Motilal Oswal Business Opportunities Strategy April 2020
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Motilal OswalBusiness Opportunities Strategy
April 2020
1
Motilal Oswal Business Opportunities Strategy
Investment Manager
Motilal Oswal AMC is the pioneer of PMS business in India with over 16 years of track record
One of the co-founders, Mr. Raamdeo Agrawal is one of the most honored and trusted names in the investing world
It has a unique positioning of being equity only AMC with defined investment philosophy
Trusted by over 42,000 HNI investors and with around Rs. 12,000 Crs of assets as on 31st March 2020
BOP is a multi-cap strategy with a balanced mix of ~67% Large Cap allocation, ~29% Mid Cap allocation
and ~4% Small Cap allocation
The PMS Strategy will invest in a high conviction concentrated portfolio of minimum 20 stocks
Index agnostic: ~76% away from benchmark Nifty 500
About Business Opportunities Strategy
Beneficiary of Doubling of Per
Capita GDP
Consumer Discre�onary
Value Migra�on from Public Sector to Private Sector
Private Bank & NBFC
A Play on Rising Rural Income
Agriculture
Business migra�on from Unorganized
to Organized
GST Beneficiary
Government Focus on Housing
for All by 2022
Affordablehousing
BANK
Themes we Believe in
2
Ind
ia G
DP
(cu
rre
nt
$ b
n)
186
193
201
218
212
233
249
279
297
296
321
270
288
279 327
360
393
416
421 459
468
485
515 60
8 709 82
0 940
1217
1199 13
42
1676 18
23
1828
1857 20
39 2104 22
90
2653 27
26
2972
3258
3577
3924
4306
4729
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000FY
198
0
FY 1
981
FY 1
982
FY 1
983
FY 1
984
FY 1
985
FY 1
986
FY 1
987
FY 1
988
FY 1
989
FY 1
990
FY 1
991
FY 1
992
FY 1
993
FY 1
994
FY 1
995
FY 1
996
FY 1
997
FY 1
998
FY 1
999
FY 2
000
FY 2
001
FY 2
002
FY 2
003
FY 2
004
FY 2
005
FY 2
006
FY 2
007
FY 2
008
FY 20
09
FY 2
010
FY 2
011
FY 2
012
FY 2
013
FY 2
014
FY 2
015
FY 2
016
FY 2
017
FY 2
018
FY 2
019
FY 2
020E
FY 2
021E
FY 2
022E
FY 2
023E
FY 2
024E
1st US$ tn
2nd US$ tn
3rd US$ tn
4th US$ tn
Nearing 5th US$ tn
According to World Bank data, India has now become the world’s sixth-largest economy
India is one of the fastest growing among major economies
Source: statisticstimes.comPast performance may or may not sustain and does not guarantee future performanceNote - Above forward looking statements are based on external current views and assumptions and involve known and unknown risks and uncertainties that could affect actual results. Investments are subject to market risk.
Rise in GDP - Creates Disposable Income
3
§§
Indian income pyramid in 2022 will bulge at the center
4
2022
7mn HHs
44mn HHs
100mn HHs
133mn HHs
33m pop
RICH(Above Rs 6.1 mn)
219m pop
MIDDLE CLASS(Above Rs 1.3to 6.1 mn)
499m pop
ASPIRERS(Above Rs 1.3to 6.1 mn)
667m pop
DEPRIVED(Below Rs 0.5 mn)
2017
3mn HHs
32 mn HHs
74 mn HHs
141 mn HHs
§ The total stressed assets in PSU Banks – Rs 10 lakh crores, causing dent to their lending ability
§ Household incomes rose the fastest for those at the bottom of the pyramid
§ Households with annual earnings of USD10,000 - 50,000 have also grown at a CAGR of 20% over the last five years
§ Increase in the number of households with annual earnings of USD10,000-50,000 will lead to an increase in ‘indulgence spending’ by the group
§ It is estimated that 23% of the global middle class will be from India by FY30
Source: Axis Capital
§§§
§
§
Source: MOSL
The statements made herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Past performance may or may not be sustained in future
Value Migration in Banking
5
The total stressed assets in PSU Banks – Rs. 10 lakh crores, causing dent to their lending ability
Economy is expected to grow by 7%#, Credit growth expected to be 2X from banking sector
Deposits market share of nationalized banks has dropped from a peak of 52% in FY14 to 44% in FY18. The share was fully taken over by the private banks
Credit growth largely to benefit Private Sector banks as PSU Banks are struggling with Non Performing loans and stretched tier 1 capital adequacy ratio
The market share shift of loans by private banks from PSUs has been consistent. Private Banks have 80% market share in incremental loans versus 70% in deposits.
