May 2020

TANTALLON INDIA FUND

The Tantallon India Fund is a fundamental, long-biased, India- Performance, in USD
focused, total return opportunity fund, registered in the Cayman (Inception on September 1, 2015)
Islands and Mauritius. The Fund invests with a 3-5 year horizon, Tantallon MSCI Over/Under
in a concentrated portfolio (25-30 unlevered positions), market India Fund India($) Full Performance
cap/sector/capital structure agnostic, but with strong conviction May 2020: -3.13% -2.85% -0.28%
on the structural opportunity, scalable business models, and in 2020 YTD -23.83% -22.69% -1.14%
management’s ability to execute. 2019: +2.94% +6.02% -3.08%
2018: -22.79% -8.63% -14.15%
Tantallon Capital Advisors, the advisory company, is a Singapore- 2017: +59.14% +36.84% +22.30%
based entity, set up in 2003, holding a Capital Markets Service 2016: -5.79% -2.90% -2.89%
License in Fund Management from the Monetary Authority of 2015: +0.24% -7.53% +7.77%
Singapore. Inception: -9.03% -1.22% -7.81%
These are extraordinary times; we hope that you and your families are
healthy and safe.
Compound Returns -1.97% Volatility +22.19%
3 month US T-bill +0.12% Sharpe Ratio -0.094
The Tantallon India Fund closed down -3.13% in May, another volatile
month as the markets weighed a ‘look through to a new normal’ underpinned
by ‘at all costs’ fiscal, monetary, and policy support, against the stark economic FUND DETAILS
reality of extended global ‘lockdowns’ and job losses. The Tantallon India Fund

Fact: the trade-weighted dollar was the worst-performing major asset, AUM USD 17,000,000
while distressed growth proxies rebounded sharply (Brent crude, US$-
denominated emerging market sovereign bonds, US high-yield debt, Investment Advisor: Minimum Investment:
industrials, materials, financials, developing market and European equities and Tantallon Capital Advisors USD 1,000,000
credit, commodity currencies, and small cap stocks) on the belief that Pte Ltd
‘reopening’ in multiple virus-hit geographies would herald a recovery in global
risk appetite. Administrator: Fees:
• The break-out in risk assets would suggest a combination of ‘hope’ in an Trident Trust Company 1.5%pa Management fees
improving macro environment, unprecedented monetary easing by the (Mauritius) Ltd 12.5% on annual returns in excess of
Fed (since the end of February, the Fed’s balance sheet has expanded by 7.5% US$ hurdle rate compounding
70%, versus +18% for the European Central Bank, and +8% for the annually
Bank of Japan), hyper-cautious investor positioning being forced back
into the markets, and asset valuations that are supported by extremely Domicile: Mauritius Dealing: Monthly
low interest rates.
• Locked into a ‘recovery trade,’ the markets would seem to be ignoring Feeder funds Lawyers:
the risks of: Treasury yields and rate volatility spiking; an extended US Feeder and Non-US Maples & Calder; Shearman & Sterling
pandemic hangover and the 12-18 month hit to corporate profitability; Feeder (Cayman Islands) LLP; Rajah & Tann Singapore LLP
hostile Washington/Beijing rhetoric escalating in the lead-up to the US
Presidential Elections; and strident civil protests and riots in the US/HK. Auditor: Contact:
KPMG Prem Manjooran
We have continued to engage virtually with dozens of companies on the Prem@tantalloncapital.com
ground, as well as with local federal and state level bureaucrats, economists,
industry consultants, and sell-side. analysts and traders. • Thanks to the extended lockdown, and 125m daily contract workers
• There is no ‘single narrative’ that holds across the country/sectors: having lost their jobs, we expect a short, sharp recession, followed
India’s COVID regime prioritized ‘saving lives’ and has been among the by a strong recovery: we have dramatically scaled back our growth
most stringent; the economy will contract sharply this year; rural India is expectations for the fiscal year ended March 2021 to -2.5%, before
in remarkably good shape; domestic bond markets have remained liquid; reverting to a +7% run-rate in FY22-FY25.
thanks to the government’s small loan guarantee programs, access to • Over the last two weeks, as the lockdown measures have been eased,
credit has been reassuringly stable; and recent high frequency data would and as industrial activity resumes in a staggered manner (constrained
suggest a nascent recovery in the industrial economy, ahead of lockdown by labor shortages as the migrant labor pool returns to work), the high
measures being eased. frequency data we track attests to a strong recovery in: electricity
• The market rebound has taken almost everyone by surprise. consumption (back to 70% of pre-lockdown levels, and down just 1%
year-over-year); cement prices (+5% y-o-y, +4% m-o-m); new vehicle
The negative narrative builds on India’s extended national lockdown, mass registrations (back to 35% of pre-lockdown levels); metropolitan city
unemployment, and Modi’s unwillingness to debt-finance a significant increase traffic congestion and toll-road collections (back to 45% of pre-
in cash subsidies, grants, social safety nets, and fiscal stimulus, in order to tide lockdown levels); inter-state commercial vehicle traffic (back to 60%
the economy over. Our view is more nuanced. of pre-lockdown levels); and grocery and pharmacy sales (back to 75%

