Jeetay Investments Private Limited

TheValue Trek

Plan

Jeetay Investments Private Limited

o Sebi registered Portfolio Manager

o Engaged in PMS activities since 2004

o Promoted by Chetan Parikh and Vinay Parikh

o Have a combined experience of over 50 years in the investment management industry

Investment philosophy

o Valuation Driven

o Bottom-up Investing

o But against a backdrop of market valuation and cycle study: to determine asset allocation

o Accent on risk control• Purchase with MOS• Position Sizing• Cash/Equity Allocation

Investment Process

Salient features

o Market valuation: asset allocation

o Market cycles: asset allocation

o Company valuation: Range of fair value for the business to pre-determine entry and exit prices

Index Valuation

Index Valuation

o Historical Valuation

o Trend Analysis

o Valuation Cycle

Year Ended Dec 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Sensex level at high 4,322 5,151 6,151 4,462 3,758 5,921 6,617 9,443 14,035 20,498 21,207 17,531 21,109 20,665 Ratio

Sensex Level at low 2,741 3,042 3,492 2,595 2,828 2,904 4,228 6,069 8,799 12,316 7,697 8,047 15,652 15,136 Used

Dividend Yield at High 1.3% 1.1% 1.0% 1.5% 1.9% 1.7% 1.7% 1.5% 1.2% 0.8% 0.8% 1.1% 1.0% 1.3% 23,287 26,780 1.3%

Dividend Yield at Low 2.1% 1.9% 1.7% 2.6% 2.5% 3.5% 2.7% 2.3% 1.9% 1.4% 2.2% 2.4% 1.3% 1.7% 14,080 16,192 2.2%

P/E at High 17.1 22.2 31.9 21.9 16.3 19.7 15.9 17.5 21.8 26.3 29.8 21.3 23.0 21.2 23,136 26,144 21.0

P/E at Low 10.9 13.1 18.1 12.7 12.3 9.6 10.2 11.3 13.7 15.8 10.8 9.8 17.0 15.5 14,322 16,184 13.0

Normalised PE at High 17.4 19.9 25.0 17.6 14.0 20.4 20.8 23.6 29.9 37.3 31.9 21.4 21.8 22.1 22,621 25,562 21.5

Normalised PE at Low 11.0 11.8 14.2 10.2 10.6 10.0 13.3 15.2 18.8 22.4 11.6 9.8 16.1 16.2 13,678 15,456 13.0

P/B at high 3.2 3.6 4.6 3.2 2.6 3.7 3.8 4.3 5.4 6.8 5.8 3.9 4.0 4.0 23,124 26,130 4.0

P/B at Low 2.0 2.1 2.6 1.9 1.9 1.8 2.4 2.8 3.4 4.1 2.1 1.8 2.9 3.0 13,874 15,678 2.4

23,042 26,154

13,989 15,878

Volatility 57.7% 69.3% 76.2% 72.0% 32.9% 103.9% 56.5% 55.6% 59.5% 66.4% 175.5% 117.9% 34.9% 36.5%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 CAGR

EPS 253 232 193 204 230 301 416 539 643 778 711 822 919 975 1,102 1,245 14.2%

1.5% -8.3% -16.8% 5.9% 12.7% 30.9% 38.2% 29.6% 19.3% 21.0% -8.6% 15.6% 11.8% 6.0%

Normalised EPS 248 259 246 254 268 291 318 400 469 550 664 818 970 936 1,052 1,189 13.0%

Book Value 1,365 1,421 1,350 1,393 1,473 1,597 1,745 2,199 2,578 3,020 3,650 4,494 5,327 5,116 5,781 6,533 13.0%

