March 31, 2017 Synopsis Investment Outlook Investment Philosophy - - PowerPoint PPT Presentation

March 31, 2017

➢ Investment Outlook ➢ Investment Philosophy ➢ Valuation Fundamentals ➢ Performance ➢ Portfolio Strategies ➢ Quest Foundation ➢ Stock Picking – Case Studies

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Synopsis

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Investment Outlook

Resounding Victory in UP leading to political stability

➢ Development, social inclusion and probably ‘Hindutava’ have delivered Uttar Pradesh and 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 and path 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

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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 of PM 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 become more 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 this trend 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!

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India – Transitioning to a better future

Modi’s inclusive India stands for Governance and Development

Global Headwinds

➢ Rise of nationalists / populists in developed countries and the risk of ‘protectionism’ ➢ Continued political uncertainty in Eurozone (impending elections in Germany and France) 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

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Emerging challenges for the markets

Modi’s inclusive India stands for Governance and Development

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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

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Why Quest

Modi’s inclusive India stands for Governance and Development

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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

Modi’s inclusive India stands for Governance and Development

➢ 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

• ur 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

Modi’s inclusive India stands for Governance and Development

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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-Midcap50 Nifty 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 are expected to grow at CAGR of ~11%, however, due to margin expansion, projected earnings are expected 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 13.3 times 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

Modi’s inclusive India stands for Governance and Development

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Performance

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Consistent 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
• ther investments.

Period

XIRR Performance %

Portfolio Sensex Nifty 50 BSE Midcap Nifty Midcap 50 BSE Small Cap Nifty Small 100 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

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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
• ther investments.

Quest PMS Performance as on Mar 31, 2017 - Absolute

Consistent outperformance across benchmarks and time periods

Period

XIRR Performance %

Portfolio Sensex Nifty 50 BSE Midcap Nifty Midcap 50 BSE Small Cap Nifty Small 100 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
• ther investments.

Quest PMS Performance as on Mar 31, 2017

Consistent outperformance across benchmarks and time periods

328.3

170.2 173.2 222.1 190.5 217.7 206.3 100 150 200 250 300 350

QUEST PMS Sensex Nifty 50 BSE Midcap Nifty Midcap 50 BSE Small Cap Nifty Small 100

Growth of Rs. 100 Lacs Invested in QuestPMS v/s Investments into various indices (In Last 5 years)

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Quest Foundation

Quest Foundation

Stated objective ➢ Quest Founders have publicly pledged to use all their profits for charitable and spiritual 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 over 5,000 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)

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Our 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.

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Thank you

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Quest Investment Advisors Private Limited

For more information contact: Hiten Sampat - Landline +91 22 24066700 (B)/703 (D) Mobile +91 9820131125 Email - hiten@questinvest.com 188/3, Gurukrupa Building, 1st Floor, Next to Jain temple, Jain Society, Near Sion Hospital, Sion, Mumbai - 400 022

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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 biosimilar

pipeline targeting the regulated market

• It restructured its domestic formulation business and was

expected to reap significant benefits

• Syngene (listed subsidiary of Biocon) expected to sustain

good growth supporting Biocon financials in the short term

Current Outlook:

• Biocon is on-course to file 4 biosimilars for approvals in

US & EU markets in FY 2017 with market size of these molecules being over US $ 30 bn. It has also received approvals for Insulin Glargine from advance regulated markets like Japan and Mexico

• Biocon is expected to receive regulatory approvals for its

Insulin plant in Malaysia which will ease the current capacity constraints. Once these biosimilars get launched in US & EU, it will propel Biocon amongst the top league

• f players in Indian Pharma industry
• Domestic formulation business has revived strongly with

margins improving from low single digits to current double digit margins

• Biocon’s Management is confident of achieving US$ 1 bn

revenue 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 2017E earnings Current Valuation: At CMP of Rs. 1132, share trades 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

Modi’s inclusive India stands for Governance and Development

Kirloskar Ferrous

23 Investment Date: 28-May-2014 Rationale at the time of Investment:

• Post the expansion, KFL would be one of the largest

foundries, with capacity

• f

1.5 lac tons – to manufacture intricate engine blocks for marquee clients like Daimler, Volvo, HINO, M&M and all major domestic tractor manufacturers. It is also

• ne
• f

the most efficient pig iron manufacturer

• Higher

contribution from casting business (higher margin) will transform the company from primarily a commodity player to a value added auto component company

Current Outlook:

• We expect

gradual improvement in utilization of new foundry to increase profits. Improved profitability and efficient management

• f

working capital will help maintain its borrowings at current levels despite increasing sales

• Acquisition of iron ore mine by the company (to be

auctioned by the government in the near future) can have a very substantial positive impact on the Pig Iron business

• Company is confident of achieving superior margins

resulting in faster growth in bottomline vis-à-vis topline growth

Valuation then: At Rs. 32, share was available at P/E of 8 times FY 2015 earnings Current Valuation: At CMP of Rs. 96, share trades at 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

Modi’s inclusive India stands for Governance and Development

Source: Internal Research

KEC International

24 Investment Date: 20-Dec-2011 Rationale at time of Investment:

• A global infrastructure EPC major with presence in the

area of power transmission/systems, railways and

• water. Company is also into manufacturing of power

and telecom cables

• Present in 45 countries across South Asia (including

India), Middle East, Africa, Central Asia and America

• It is a dominant player in transmission line towers in

India and many other countries overseas Current Outlook:

• Topline expected to grow @ CAGR of ~10% for next

3 of years (FY16-19)

• Improvement in EBIDTA (by 50 bps) coupled with

interest savings (Interest to Sales to improve by 25 bps) would enable PAT to grow at faster pace than top 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 and decrease in interest rate on borrowings Valuation then: Was available at 5 times FY 2012 estimated consolidated EPS of Rs. 6.54 Current Valuation: At CMP of Rs. 209, share trades at P/E of 15.6 times FY 2018 earnings

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

Modi’s inclusive India stands for Governance and Development

Source: Internal Research

The Ramco Cement (TRCL)

25 Investment Date: 06-JULY-2015 Rationale at time of Investment:

• Cement demand was languishing in Southern India

due to political instability & capacity

• verhang.

Demand revival seemed inevitable & prominent players like TRCL expected to be prime beneficiaries

• Company

was planning to increase its usage

• f

petcoke to reduce its fuel cost and improve margins

• Company had plans to expand regionally by further

penetrating into newer regions like Orissa Current Outlook:

• Ramco Cement has emerged as one of the most

efficient cement player in India and has clocked highest 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 realized

• nce these utilization levels improve (with strong

demand emanating from AP/Telangana region) going forward

• Company continues to work on improving its freight

(100% coastal shipping used to transport clinker to West Bengal unit) and fuel cost (optimum use of pet- coke which is still 15-20% cheaper than coal on K/Cal basis)

• Company is expected be net debt free within next 2

years Valuation then: Was available at 18 times FY 2017 estimated consolidated EPS of Rs. 19.1 Current Valuation: At CMP of Rs. 673, share trades at P/E of 20.1 times FY 2018 earnings

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

Modi’s inclusive India stands for Governance and Development

Source: Internal Research