May 2010

Asset Management

Click to edit Master title style

Good & Clean India Fund

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Ambit Asset Management
What drives success for corporate India?
5,000
4,500
4,000 Eicher Motors
3,500
PI Industries
3,000
Supreme Industries
2,500
2,000 Page Industries
1,500 City Union Bank
1,000
Sensex
500
0
Mar-10

Dec-10
Mar-11

Dec-11
Mar-12

Dec-12
Mar-13

Dec-13
Mar-14

Dec-14
Mar-15

Dec-15
Mar-16

Dec-16
Mar-17
Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16
Jun-10

Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17
Source: Bloomberg, Ambit Capital research. Note: *Prices have been rebased to 100 as on 31 Mar 2010. Prices are in INR terms.

Three factors are common to successful Indian firms

Our research over the past five years shows that over and above firm-specific competitive advantages,
three factors are essential for a company to consistently outperform:
 Clean accounting: The bottom 40% of the BSE500 stocks on accounting quality have underperformed
the top 60% by a whopping 12% per annum since Nov 2010.
 Lack of political connectivity: Firms whose central competitive advantage is political connectivity
seldom outperform in India.
 Conservative capital allocation: Indian companies are amongst the most aggressive capital allocators
in the world and that aggression costs their shareholders dear.
Our ‘Good & Clean’ (G&C) philosophy developed as a response to these central drivers of share prices in
India.
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Ambit Asset Management
Ambit’s Good & Clean philosophy

Listed companies  Invest in firms which are:

(a) Good- On the basis of capital allocation track record and
quality of improvement in financial metrics over the past six
years, and
Check for quality (b) Clean- Based on the quality of their accounts and
of accounts corporate governance.
(Clean)

 The focus on ‘good’ helps generate upside while not

compromising on ‘clean’ reduces downside risk. Essentially,
while the objective is to generate returns, the even bigger goal
Check for is to better manage drawdowns because we believe doing the
efficacy of capital
allocation latter successfully is critically vital in achieving the former.
(Good)

 Ambit’s proprietary ‘forensic accounting’ framework helps weed

about 10% of the
starting universe out firms with poor quality accounts while our proprietary
‘greatness’ framework helps identify efficient capital allocators
Bottom-up with a holistic approach to consistent growth.
analysis for
investment
suitability  The result is a concentrated portfolio of 15-16 stocks that
draws down lesser than the market in corrections and has
low churn (not more than 15-20% of portfolio in any year
amounting to 2-3 holdings being replaced).
Good & Clean portfolio 15-16 stocks

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Ambit Asset Management
Ambit’s Forensic Accounting framework
Ambit’s forensic accounting model helps steer clear firms with questionable accounts
Category Ratios
Cum. CFO/cum. EBITDA
P&L mis-statement checks Volatility in depreciation rate
Provisioning for doubtful debts as a
proportion of debtors more than six months
Cash yield
Balance sheet mis-statement Change in reserves (excluding share
checks premium) over net income ex-dividends
Contingent liability as a proportion of net
worth
Miscellaneous expenses as a proportion of
total revenue
CWIP to Gross Block
Pilferage checks
Cumulative CFO plus CFI to median revenue
Related party advances as a proportion of
cumulative CFO
CAGR in auditors remuneration to CAGR in
Audit quality checks
consolidated revenue
Source: Bloomberg, Ambit Capital research
Ambit Asset Management
Rationale
 Low ratio may be indicative of aggressive
revenue recognition
 Constant playing around with depreciation rate
may indicate intent to manage reported profits
 Low ratio raises concerns regarding earnings
boost through aggressive provisioning practices
 Low cash yield may either imply balance sheet
misstatement or cash misutilisation
 A ratio less than 1 may imply direct knock-offs
from equity without routing through P&L
 Indicative of the extent of off-balance sheet risk
 High ratio raises concerns regarding the
authenticity of such expenses
 High ratio could indicate unsubstantiated
capex- may indicate funds being siphoned off
 Check on ability to generate positive cash flows
after investing activities
 Penalise firms where advances to related
parties are high or increasing
 Check on the quality of audits
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Not compromising on ‘clean’ is critical to managing
drawdowns

The firms in the highest accounting score decile outperform Sector neutral buckets show strong correlation between
their bottom placed counterparts by 29% accounting and investment performance
CAGR return Dec'10-Dec'16 vs Accounting percentile
300 18%
30%
R² = 0.8733
D1 (Highest) 16%
D3 250
25% D4 D2 14%

Share price performance

D5

Accounting Score
CAGR Returns (Dec'10-Dec'16)