Dividend 57 57 59 66 72 101 113 140 163 167 173 193 208 263 303 348 14.2%

Average

RONW 18.5% 16.3% 14.3% 14.6% 15.6% 18.8% 23.8% 24.5% 24.9% 25.8% 19.5% 18.3% 17.3% 19.1% 19.1% 19.1% 18.4%

DIVIDEND PAYOUT 22.7% 24.4% 30.7% 32.5% 31.3% 33.6% 27.2% 25.9% 25.4% 21.5% 24.3% 23.5% 22.6% 27.0% 27.5% 28.0% 26.6%

Index: Historical Valuation

Index: Trend Analysis

Index: Valuation Cycle

Index: Valuation Summary

Historic Analysis 13,989 23,042

DCF Analysis 14,399 23,706

Trend Analysis 14,606 24,636

Sensex Range Dec 12

14,500 24,000

Currently Sensex is below Mid band on our estimated valuation in a Neutral Market.

Company Valuation

Company Valuation

o Attempt to estimate a range of “fair values” within which the “intrinsic value of a business” resides.

o Industry and business characteristic determine determine valuation methodology used;

Asset based valuation Earning based valuation

Company Valuation

o Asset based Valuation: In case where sustainability of earning is either absent or not ascertainable.

o Earning based valuation: only in cases where there is identifiable sustainability of earnings (generally referred to as moats):

• Network effects • Switching Costs • Cost Advantage incl. economy of scale. • Regulatory or supply constraints e.g. Patents,

Mining Rights

Earning based valuation

Use of earning multiples are nothing but abbreviated Discounted Cash Flow

Asset Based Valuation

o Commodity businesses tend to earn cost of capital over a industry cycle. Although in between they have high and poor returns.

o The major growth Driver in commodities business is capacity expansion requiring more capital infusion. Thus cashless growth is negligible over a cycle

Thus earning (E) = KA [Cost of Capital (K)* Assets (A)]

Discounting (E) for infinity gives

P= KA / KP=A

Asset Based Valuation

o Cement Industry:

• capital intensive • low barriers to entry • Cyclical • High transportation cost resulting in

regional markets.

Asset based valuation module and study of capital cycle in industry are the best tools for investment decision making

Ambuja Cement

One of the more efficient players in the industry: o Clear cyclicality: in both valuation and profitability. o Pro-cyclicality: Market gives the highest multiple

when picture is the brightest.

Earning Based Valuation

Exide Industries

o Largest Lead based Batteries Manufacturer in India.

o Largest range product profile.

o Economy of scale: Market share twice of next competitor.

o Distribution reach: Twice of next competitor.

o OEM relations leading to better brand recall at replacement.

Financial Year Ended Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11

Turnover 7,677 7,866 8,779 9,614 11,836 13,886 18,703 28,449 33,930 37,940 45,536

Growth % 1.5% 2.5% 11.6% 9.5% 23.1% 17.3% 34.7% 52.1% 19.3% 11.8% 20.0%

Core Earning Per Share 0.6 0.5 0.8 1.2 1.1 1.3 2.0 3.1 3.5 6.3 7.3

Growth % -13.0% -20.2% 62.6% 41.8% -8.5% 27.5% 49.6% 53.8% 14.1% 79.3% 15.3%

Gross Profit Margin 25.4% 26.3% 27.4% 26.1% 22.0% 23.8% 21.8% 20.7% 21.1% 28.7% 24.0%

Operating Profit Margin 12.5% 11.2% 13.1% 13.2% 10.7% 12.2% 13.7% 14.3% 14.2% 21.4% 17.5%

Net Profit Margin 5.9% 4.5% 6.6% 8.5% 6.7% 7.3% 8.1% 8.7% 8.3% 14.2% 13.6%

Assets Trunover Ratio 0.8 0.9 1.0 1.1 1.1 1.2 1.3 1.4 1.6 1.3 1.3

Fi d t T R tiFixed assets Turnover Ratio 1 471.47 1 591.59 1 821.82 2 012.01 2 442.44 3 04 3.04 3 773.77 4 734.73 4 954.95 5 315.31 5 055.05

