India “Four Seasons” Fund

August 2019

Managed By: Varinder Bansal

Theme: Focus on cos which have seen good & bad cycles, with strong products, proven management &
capable of outpacing industry growth

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 Outline

Our Approach (3P)

Our Investment Process (5 steps)

Stock Selection Strategy

What We Avoid

About Us

Product details

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 What is different from other PMS?

We don’t want to make a different product but stick to basic principle of “Disciplined Investing”

“We don’t have to be smarter than the rest.

We have to be more disciplined that the rest” – Warren Buffett

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 Case Study - Atul Ltd

Atul
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
MCap, year end (Rs Cr) 258 520 568 898 1,286 3,345 4,570 7,059 7,777 10,597
P/E (x), year end 4.8 5.9 6.4 7.7 6.0 14.2 16.7 21.9 28.2 24.5 CFO/EBIDTA: consistently
above 50%
Revenue (Rs Cr) 1,192 1,532 1,792 2,043 2,458 2,656 2,595 2,834 3,514 4,265
D/E has never gone up
EBITDA% 9% 10% 11% 12% 15% 15% 18% 18% 14% 18% and now NIL
CFO / EBITDA (%) 105% 39% 43% 75% 42% 76% 87% 77% 70% 53%
RoCE came down from
D/E (x) 0.92 0.73 0.71 0.64 0.50 0.35 0.23 0.14 0.04 0.01 30% in 2014 due to capex
but has jumped to 27% in
ROCE (%) 15% 22% 20% 22% 30% 27% 26% 23% 19% 27% 2019
Source: Capitaline

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 Case Study - Berger Paints

Berger Paints
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
MCap, year end (Rs Cr) 2,030 3,049 3,681 6,770 7,954 14,476 16,956 23,449 24,902 31,431
CFO/EBIDTA: consistently
P/E (x), year end 17.8 21.3 21.4 32.6 33.7 58.7 45.8 49.5 54.0 63.1 above 50%
Revenue (Rs Cr) 1,891 2,341 2,948 3,346 3,870 4,322 4,223 4,552 5,166 6,062
D/E has never gone up
EBITDA% 11% 11% 10% 11% 11% 12% 15% 16% 16% 15% and now almost NIL

CFO / EBITDA (%) 91% 50% 58% 32% 72% 81% 92% 55% 52% 64% Stable RoCE around 30%
D/E (x) 0.63 0.46 0.51 0.56 0.57 0.52 0.34 0.22 0.20 0.20 for last 4 years

ROCE (%) 24% 25% 26% 25% 24% 25% 31% 31% 29% 28%
Source: Capitaline

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 Case Study - Havells India

Havells India
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
MCap, year end (Rs Cr) 3,606 4,631 7,136 8,082 11,608 19,056 20,127 29,253 30,492 48,221 CFO/EBIDTA: consistently
P/E (x), year end 55.0 15.5 20.0 14.3 28.0 54.9 16.4 59.2 46.0 61.3 above 70%

Revenue (Rs Cr) 5,427 5,902 6,873 7,718 8,687 9,108 7,613 6,156 8,116 10,045 D/E has come down
sharply from 2x to almost
EBITDA% 6% 9% 10% 9% 9% 8% 10% 11% 12% 12% NIL
CFO / EBITDA (%) 97% 48% 69% 95% 113% 128% 67% 109% 111% 42%
Stable RoCE around 25%
D/E (x) 2.26 2.07 1.33 0.84 0.65 0.42 0.12 0.05 0.05 0.03 for last 7-8 years
ROCE (%) 16% 28% 28% 23% 24% 23% 26% 25% 27% 28%
Source: Capitaline

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 Case Study - Pidilite Industries

Pidilite Inds.
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
MCap, year end (Rs Cr) 5,787 7,551 9,012 13,487 15,655 30,806 30,335 35,826 46,642 63,109
P/E (x), year end 22.3 25.6 29.2 33.6 36.7 63.9 41.3 41.7 48.5 68.2 CFO/EBIDTA: consistently
above 60%
Revenue (Rs Cr) 2,194 2,657 3,127 3,678 4,283 4,844 5,361 5,617 6,078 7,079
EBITDA% 17% 18% 15% 16% 16% 16% 22% 22% 22% 19% D/E has never gone up
and now almost NIL
CFO / EBITDA (%) 102% 64% 76% 81% 59% 72% 77% 63% 59% 63%
Stable RoCE around 30%
D/E (x) 0.69 0.41 0.27 0.15 0.04 0.02 0.03 0.03 0.03 0.03 for last 7-8 years
ROCE (%) 26% 32% 30% 35% 33% 32% 45% 40% 37% 33%
Source: Capitaline

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 What’s Common Amongst Wealth Creators