§ Data Analytics, IT Infrastructure and Dynamic workforce – added advantage for private banks
0
5
10
15
20
25
30
FY12 FY13 FY14 FY15 FY16 FY17
Private Banks Growth (%) PSU Banks Growth (%)
Loan Growth
FY18
100
75
50
25
0
FY0
7
Loan Growth
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
20
FY1
9
14
67
19
11
69
20
7
74
19
6
76
18
3
78
19
5
76
19
3
77
20
1
78
21
4
75
22
6
69
25
6
67
27
4
66
30
5
64
31
Private Banks PSU Banks Others
Government wants to Double the Farm Income by 2022
MSP of wheat has risen from Rs.1,100 in FY10 to Rs.1,840 currently
1100 1170 1285 1350 1400 1450 15251625
1735
0
500
1000
1500
2000
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
MSP of Wheat (Rs. per quintal)
Source: www.ibef.org/industry/agriculture-india.aspx
Agriculture Growth: Rise in Rural Income
6
§ Agriculture infrastructure - increasing investments in agricultural infrastructure such as irrigation facilities, warehousing and cold storage
§ Increase in crop yield - Use of genetically modified crops will likely improve the yield
§ Subsidies and Incentives - Short-term crop loans at subsidized interest rate of 7% p.a. & additional incentive of 3% for prompt repayment
§ Total Budget allocation for rural, agricultural and allied sectors for FY2017-18 has been increased by 24%
§ Increase in Rural income led by rise in MSP’s (Minimum Support Price) will create demand in related sectors like Agrochemicals, Consumer Staples and Consumer Discretionary
1840
6% 10% 5% 4% 4% 4% 5%7% 6%
FY19
Economic growth, urbanization and rapid change in socio-economic profile will drive demand
§ Government vision – ‘Housing for all by 2022’
§
Source:- Jones Lang LaSalle (Affordable Housing in India) * Source: PWC: Building the economy block by block # Source: www.kpmg.com
Demand supply dynamics of housing for various income
Income Level (INR ‘000)
High Demand supply gap for residential units priced below 10 Lakhs
35%
25%20%
15%
5%5% 5%
20%
40%
30%
0%
10%
20%
30%
40%
50%
200-300 300-500 500-700 700-1000 >1000
Co
st o
f U
nit
(IN
R ‘0
00
)
Share of Demand Share of Supply
Affordable Housing
7
Rising disposal income - Per capita income is expected to increase from 2,800 USD in 2012 to USD 8,300 by 2028*
§ #10 million people moving to urban cities every year, is likely to increase the demand
§ Growth in Affordable housing will create parallel demand in related sectors like Cements,Paints, Tiles, Plastic Pipes and Electricals
§ The govt in September 2019 announced a last mile INR 20,000 cr affordable housing package to benefit 3,50,000 house owners. The main objective of the plan is to revive stalled housing projects in the middle & lower income category across the country.
Note: Industry size data based on CLSA estimates for housing led demand in each building materials sub-sector. Light electricals include switchgears/switches, fans, lightings & fixtures and water heaters.
Construction of 60m units over FY 18 -24Total spend on housing over 7 years: US$ 1.3 trn
Multiple Sector Linkages
Demand linked to housing
FY 14-17 industry growth
FY17-24 Expected growth
Sector Cement Steel Paints Wood Panel Tiles Plas�c PipesLight
Electricals
Adhesives Construc�on
Chemicals
US$ 14 bnDemand linked to housing
US$ 12 bn US$ 4.5 bn US$ 3.7 bn US$ 3.5 bn US$ 2.1bn US$ 2.1 bn US$ 1.1 bn
3%13% 9% 1% 8% 5% 8% 8%
12%1
8% 15% 12% 11% 14% 13% 13%
Source: MoSPI, Ministry of Commerce, RBI, Ministry of Steel, AceEquity, CLSA as on March 31, 2017
Affordable Housing
8
GST: Movement from Unorganized to Organized
9
Source:- The Financial Express
§ Portion of economy to migrate from informal to formal, leading to a 4.2%* growth in real GDP
§ Institutional demand inclined to move towards branded players
§ Increased efficiency in businesses due to reduced state level regime
§ Companies in sectors like paints, appliances, apparel, logistics, plastic pipes, ceramic tiles,batteries, etc. will stand to benefit
§ Tax evasion to fade away – Unorganized players to loose competitiveness
YoY
Auto-Batteries
Logistics
Apparels
Pipes, Ceramics
Benefit of moving to Organized Segment
Sector
§§§
§§§§§§
§§§
§§§§
§§
§§
§§§§§§§§§§§§
Highly Positive§§§ §§ Positive § Slightly Positive § Neutral
Change in Tax Rate
Supply Chain Management Overall
Auto-Batteries
Logistics
Apparels
Pipes, Ceramics
Unorganized ShareSector Organized Share
40%***
92%**
70%***
50%***
60%
8%
30%
50%
*Source:- www.federalresrve .gov.in
**Source:- KPMG India Retails the next growth story
***Source:- Edelweiss: Analysis Beyond Consensus
General Insurance
10
§ GI penetration is low in India with Industry Premiums at only 0.9% of GDP. Growth drivers for this sector are linked to a) Vehicle stock (Motor), b) Improving income levels (Health) and c) Economic activity (Commercial), with each segment currently under-penetrated
§ In addition to acceleration of growth in the existing lines, it is expected that new lines of business such as property insurance, liability insurance, cyber insurance etc. (which are negligible as of now) will also add to growth
§ Attractive industry structure for select private players – 45% market share is with PSUs which are largely in poor shape due to weak capital position and profitability.