Overall RONW 11.5% 10.5% 15.9% 20.7% 16.3% 18.2% 22.5% 24.1% 22.5% 24.2% 22.6%

Overall ROCE 11.7% 11.8% 16.2% 19.2% 15.1% 18.8% 24.3% 28.4% 29.4% 34.2% 28.2%

ROA 5.6% 5.3% 10.1% 13.7% 11.0% 12.8% 15.8% 18.5% 20.4% 27.3% 24.7%

Financial Year Ended Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11

Sales -Volume 000s 7,282 7,662 9,303 12,343 14,086 14,418 16,921 17,996 19,109 21,899 23,803

Growth % 11.3% 5.2% 21.4% 32.7% 14.1% 2.4% 17.4% 6.4% 6.2% 14.6% 8.7%

Price/Unit (INR) 1,054 1,027 944 779 840 963 1,105 1,581 1,776 1,732 1,913

Growth % -8.8% -2.6% -8.1% -17.5% 7.9% 14.6% 14.8% 43.0% 12.3% -2.4% 10.4%

OP / Unit (INR) 132 115 124 103 90 117 151 227 251 371 335

Growth % -18.5% -13.0% 8.0% -17.2% -12.5% 30.8% 28.5% 50.2% 10.9% 47.5% -9.6%

Lead Price per Ton (INR 000s 39 42 36 37 56 58 72 119 111 100 115

Growth % -1.7% 7.2% -14.2% 2.9% 51.2% 2.0% 25.6% 64.7% -6.6% -9.6% 14.7%

Exide– Historic analysis

DCF Valuation

GROWTH 11.0% 13.0%

FCF / EPS 50.0% 40.0%

DISCOUNT RATE 14.0% 14.0%

Terminal Multiple 11.0 22.0

FCF EPS FCF

2013 3.8 7.5 3.0 7.5

2014 4.2 8.3 3.4 8.5

2015 4.6 9.2 3.8 9.6

2016 5.1 10.3 4.3 10.8

2017 5.7 11.4 4.9 12.2

2018 6.3 12.6 5.5 13.8

2019 7.0 14.0 6.2 15.6

2020 7.8 15.6 7.1 17.6

2021 8.6 17.3 8.0 19.9

2022 9.6 19.2 9.0 22.5

Terminal Value 211.0 495.7

Value of FCF 33.4 28.8

Value of Terminal Value 64.9 152.4

Total Value 98.3 181.3

Revenue CAGR (1999-2012) 17.4% OPM Avg 7 years 15.5%

EPS CAGR (1999-2012) 20.7% OPM Used 15.5%

FCF/EPS Avg (1999-2012) 56.5%

Historical Analysis

o Based on standalone numbers, as major subsidiary is Insurance business. Two other two major subsidiaries incl raw material supplier, providing some degree of backward integration.

o Since consolidated number were distorted by insurance arm, we used standalone numbers. Actual profitability will be slightly higher than given.

o Normalised margin used for FY 2013 estimates, which is lower than street estimates.

o Insurance business is valued separately based on book value (1x –1.6x) of investment. Investment in ING VYSYA Life Insurance: ~INR 9/share.

Replacement Demand estimates

Financial Year Ended 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12(e) 2012-13(e) 2013-14(e)

SCOOTERS 29.7% 32.1% 15.3% 23.9% 24.4% 13.8% 2.0% 11.1% 19.7% 9.5%

MOTORCYCLES 4.3% -6.4% -13.9% 6.1% -2.9% 0.6% 9.7% 5.8% 11.8% 32.0%

Total 2 Wheelers 19.7% 18.8% 7.4% 20.0% 19.2% 11.7% 3.1% 10.3% 18.5% 12.5%

Total Passenger Vehicles 36.3% 6.4% 1.6% 1.8% 37.6% 9.8% 6.7% 14.7% 21.5% 6.9%

Replacement demand estimate :

o in case of 2 wheelers we used Motorcycles and Scooters with 3 years replacement cycles.

o In case of Cars and MUVs, we used 5 years replacement cycles.

o Company enjoys a 70% markets share in replacement market of organised players.