20% 200 12%

D6
10%
15% D7 150
8%
10%
100 6%
D8

5% 4%
50
D9
2%
0%
0% 20% 40% 60% 80% 100% 0 0%
D10 (Lowest) Bucket A Bucket B Bucket C Bucket D
-5%
Accounting score Share price performance
Accouting Score Percentile
-10%

Source: Bloomberg, Ambit Capital research; Note: This chart plots the median share price Source: Bloomberg, Ambit Capital research; Note:Sector-agnostic buckets constructed with
performance with median accounting scores for deciles constructed only on the basis of homogenous sectoral make and differentiated only on accounting quality show accounting
accounting quality. Share price returns are in INR terms. quality drives investment performance even after controlling for sector effects.

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Ambit Asset Management
Focus on ‘good’ helps generate upside
Ambit’s ‘greatness’ framework identifies efficient capital Greatness model has outperformed BSE 500 by a
allocators in the country whopping 600bps annually

b. Conversion of 1,400 20.2% CAGR

a. Investment investment to sales
(gross block) (asset turnover, sales) 1,200

1,000

800
14.1%
600 CAGR
c. Pricing discipline
400
(PBIT margin) Greatness model
200
BSE500
-

Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
d. Balance sheet
e. Cash generation discipline (D/E, cash
(CFO) ratio)
Share price returns are in INR terms.

Our greatness framework looks at holistic and consistent growth as the hallmarks of efficient capital allocation- a self
sufficient growth engine without the need of tapping external capital frequently is key to long term wealth creation.

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Ambit Asset Management
 Who wins on Good & Clean?

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Ambit Asset Management
PVR – The largest entertainment play in India
PVR (PVRL IN) is the largest multiplex in India, with 600 screens across the country - ~25% more than the 2nd placed competitor.
All-round growth, non-ticket revenues rising faster Diversifying content mix to boost footfalls and occupancy

40 FY17-20 CAGR: Ticketing F&B Advertisements

FY11-16 CAGR:
- Tickets: 17%
- Tickets: 32% 100%
35 - F&B: 22% 12% 12% 12% 12% 13%
- F&B: 45% 90% 14%
- Ad: 18%
30 - Ad: 31%
- Others: 26% 80%
- Others: 52% 24% 24% 27% 28% 29% 29%
25 70%
INR Bn

60%
20
50%
15
40%
10 30% 64% 64% 61% 59% 58% 58%
20%
5
10%
-
0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
FY13 FY14 FY15 FY16 FY17 FY18
Revenue Mix
Ticketing F&B Advertisements Others

 Improving construct for multiplexes given (1) Market share gains for multiplexes (still only ~30% of screens, up from 15% in 2013);
(2) Low penetration of screens per million at just ~8 compared to ~130 for the USA and ~16 for China and 3) Increase in share of
Hollywood and regional cinema content driving footfalls and occupancy ratios.
 Differentiated offering powered PVR to the top: Best in class customer experience through innovation in audiovisual technologies,
creative F&B menu and screens locations in premium malls has led to high pricing power: ~15-20% higher ATPs, spends per heads and ad
yields.
 PVR’s premium positioning an ideal discretionary play: Strong positioning for PVR given 60% screens are in top 8 cities of India whose
per capita GDP is 7x that of India. Rising per capita income and growing aspirations should result in the leisure segment being the biggest
beneficiary of the discretionary spend basket.
 Fundamentals to improve further: Increasing share of F&B (40% of ATP vs 60% for global leaders) and advertising revenue to aid operational
margins while boosting growth. Similarly, the share of mature screens for PVR is now in excess of 70% vs 20% 10 years ago- implying high operating
leverage and cash generation.
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Ambit Asset Management
Page Industries- Aspirational yet affordable consumption play
Page Industries (PAG IN) is the dominant player in the underpenetrated branded innerwear category in India. Page’s foundation is built on: a) 60-
year association with Jockey; b) strong focus on capital allocation and ROCEs; and c) Incentivizing and empowerment of professionals

Large opportunity for share gains by “Jockey” Investment Case

Men's inner wear market share  Structural growth potential immense: Men's innerwear has a ~63% share of
local/unorganised players which are losing share to national players. Page is gaining
share from a low base of 9% (4.7% in 2010).
 Women’s innerwear ~(20% of sales) and leisurewear (30%) to aid growth: With
Other
Organized,
organized penetration in the women’s innerwear segment at just 14%, Page is likely to
28% continue gaining share (6% now vs 2.7% in 2010). Further, leisurewear has been growing
as a share of the apparel market, providing an additional positive for Page. Both these
Unorganized
players, 63%
segments are also higher in realizations, aiding margins.
 Page’s competitive advantages are centred on: a) in-house manufacturing to deliver
Jockey ,
9%
product differentiation in a labour-intensive industry; b) maintaining an aspirational
connect with consumers; and c) an entrenched distribution channel spanning hosiery
stores to exclusive brand outlets through distributors
Robust growth is underpinned by stellar RoCEs.. ..due to high asset turns and strong, steady margins