§ Top private players have competitive advantages – due to scale, brand, distribution, capital position, underwriting discipline, industry leading profitability and superior customer service.
§ Nature of business is promising – The sector is countercyclical to rising interest rates. In addition, premium mix is diversified with individual segments having uncorrelated growth and profitability drivers providing earnings stability.
3,000
2,500
2,000
1,500
1,000
500
2,542
1,523
938 901
174 159 167 113 18 18
USA
S. k
ore
a
UK
Jap
an
Bra
zil
Ch
ina
S. A
fric
a
Ru
ssia
Ind
on
esia
Ind
ia
Source: IRDA, Investec Securities Research
Insurance density (Premium per capita)
Insurance penetration improved in last 2 years. Similarly there has been an increase in Insurance density
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
0.6%
2010 2011 2012 2013 2014 2015
2015
2016 2017 2018
2009
0.6% 0.6%0.7% 0.7% 0.7% 0.7% 0.7% 0.8% 0.9%
Insurance Penetration
India - Insurance penetration improved in last 2 years..
Source: IRDA, Investec Securities Research
Source: IRDA, Investec Securities Research
Life Insurance: Growth opportunity- Under-penetration vs global benchmarks
11
17.9%
14.6%
6.6% 6.3%
3.6% 3.3% 2.8% 2.7%
Taiw
an
Ho
ng
Ko
ng
Sin
gap
ore
Jap
an
Thai
lan
d
Mal
aysi
a
Ind
ia
Ch
ina
Life Insurance Penetra�onFY18
6756
4195 3835
2411
339 237 225 55
Ho
ng
Ko
ng
Taiw
an
Sin
gap
ore
Jap
an
Mal
aysi
a
Thai
lan
d
Ch
ina
Ind
ia
Life Insurance Density (US$)FY18
92.2% 88.3%78.4% 73.3% 72.5% 70.2%
56.3% 56.0%
16.4%
Protec�on Gap (2014)
Ind
ia
Ch
ina
Thai
lan
d
Ind
on
esia
Mal
aysi
a
Ho
ng
Ko
ng
Jap
an
Sin
gap
ore
Taiw
an
4.0%4.6% 4.4%
3.4% 3.2% 3.1%2.6% 2.7% 2.7% 2.8%
FY0
9
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
India Life Insurance Penetra�on (FY09-FY18)
4148
5649
43 41 44 4347
55FY
09
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
India Life Insurance Density (US$) (FY09-FY18) § India has the highest protection gap in the region, as growth in savings and life insurance coverage has lagged behind economic and wage growth
§ Protection gap has increased over 4x in last 15 years with significantly low penetration and density
Note: Penetration as measured by premiums as % of GDP, Density defined as the ratio of premium underwritten in a given year to the total population.
Source: Swiss Re (Based on respective financial year of the countries), MOSPI
Life Insurance
12
Source: United Nations World Populations Prospects Report (2017)
67.6
71.9
75.0
2015 2035 2055
Life Expectancy (Years)
38% 30% 25%
56% 61% 60%
6% 9% 15%
2015 2035 2055
Popula�on Composi�on (bn)
65 years and above 20-64 years Less than 20 years
1.3 1.71.6
§ India's insurable population is anticipated to touch 750 million by 2020
§ India is currently one of the world's youngest nations, offering great opportunies for long term savings and investment plans
§ Demand for retirement policies to rise with increasing life expectancy, declining birth-rates and proportion of India's elderly population expected to increase by almost 100% by 2035 (as compared to 2015)
§ Emergence of nuclear families and increasing life expectancy to facilitate need for pension and protection based products
Buy Right Sit Tight
At Motilal Oswal Asset Management Company (MOAMC), our investment philosophy is centered on 'Buy Right: Sit Tight‘ principle.