Financial Years Mar-07 Jun-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09Lead Prices two quarter back 1,984 3,072 3,723 2,622 2,835 1,960 1,494 1,145 1,394COGS as a % 64.3% 68.3% 68.5% 68.2% 66.3% 66.6% 63.7% 57.8% 54.5%OPM as a % 15.4% 13.1% 12.9% 15.0% 14.6% 12.4% 14.8% 21.2% 23.8%

Correlation between Lead price and COGS

with 2 Quarter lag 77.2% The company experiences the pinch (benefit) of increase (decrease) in Lead prices by lag of 2-3 quarters due to pricing, inventory etc.with 3 Quarter lag 75.8%

Lead Price and COGS

Lead Price Trend

Our Offering

TheValue Trek

Plan

o Minimum Assets Size: INR 2.5 Million

o Upfront Fee: 1.0%

o Annual Management Fee: 1.5%(charged half yearly on actual assets)

o Hurdle Rate: 6.0%(After all expenses except Management fees)

o Performance Fee: 20.0% (on returns above hurdle rate on high water mark basis)

o Other expenses on actual(primarily transaction costs, banking charges, audit fee and back office)

The Value Trek Plan

Portfolio Manager: Vinay Parikh

Thank You

This is an Internal Document and not meant for unlimited public circulation. The investor shall at all times keep such information / data and material provided by Jeetay Investments Private Limited strictly confidential and will not use, share or disclose such information to any third party.

This document has been solely prepared for illustrative purposes only. The information contained herein does not constitute any guidelines or recommendations on any course of action to be followed by an investor.

The information is prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. JeetayInvestments Private Limited does not solicit any course of action based on the information provided by it and the investor is advised to exercise independent judgment and act upon the same based on its/his/her sole discretion based on their own investigations and risk-reward preferences.

This information is not intended to be an offer or solicitation for the purchase or sale of any security or financial product.

It is stated that, as permitted by SEBI Regulations, Jeetay Investments Private Limited and/or its associates, affiliates and/or individuals thereof may have positions in securities referred to in the information provided by it and may make purchases or sale thereof while the information is in circulation.

Disclaimer

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Disclaimer cont…

Investing in securities including equities involves certain risks and considerations associated generally with making investments in securities. The value of the portfolio investments may be affected generally by factors affecting financial markets, such as price and volume, volatility in interest rates, currency exchange rates, changes in regulatory and administrative policies of the Government or any other appropriate authority (including tax laws) or other political and economic developments. Consequently, there can be no assurance that the objective of the Portfolio would achieve. The value of the portfolios may fluctuate and can go up or down. Prospective investors are advised to carefully review the Disclosure Document, Client greement, and other related documents carefully and in its entirety and consult their legal, tax and financial advisors to determine possible legal, tax and financial or any other consequences of investing under this Portfolio, before making an investment decision. The Stock(s)/Sector(s) mentioned in this material do not constitute any recommendation of the same and the portfolios may or may not have any future positions in these Stock(s)/Sector(s).

Continued… 

Disclaimer cont…

Individual returns of Clients for a particular portfolio may vary significantly from the performance of the other portfolios. This is due to factors such as timing of entry and exit, timing of additional flows and redemptions, individual client mandates, specific portfolio construction characteristics or structural parameters, which may have a bearing on individual portfolio performance. No claims may be made or entertained for any variances between the performance depictions and individual portfolio performance. Neither the Portfolio Manager nor its Directors or Employees shall be in any way liable for any variations noticed in the returns of individual ortfolios.

In the preparation of this material the Portfolio Manager has used information that is publicly available, including information developed in-house. Some of the material used herein may have been obtained from members/persons other than the Portfolio Manager and/or its affiliates and which may have been made available to the Portfolio Manager and/or to its affiliates. Information gathered and material used herein is believed to be from reliable sources. The Portfolio Manager however does not warrant the accuracy, reasonableness and/or completeness of any information. For data reference to any third party in this material no such party will assume any liability for the same.