70 64 65 25x 30 9x
62 62
60 60
8x
60 25
20x 22 22
21 21 21 21 22 7x
48 21 21 20 21
50 44
42 18 20 6x
36 15x
40 15 5x
15
30 4x
12 10x
10 3x
20 9
7 5x 2x
10 5
5 1x
2 3 3 5x 4x 4x 4x 5x 5x 6x 6x 7x 8x
0 0x 0 0x
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017
Sales (INR Bn) ROCE(%) (LHS) Asset Turnover (x) EBITDA M% (LHS)
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Ambit Asset Management
Cholamandalam Finance- Financing the India growth story
Incorporated in 1978, Cholamandalam Investment and Finance Company (CIFC IN) is primarily a vehicle financier with a rural focus. It operates
over 700 branches across India and has an AUM of INR ~429bn. CIFC also has a presence in the home equity loan segment.
Play on Indian Infrastructure and Logistics Investment Case
AUM as of FY18  CIFC’s core competencies center on: a) Prudent management of risk, as exhibited in
Passenger their pullback from financing ahead of down cycles in commercial vehicles and real estate
Others, 3% Vehicles, 12% in the past b) Focus on technology to aid collection efficiency and speed up processes; c)
Broad Pan-India distribution network and d) Ecosystem view of their customer base
 Evolution into related segments to power growth: CIFC is evolving from an LCV/used-
Home Equity, CV financier to a credible challenger in other auto segments such as tractors, HCVs and
24% Commercial
car financing (market share has already doubled this year). Additionally, CIFC is scaling up
Vehicles, 30% other businesses such as housing loans, SME finance and trip financing.
 Logistics to drive core segments: Consolidation of India’s logistics sector into a hub-
Other Vehicle and-spoke model due to the advent of GST would drive sales of CIFC’s core CV segment,
finance, 31% which is CIFC’s key driver of profitability.

Robust growth driven by core business and home equity loans Tight control on asset quality and margins have led to expanding RoEs
25% 70
Vehicle Finance Home Equity Others
500 21%
60
450 FY12-18 CAGR: 20% 18% 18% 18% 18%
17%
400 - Vehicle Finance: 21% 50
350 -Home Equity : 22% 14%
- Other: 17% 15% 40
300
INR Bn

250 9.70%
10% 8.7% 8.6% 30
7.6% 7.7% 7.9%
200 7.2%

150 20
5%
100 10
50
0 0% 0
FY12 FY13 FY14 FY15 FY16 FY17 FY18
FY12 FY13 FY14 FY15 FY16 FY17 FY18
EPS (RHS) Net interest Margin (LHS) RoE
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Ambit Asset Management
 Good & Clean’s track record

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Ambit Asset Management
Good & Clean philosophy delivers in practice

Consistent performance
Compounded Returns since inception
70% Annual Returns
25% 23.5%
60% 58.5%

50% 20%

40%
32.0% 15% 13.1%
30.0%
30%
10%
20% 16.8%
10.4%
10% 9.39% 5%

0%
0%
CY12 CY13 CY14 CY15 CY16 CY17 CY18 YTD
-10% -1.63% G&C CAGR Nifty CAGR

G&C Nifty

Superior risk adjusted returns and drawdown track record

Performance (since Net Returns Standard Sharpe Maximum

inception) (CAGR) Deviation Ratio Drawdown
23.5% 12.8% 1.29 -13%
G&C
13.1% 13.6% 0.45 -22%
Nifty
Source: Bloomberg, Ambit

Note: Date of inception of the Good & Clean model portfolios is 19 Jan’ 12, while that of the domestic fund is 12 Mar’15. Hence performance till 12Mar’15 is
that of the model portfolio, and from 12Mar15 is that of the live fund. Data as of 30 Apr ’18.