‘Q’uality denotes quality of the business and management
‘G’rowth denotes growth in earnings and sustained RoE
‘L’ongevity denotes longevity of the competitive advantage or economic moat of the business
‘P’rice denotes our approach of buying a good business for a fair price rather than buying a fair business for a good price
Buy and Hold: We are strictly buy and hold investors and believe that picking the right business needs skill and holding onto these businesses to enable our investors to benefit from the entire growth cycle needs even more skill.
Focus: Our portfolios are high conviction portfolios with 25 to 30 stocks being our ideal number. We believe in adequate diversification but over-diversification results in diluting returns for our investors and adding market risk
Our investment philosophy – ‘Buy Right : Sit Tight’
13
Scrip Name %Holding
13.5
10.2
9.3
8.0
7.3
5.5
5.2
4.5
4.4
3.9
Hindustan Unilever
HDFC Bank
Kotak Mahindra Bank
Bata India
ICICI Bank
Max Financial Services
Britannia Industries
Asian Paints
Godrej Agrovet
ITC
Top 10 Holdings
Large Cap
Mid Cap
Small Cap
Market Capitalization
Sectoral Allocation
Please Note: The given stocks are part of portfolio of a model client of BOP Strategy as on 31st March 2020. The stocks forming part of the existing portfolio under BOP Strategy may or may not be bought for new client. The stocks mentioned above are only for the purpose of explaining the concept and should not be construed as recommendations from MOAMC. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments. Name of the PMS Strategy does not in any manner indicate its future prospects and returns.
Weighted Average Market Cap : Rs. 1,83,011 Crs
66.6%29.3%
3.8%
Portfolio Allocation
14
3.5
3.5
3.6
3.8
4.4
4.5
8.7
12.5
26.8
28.4
Logis�c Services
Auto & Auto Ancillaries
Infotech
Engineering & Electricals
Agriculture
Construc�on
Insurance
Retail
Banks
FMCG
BOP Strategy has delivered a CAGR of -7.7% vs. Ni�y 500
returns of -13.4%, an outperformance of 5.7%
(CAGR) since incep�on (16th January 2018)
BOP Strategy Ni�y 500
*Strategy Inception Date: 16/01/2018.Please Note: The Above strategy returns are of a Model Client as on 31st March 2020. 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. Returns below 1 year are absolute and above 1 year are annualized. Strategy returns shown above are post fees & expenses.
15
Performance Snapshot
Rs. 1 crore invested in BOP Strategy at incep�on is worth Rs. 84 lakh as on 31st March
2020. For the same period Rs. 1 cr invested in Ni�y 500 Index
is now worth Rs. 73 lakh.
BOP Strategy Ni�y 500
-23.2-25.9 -23.0
-19.1 -17.0
-6.8 -7.7
-24.3-29.1
-25.1 -27.6 -27.6
-11.4 -13.4
1 Month 3 Months 6 Months 9 Months 1 Year 2 Years Since Incep�on
6.07.08.09.0
10.011.012.0
Jan
-18
Feb
-18
Mar
-18
Ap
r-1
8
May
-18
Jun
-18
Jul-
18
Au
g-1
8
Sep
-18
Oct
-18
No
v-1
8
De
c-1
8
Jan
-19
Feb
-19
Mar
-19
Ap
r-1
9
May
-19
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
De
c-1
9
Jan
-20
Feb
-20
Mar
-20
0.8X
0.7X
MOAMC – Some Success Stories
16
Mul�baggers across PMS strategies…
Stocks Ini�al
Purchase Date
Market Cap Rs. Crores (Purchase
Date)
Market Cap Rs. Crores
(31st Mar 20)
Absolute Growth
CAGR (%)
Bajaj Finance November-2013 2,923 1,33,322 45.6X
HDFC Bank July-2008 40,986 4,72,604 11.5X
Kotak Mahindra Bank July-2015 1,28,554 2,47,939 1.9X
Next Trillion Dollar Opportunity Por�olio Strategy
City Union Bank March-2013 3,026 9,515 3.1X
GSK Consumer Healthcare May-2011 10,053 41,952 4.2X
Value Strategy
23%
15%
IpcaLaboratories November-2012 5,922 17,591 3.0X
IpcaLaboratories May-2018 9,239 17,591 1.9X 40%
50%
18%
17%
16%
Mahanagar Gas August-16 5,061 8,084 1.6X 14%
GSK Consumer Healthcare
January-18 27,242 41,952 1.5X 22%
Indian Opportunity Por�olio Strategy
* As on 31st March 2020The given stocks are part of portfolio of a model client of respective PMS Strategies. The Stocks mentioned above are used to explain the concept and are for illustration purpose only and should not be used for development or implementation of an investment strategy. The stocks forming part of the existing portfolio of PMS Strategies may or may not be bought for new clients of PMS Strategies. It shall not be considered as an advice, an offer to sell/purchase or as an invitation or solicitation to do so for any securities. Past performance may or may not be sustained in future. Motilal Oswal AMC does not provide any guarantee/ assurance any minimum or maximum returns
Fund Manager
17
Manish has been managing the Strategy since inception and also serves as the Director of the Motilal Oswal India Fund, Mauritius.