▪ Led by strong management team

▪ Size of opportunity should be big
▪ Business growth not at the expense of high debt or frequent equity dilution
▪ Consistent ROCE%
▪ Stable Cashflow generated from operating activities to EBITDA ratio

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 Our Approach | 3P Investment Philosophy

PROMOTER “We’ve never succeeded in making good

P Has Passion for its products, Focus on the business and
conduct’s the business with Unquestionable Integrity
deals with bad people”
- Warren Buffett

PRODUCT “In business, I look for economic castles

P Has substantial competitive advantages over others and has
the ability to sustain and protect the same over years to come
protected by unbreachable ‘moats’”
- Warren Buffett

PRICE
P We don't want to buy the highest quality business. Its all about
finding good businesses and paying a lot less for it
“Everything is AAA at the right price”
- Howard Marks

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 Investment Process

Screener Sector Focus Compulsory Beyond Portfolio

Checklist Numbers Allocation
Focus list of companies, basis Sector Ensure compliance with Analysis beyond numbers Allocation Strategy
following parameters: evaluation internal checklist, such as:

o Has history of 10+ years o Sector growth > 8/10% o Group cos of promoters? o Meeting management o Sector cap – 20% maximum
o RoCE ≥ 15% o Pricing Power o Related party transactions o Visiting plants o Single co – 12% maximum
o CFO / EBIDTA ≥ 50% o Sectors - o Equity Dilution? o Analysts meet o Portfolio – 7-15 cos
o D/E ≤ 1.5x • Consumption o CFO / EBIDTA vs peers? o Conference Calls o Portfolio Options - Aggressive
o Promoter stake ≥ 40% • Chemicals o Working Capital days vs o Meeting competitors or Mature
o Promoter Pledge Nil • Pharma peers? o Internal Debates
o M-cap INR 500 - 25000 crore • Auto / Auto Ancilliaries o Number of CEOs changed
o since inception?
(Mcap < 2000 cr will have • Financials
max allocation of 20%) o and others
• Industrials

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 Companies – Screener Benchmarking* (1st Step)

3 Year Returns^
Total listed cos
2% 4850+ Cos
2%  10 years history
4600+ Cos

33%  Mcap 500 - 25000 cr

750+ Cos

39%  Promoter stake ≥ 40% 600+ Cos

38%  Pledge NIL 500+ Cos

36%  D/E ≤ 1.5x 450+ Cos

52% RoCE ≥ 20% 180 + Cos

Source: Capitaline; Analysis
^ - Returns are the average of simple returns as at 09-08-2019; Source - Capitaline
* ~20% allocation can be done on exception basis
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 Companies – Screener Benchmarking* (1st Step)

5 Year Returns^
58%
Total listed cos
4850+ Cos
 10 years history
58% 4600+ Cos

125%  Mcap 500 - 25000 cr

750+ Cos

128%  Promoter stake ≥ 40% 600+ Cos

131%  Pledge NIL 500+ Cos

123%  D/E ≤ 1.5x 450+ Cos

206%
RoCE ≥ 20% 180 + Cos
Source: Capitaline; Analysis
^ - Returns are the average of simple returns as at 09-08-2019; Source - Capitaline
* ~20% allocation can be done on exception basis
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 Chemical Sector

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 APIs

Sales ROCE (%)

(Rs crore) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 (%) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Aarti Drugs 501 659 826 972 1,097 1,140 1,195 1,244 1,561 Aarti Drugs 13.0% 13.7% 19.9% 21.9% 19.3% 17.7% 17.8% 16.9% 16.5%
Divi's Lab. 1,317 1,864 2,145 2,532 3,115 3,776 4,064 3,891 4,946 Divi's Lab. 28.1% 34.0% 33.1% 36.0% 33.0% 35.5% 28.7% 21.6% 28.4%
Hikal 502 708 660 829 872 926 1,014 1,296 1,590 Hikal 9.8% 16.4% 15.8% 17.6% 12.4% 11.8% 11.7% 12.7% 15.1%
J B Chem & Pharm 891 802 866 1,022 1,144 1,210 1,344 1,408 1,643 J B Chem & Pharm 22.5% 11.1% 8.0% 12.6% 13.4% 15.0% 13.4% 10.5% 19.4%
Neuland Labs. 397 449 461 466 469 510 579 527 667 Neuland Labs. 11.4% 11.2% 15.3% 18.5% 15.4% 18.1% 15.7% 4.0% 3.9%
NGL Fine Chem 35 36 56 79 88 96 100 114 153 NGL Fine Chem 22.0% 11.0% 19.2% 24.2% 28.6% 37.2% 33.3% 21.2% 27.0%
Shilpa Medicare 290 318 371 571 614 719 779 789 Shilpa Medicare 28.5% 17.5% 14.5% 19.9% 17.5% 15.8% 14.0% 10.9%
Solara Active 521 1,387 Solara Active 1.8% 9.5%
Vinati Organics 323 447 554 696 772 631 641 730 1,108 Vinati Organics 36.4% 31.3% 27.2% 30.9% 37.7% 35.9% 32.5% 27.1% 45.6%