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Ambit Asset Management
Track Record- Good & Clean Fund
CY15

Returns (%) Jan17 Feb17 Mar17 Apr15 May15 Jun15 Jul15 Aug15 Sep15 Oct15 Nov15 Dec15 CY15

G&C (4.82) 3.92 (2.60) 4.16 (0.90) (1.06) 1.08 1.66 (0.79) 0.30
Nifty (6.77) 3.08 (0.77) 1.96 (6.58) (0.28) 1.47 (1.62) 0.14 (9.5)

CY16
Returns of 13.8%
Returns (%)` Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 CY16 CAGR vs Nifty’s
G&C (3.83) (8.69) 11.40 4.26 3.54 4.10 4.08 5.43 0.90 1.74 (4.54) (1.19) 16.8 6.7%.
Nifty (4.82) (7.62) 10.75 1.44 3.95 1.56 4.23 1.71 (1.99) 0.17 (4.65) (0.47) 3.01
Outperformance
of ~7% CAGR
with significantly
CY17
lower
drawdowns!!
Returns (%) Jan17 Feb17 Mar17 Apr17 May17 Jun17 Jul17 Aug17 Sep17 Oct17 Nov17 Dec17 CY17
G&C 4.47 3.04 1.41 3.60 0.95 0.40 2.52 -1.08 1.37 4.34 1.44 4.23 30.0
Nifty 4.59 3.72 3.31 1.42 3.41 -1.04 5.84 -1.58 -1.30 5.59 -1.05 2.97 28.7

CY18

Returns (%) Jan18 Feb18 Mar18 Apr18 CY18

G&C -3.04 -0.59 -3.19 5.42 -1.63
Nifty 4.72 -4.85 -3.61 6.19 1.99

CY=Calendar year; Portfolio inception date is Mar12, 2015. Returns for Mar’15 have been merged with Apr’15 and the same adjustment has been made to index returns.
Returns as of April 30, ‘2018. These are returns for all pooled assets under management; performance post brokerage and statutory charges but before fees.
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Ambit Asset Management
 Portfolio Construct and Fee Structure

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Ambit Asset Management
Construct & structure for Indian high net worth investors

Construct & Structure

Fund Type SEBI Registered PMS

Fund Tenure Open Ended

Structure Discretionary PMS

Minimum investment INR 25 lacs

Investible universe is stocks that perform well on the two frameworks noted earlier. A further
Stock selection
subjective assessment then leads to a more concentrated stock portfolio

Number of stocks < 20

25% per sector, 10% per stock

All cap with BSE500 as the benchmark

The investment horizon is 1-3 years and longer; turnover therefore should not exceed 30-35% in
Time horizon and turnover
a year

Not to take aggressive cash calls; this is keeping in mind the longer term investment horizon of
Cash calls
the fund and is suitable from a taxation standpoint

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Ambit Asset Management
Fee structure

Fee Structure

Set up fees Upto 2%

Fixed 2% p.a
Fixed Fee Option Variable NA
Exit Load 1% if redeemed before 1 year
Fixed 0%

15% of full profits once a hurdle rate of

Variable 12% is crossed
High water mark applicable
Variable Fee Option

2% if redeemed before 1 year

Exit Load
1% if redeemed before 2 years

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Ambit Asset Management
Fund Manager
Gaurav Mehta, CFA

With over 11 years of experience in Indian equities, Gaurav has been with Ambit for over 9
years now. Before moving to the Asset Management arm, he worked as Strategist with the
Institutional Equities team of the firm, where he was consistently rated amongst India’s best
strategists. It is in that stint, that he incepted Ambit’s Good & Clean investment philosophy
which became very popular amongst institutional investors in India as well as globally. The
same strategy now forms the core of the portfolio that Gaurav manages.

Before Ambit, Gaurav worked with Edelweiss Capital, a leading financial services firm in
India, managing funds on their Proprietary Trading book delivering improved risk-adjusted
returns.

Professional Qualification: He has a B.Tech. (Bachelor in Technology) from Indian

Institute of Technology (IIT) Bombay, India’s top ranked engineering college and a Post-
graduate diploma in Management from Indian Institute of Management (IIM) Lucknow,
India. Gaurav is also a CFA charter holder from CFA Institute, USA.

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Ambit Asset Management
Investment Analyst
Ashvin Shetty, CFA
Ashvin has more than 10 years of experience in equity research, having led the coverage
on automobile sector at Ambit Capital since October 2010. He was ranked in the Starmine
Analyst Awards 2013 and 2016 for his stock picking abilities during his stint at Ambit
Capital. Prior to joining Ambit, he worked with Execution Noble as an equity research
analyst covering companies in consumer and media space.
He has also worked with KPMG and Deloitte as statutory auditor from 2004 to 2007
gaining extensive experience across Indian accounting standards and financial statement
analysis.
Professional Qualification: Ashvin is a commerce graduate from Narsee Monjee College
(Mumbai, India). He is a qualified Chartered Accountant (India, 2004) and Chartered
Financial Analyst from CFA Institute, USA (2007).