He has over 25 years of experience in equity research and fund management, with over 14 years with Motilal Oswal PMS.
He has been the guiding pillar in the PMS investment process and has been managing various PMS strategies and AIFs at MOAMC.
Manish holds various post graduate degrees including an MBA in Finance, FCA, Company Secretaryship (CS) and Cost & Works Accountancy (CWA).
Manish SonthaliaFund Manager
Atul Mehra
Atul has over 11 years of experience in equity research and fund management specializing in mid and small cap space, with over 5 years with Motilal Oswal Group.
Before joining Motilal Oswal, he was associated with Edelweiss Capital.
Atul is a Chartered Financial Analyst (CFA) from CFA Institute, USA and a Masters in Commerce.
Associate Fund Manager
Disclaimer: This presentation has been prepared and issued on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this document is for general purposes only and not a complete disclosure of every material fact and terms and conditions. The information / data herein alone is not sufficient and shouldn’t be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions, figures, charts/graphs, estimates and data included in this presentation are as on date and are subject to change without notice. While utmost care has been exercised while preparing this document, Motilal Oswal Asset Management Company Limited does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The statements contained herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Readers shall be fully responsible /liable for any decision taken on the basis of this presentation. No part of this document may be duplicated in whole or in part in any form and/or redistributed without prior written consent of the Motilal Oswal Asset Management Company Limited. Readers should before investing in the Strategy make their own investigation and seek appropriate professional advice. Investments in Securities are subject to market and other risks and there is no assurance or guarantee that the objectives of any of the strategies of the Portfolio Management Services will be achieved. Clients under Portfolio Management Services are not being offered any guaranteed/assured returns. Past performance of the Portfolio Manager does not indicate the future performance of any of the strategies. The name of the Strategies do not in any manner indicate their prospects or return. The strategy may not be suited to all categories of investors. The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Neither Motilal Oswal Asset Management Company Ltd. (MOAMC), nor any person connected with it, accepts any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice. Opinions, if any, expressed are our opinions as of the date of appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. The Portfolio Manager is not responsible for any loss or shortfall resulting from the operation of the strategy. Recipient shall understand that the aforementioned statements cannot disclose all the risks and characteristics. The recipient is requested to take into consideration all the risk factors including their financial condition, suitability to risk return, etc. and take professional advice before investing. As with any investment in securities, the Value of the portfolio under management may go up or down depending on the various factors and forces affecting the capital market. Disclosure Document shall be obtained and read carefully before executing the PMS agreement. Prospective investors and others are cautioned that any forward - looking statements are not predictions and may be subject to change without notice. For tax consequences, each investor is advised to consult his / her own professional tax advisor. This document is not for public distribution and has been furnished solely for information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions. No part of this material may be duplicated in any form and/or redistributed without ’MOAMCs prior written consent. Distribution Restrictions – This material should not be circulated in countries where restrictions exist on soliciting business from potential clients residing in such countries. Recipients of this material should inform themselves about and observe any such restrictions. Recipients shall be solely liable for any liability incurred by them in this regard and will indemnify MOAMC for any liability it may incur in this respect.
Custodian: IL&FS Securities Services Ltd | Auditor: Aneel Lasod & Associates | Depository: Central Depositary Services Ltd
Portfolio Manager: Motilal Oswal Asset Management Company Ltd. (MOAMC) | SEBI Registration No. : INP 000000670
THINK EQUITYTHINK MOTILAL OSWAL
For any PMS queries please call us on +91 81086 22222 / 022-4054 8002 (press 2 for PMS) or write to [email protected] or visit www.motilaloswalmf.com
Disclaimer
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