Total Debt Days - DSO + DIO - DPO (capitaline)

(Rs crore) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 (days) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Aarti Drugs 244 298 296 342 448 482 477 543 500 Aarti Drugs 116 119 119 106 118 119 115 147 125
Divi's Lab. 23 55 33 18 27 42 36 63 106 Divi's Lab. 436 359 417 433 387 336 311 340 362
Hikal 531 526 584 546 547 505 598 635 661 Hikal 269 192 315 257 239 200 213 174 184
J B Chem & Pharm 161 71 50 93 127 193 49 29 26 J B Chem & Pharm 258 155 149 176 171 188 170 180 189
Neuland Labs. 234 220 211 190 188 182 192 319 231 Neuland Labs. 88 85 119 134 154 184 218 278 191
NGL Fine Chem 6 10 13 17 13 14 23 27 27 NGL Fine Chem 115 125 124 117 116 133 137 106 129
Shilpa Medicare 50 55 98 118 181 91 241 191 Shilpa Medicare 85 74 80 100 127 115 183 212
Solara Active 633 538 Solara Active 147 100
Vinati Organics 77 173 237 162 65 42 2 15 4 Vinati Organics 110 119 120 91 90 100 128 120 115

Debt-Equity Ratio
(x) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Aarti Drugs 1.45x 1.48x 1.48x 1.39x 1.35x 1.40x 1.27x 1.20x 1.05x
Divi's Lab. 0.02x 0.02x 0.02x 0.01x 0.01x 0.01x 0.01x 0.01x 0.01x
Hikal 1.83x 1.74x 1.68x 1.53x 1.33x 1.19x 1.04x 0.97x 0.91x
J B Chem & Pharm 0.25x 0.15x 0.06x 0.07x 0.11x 0.15x 0.10x 0.03x 0.02x
Neuland Labs. 3.33x 3.06x 2.47x 1.80x 1.33x 1.07x 0.51x 0.46x 0.44x
NGL Fine Chem 0.38x 0.50x 0.63x 0.67x 0.52x 0.36x 0.36x 0.38x 0.33x
Shilpa Medicare 0.41x 0.23x 0.32x 0.34x 0.33x 0.34x 0.28x 0.21x
Solara Active 0.83x 0.68x
Vinati Organics 0.58x 0.75x 0.96x 0.72x 0.30x 0.11x 0.04x 0.01x 0.01x
Source: Capitaline

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 Auto Sector (Past Cycles)

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 Our Process | Compulsory Checklist (3rd Step – make individual reports on cos under study)

▪ Promoters (background)
▪ Group Cos of promoters?
▪ Related party transactions
▪ Equity Dilution?
▪ Promoters shareholding/ pledged? Has it increased or decreased?
▪ RoE Trend Vs Capex over last 5-10 years?
▪ Growth in capacity Vs capex (internal or outside) over last 3-10 years?
▪ Dividend Policy?
▪ CFO/ EBIDTA vs peers?
▪ Working Capital days vs peers?
▪ Scalability of the business Vs impediments to growth?
▪ How much scale of the business has grown in last 5 years vs peers?
▪ Number of CEOs changed since inception?
▪ Any particular trigger for stock to move?
▪ Negatives in the company/ sector
▪ Valuation vs peers?

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 Our Process | 4th Step – Going Beyond The Numbers

Preliminary research Differentiating the company

▪ Last 5 year’s annual reports ▪ How the company derives its moat?
▪ Financial modelling ▪ How sustainable is its moat?
▪ Public announcements ▪ Competitive landscape
▪ Consistency in management commentary ▪ Macro business environment
Desktop Business
[...]
▪ Industry data / statistics Research Quality

What do we ask ourselves before investing Going beyond the desk

▪ Is there an adequate margin of safety ? Self Checks
[...] Scuttlebutt
[...]
▪ Review from the suppliers, customers,
▪ What can go wrong ? employees and competitors
▪ Is it too good to be true ? ▪ Soft due diligence on promoters
▪ Why is it cheap as markets knows better? ▪ Social media checks
▪ Why is the other side selling if its cheap ? ▪ Executive compensation & business interest

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 Our Stock Selection Strategy

▪ “Price -Value gap” identification investing

o Mis-priced investing opportunities (times when stock falls due to technical selling & not fundamentals)

o Improving fundamentals not being recognised yet by markets

▪ Corporate Action Strategies Investing: Potential change of management with underlying business remaining
strong or good franchise

▪ Potential re-rating opportunity: Consistent mid cap performers that are now starting to show growth ambitions

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 What do we avoid?

