cap stock vs. 37 analyst coverage for large-caps 30  Low Liquidity is a challenge TV Today Network  Daily Trade Volume of a Large-Cap company is Rs 300 Cr. whereas for small- ANR: 5; P/E 21x 20 cap its just Rs 1.3 Cr. Garware Wall Ropes Panasonic Carbon ANR: 1; P/E: 25x ANR:1; P/E 16x 10 0 0 200 400 600 800 1,000 1,200 1,400 Market Cap Rank Size of Bubble signifies FY2018 P/E Ratio (x) ANR refers to No. of analyst covering a particular stock Source: Bloomberg, Ambit Capital Research. Pg 6 PRIVATE & CONFIDENTIAL Ambit Asset Management

Good & Clean Smallcap Fund (Emerging Giants) Pg 7 PRIVATE & CONFIDENTIAL Ambit Asset Management

The Ambit framework for small-cap investing Small-cap Universe ~1300 stocks Stocks with a Market Cap between INR1-40bn Ambit’s Forensic Accounting Screen Eliminating companies with dubious accounting practices 1. Unit Economics Profitability per unit • Do the unit economics make sense? Growth runway • How scalable are the company’s operations? 2. Scale Viability of underlying business model • Does the company generate enough funds to sustain the business? 3. Sustainability Cash generation • Does sales growth translate into cash? Virtuous cycle effect • Is greater scale leading to greater asset efficiency? 4. Feedback Loops Pg 8 PRIVATE & CONFIDENTIAL Ambit Asset Management

Investment Process - Finding needles in the haystack Small-cap Universe Stocks with a Market Cap between INR1-40bn Ambit’s Forensic Accounting Screen Eliminating companies with dubious accounting practices  50%+ on each Parameter  80 th Percentile Overall  Filtering Process  Filters for RoCE +  Debt ratios 1. Ambit’s Forensic Accounting Screen: Eliminating ‘Zone of Darkness’ candidates. 2. 50 th Percentile Hurdle on each of the 5 parameters: Selecting companies well  Bottom-up stock research rounded in each parameter.  Industry analysis 3. Total Percentile Rank>80%: An additional filter to make sure that only the best are selected.  4. RoCE>12%: Eliminating companies struggling to cover their cost of capital. Channel checks & . management meets 5. Net Debt-Equity Ratio <1.5x: Eliminating debt-laden companies. Ambit G&C Smallcap 15 -17 stocks (Emerging Giants) Constant monitoring & review Pg 9 PRIVATE & CONFIDENTIAL Ambit Asset Management