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Ambit Asset Management
Investment Analyst
Pranoy Kurian, CFA

Pranoy Kurian has over 5 years of experience in financial services and Indian equities. He
has worked as a Senior Analyst in the Institutional Equities team of IDBI Capital. During
this period, he extensively researched and wrote on India’s Automotive & Consumer
sector. Pranoy has also worked with Centrum Capital as an Analyst, where he specialized
in discovering multi-baggers across sectors. His expertise primarily lies in finding cleaner
companies in the heap of mid and small sized Indian listed companies.

Professional Qualification: He holds a Bachelors in Management degree from H.R.

College (Bombay, India) and a Masters in International Business from the Curtin
University of Technology (Singapore). Pranoy is also a CFA charter holder from the CFA
Institute, USA.

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Ambit Asset Management
Disclaimer

• Ambit Investment Advisors Private Limited (“Ambit”) is a registered Portfolio Manager with Securities and Exchange Board of India.

• This presentation is strictly for information and illustrative purposes only and should not be considered to be an offer, or solicitation of
an offer, to buy or sell any securities or to enter into any Portfolio Management agreements. This presentation / newsletter / report is
prepared by Ambit strictly for the specified audience and is not intended for distribution to public and is not to be disseminated or
circulated to any other party outside of the intended purpose. This presentation may contain confidential or proprietary information and
no part of this presentation may be reproduced in any form without its prior written consent to Ambit. If you receive a copy of this
presentation and you are not the intended recipient, you should destroy this immediately. Any dissemination, copying or circulation of
this communication in any form is strictly prohibited.

• Neither Ambit nor any of their respective affiliates or representatives make any express or implied representation or warranty as to the
adequacy or accuracy of the statistical data or factual statement concerning India or its economy or make any representation as to the
accuracy, completeness, reasonableness or sufficiency of any of the information contained in the presentation herein, or in the case of
projections, as to their attainability or the accuracy or completeness of the assumptions from which they are derived, and it is expected
each prospective investor will pursue its own independent due diligence. In preparing this presentation, Ambit has relied upon and
assumed, without independent verification, the accuracy and completeness of information available from public sources. Accordingly,
neither Ambit nor any of its affiliates, shareholders, directors, employees, agents or advisors shall be liable for any loss or damage
(direct or indirect) suffered as a result of reliance upon any statements contained in, or any omission from this presentation and any
such liability is expressly disclaimed.

Contd..

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Disclaimer

• You are expected to take into consideration all the risk factors including financial conditions, Risk-Return profile, tax consequences, etc.
You understand that the past performance or name of the portfolio or any similar product do not in any manner indicate surety of
performance of such product or portfolio. You further understand that all such products are subject to various Market Risks, Settlement
Risks, Economical Risks, Political Risks, Business Risks, Financial Risks etc. You are expected to thoroughly go through the terms of
the arrangements / agreements and understand in detail the Risk-Return profile of any security or product of Ambit or any other service
provider before making any investment. You should also take professional / legal /tax advice before making any decision of investing or
disinvesting. Ambit or Ambit associates may have financial or other business interests that may adversely affect the objectivity of the
views contained in this presentation.

• Ambit does not guarantee the future performance or any level of performance relating to any products of Ambit or any other third party
service provider. Investment in any product including mutual fund or in the product of third party service provider does not provide any
assurance or guarantee that the objectives of the product are specifically achieved. Ambit shall not be liable to client for any losses that
you may suffer on account of any investment or disinvestment decision based on the communication or information or recommendation
received from Ambit on any product. Further Ambit shall not be liable for any loss which may have arisen by wrong or misleading
instructions given by you whether orally or in writing.

• The product ‘Ambit Good & Clean Portfolio’ has been migrated from Ambit Capital Private Limited to Ambit Investments Advisors
Private Limited. Hence some of the information in this presentation may belong to the period when this product was managed by Ambit
Capital Private Limited.

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MUMBAI DELHI
Ambit House 310-313 Ashoka Estate
449, Senapati Bapat Marg Barakhamba Road
Lower Parel
Mumbai - 400 013 New Delhi – 110003
Phone: +91 22 3982 1819 Phone: +91 11 2332 9675

BANGALORE
"Empire Infantry", Unit No. 3
29 Infantry Road, 1st Floor
Bangalore - 560 001
Phone: +91 80 3055 4400

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