In Companies In Investing

Hot stocks or concept stocks Forecasting the markets

Businesses that we do not understand Investing on the basis of technical analysis

Expensive valuations Churning the portfolio

Promoters with corporate governance issues Following the herd

Leveraged companies / promoters

“If we avoid the losers,

The winners will take care of themselves” – Howard Marks
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 Things to question

▪ Low Operating Cashflow to EBITDA, especially due to high working capital (Cash conversion cycle and WC days)
▪ Aggressive capex plans by cos with low EBITDA and generating low cashflow from operations (Capex vs EBITDA)
▪ Changes in accounting policies, such as around fixed assets, depreciation, inventory
▪ Substantially lower tax outflow in cashflow vs income statement
▪ High capex, depreciating assets & replacing capex which may not make business sense or show correlation with
revenue (“buy, depreciate, sell, lose money, repeat” – Source: Glaucus)
▪ Stark difference in cost / expense profile against comparable peers
▪ Related party transactions, especially with promoter group entities which aren't subsidiaries
▪ Cash lying in current accounts and foreign jurisdictions

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 Team
Amanjit Singh Sethi | He is a qualified Chartered
Accountant and LLB (Gen.) with 5+ years experience
across domains of Mergers & Acquisitions and Transaction
Advisory. Previous organisations include L&T Infotech and
KPMG
Navin Shetty | He has 3+ years experience in equity
research. He has worked with CNBC TV18 and Bloomberg
as a Senior Equity analyst. He holds an MBA degree from
Mumbai university
Ronith Ramesh | Prior to Pantomath, he was a research
analyst at CNBC-TV18. Prior experience includes Vallum
Capital and OPC Asset Solutions. He holds a Bachelor of
Financial Markets degree
Strictly Privileged & Confidential | For internal use and not for public circulation
Varinder Bansal | Managing Partner & Fund Manager
Over 12 years of work experience in equity research. Prior to joining
Pantomath, he was Corporate Editor & Head of Research at CNBC – TV
18. He holds a degree in MSc Finance and MBA, Finance
Alpa Suchde | Prior to Pantomath, she was Vice President
- Credit Analysis Unit at JP Morgan for nearly 10 years. She
is a qualified Chartered Accountant and done her Master
of Management Studies (MMS), Finance
Vineet Gala | He is a qualified Chartered Accountant and
Chartered Financial Analyst (US) with 3+ years of buy-side
equity research experience. He has worked with Equitree
Capital, Nirmal Bang and BMR Advisors
Vanesh Sharma| He is a Post Graduate in Securities Market
from NISM and B.Com (H). His NISM certifications include
Investment Advisors and Research Analyst
21
 India “Four Seasons” PMS

Product details
Minimum Investment 25 Lakhs

Investment Horizon Minimum 3 Years

Benchmark Nifty Midcap 100 Index

2% of daily average AUM to be charged on a quarterly basis

Fees
10% profit sharing with high water mark to be charged annually at end of financial year

Exit Load 3% (if exit before 1st year)

Reporting Monthly performance statement; annual certified statement of accounts

Custodian, DP and Banking

Regulator
Fund Accountant Partner

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 FAQ

Account Opening: Form submission, Reporting: In addition to monthly

Portfolio Access: You can access your statements, you will receive an Annual
KYC documents, New Demat account portfolio through our online portal. You
opening with Edelweiss (mandatory). statement will contain details of all
will receive monthly statements via transactions, Investments, Profit/Loss,
Contact: Nidhi Bohra: +91-96991-89991 email
to understand further Capital gains, fees charged

Lock In: 3 years Our Partners: Your Demat account will Queries: You can reach out to us on any
Exit load on early redemption before 1 be opened with Edelweiss, who is also topic, such as queries pertaining to
year: 3% our fund accountant. investments. Statements, taxation, etc

For further details, please contact:

Nidhi Bohra: +91-96991-89991 amc@pantomathgroup.com
(022) 6194-6700 / 726 / 774 varinder.bansal@pantomathgroup.com

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 THANKING YOU,
Varinder Bansal
Managing Partner,
Pantomath Fund Managers LLP
For further details, please contact:
Nidhi Bohra: +91-96991-89991

706-710, Balarama Building, Bandra Kurla Complex,

Bandra (East) Mumbai - 400 051
(022) 6194-6700 / 726 / 774

amc@pantomathgroup.com
varinder.bansal@pantomathgroup.com
www.pantomathgroup.com

@PantomathAMC | Follow Us!

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