YEAR RETURNS JAN FEB MAR APR MAY JUN JULY AUG SEP OCT NOV DEC
Inception 58.5
-9.03%
2020 -23.83% +0.37% -2.85% -25.49% +8.23% -3.13%
2019 +2.94% -6.16% +1.05% +9.08% -1.89% +3.14% -0.19% -4.58% -4.58% +5.15% +1.96% -0.87% +1.82%
2018 -22.79% -1.87% -7.58% -1.07% +3.20% -4.66% -5.58% +1.29% -2.30% -12.87% -2.31% +9.47% +0.46%
2017 +59.14% +8.34% +8.73% +6.73% +6.54% -1.20% +0.23% +4.30% -1.47% -0.69% +5.64% +6.79% +4.21%
2016 -5.79% -8.33% -9.98% +11.86% +2.10% +1.89% +5.44% +6.40% +1.66% -0.74% -1.69% -9.26% -2.83%
2015 +0.24% -0.14% +1.36% -2.09% +1.14%
 of pre-lockdown levels). The outlier is shopping mall foot-falls and sales that are
a
only back to about 25% of pre-lockdown levels.
• Rural India is a bright n spot thanks to aggressive government
intervention (using specially d seconded military convoys and rail transport)
to ensure minimal disruptions to the April/May harvest, to grain
procurement, to farmer cash payments, and to the transportation of grain to
the government granaries.
o Crucially, wheat and rice wholesale and retail prices have not
spiked.
o 35m rural households have been employed by targeted
government infrastructure projects over the last two months.
o Fertilizer sales have been buoyant in April and May.
o Tractor sales have rebounded strongly in May, and
o Rural sales for the FMCG companies have tracked well above
market expectations.
• The commitment to try and keep the fiscal deficit (at ~70% of GDP)
in check imposes fiscal discipline, and allows India to use more
conventional fiscal and monetary tools over the next 2-3 years. Yes, it
probably precludes a sharp snap-back in the consumer economy (that
market participants and corporations would obviously prefer!); but, it is a
significant structural positive for inflationary expectations and the medium-
term outlook on interest rates, capital flows, and for the currency.
• The lockdown was crucial in allowing the healthcare system the breathing
space to build systemic testing capacity, and to cope with the inevitable spike
in infections as the lockdown measures are eased. Despite extreme
population density, India has reported ~6,500 COVID-related deaths thus
far; even assuming structural under-reporting, it is a low number, and we
would credit Modi’s bold decision to enforce the national lockdown in the
middle of March.
• Valuations are compelling relative to asset values, replacement costs,
and the strength of the underlying cash flows. 70% of the Indian equity
market is trading at a discount to 10-year average P/BV, P/NAV, and P/CF
multiples, despite structurally lower inflation and interest rates, modest
fiscal/current account deficits and modest aggregate corporate leverage.
What gives us the most pause for thought – and is being reflected in a significant
scale-back in our long-held convictions in the well-managed, very well-capitalized private banks?
• The extreme sell-off in March and April in the highest quality financials has
been a significant drag on our results for the year, reflecting the risk to
earnings and asset quality in an environment of contracting GDP growth,
loan repayment moratoriums, and limited visibility on the timing of a
recovery. Valuations have corrected to decade-low levels.
• Even so, we have been negatively surprised by the Reserve Bank of India’s
(populist) recent decision to extend the loan repayment moratorium for
another three months, so, six months in total.
• We understand the ‘why.’ However, over the next 12-18 months, we are
concerned about the implications for systemic moral hazard (and customer
repayment behavior), and the potential multi-quarter drag for bank margins,
reported profitability, asset quality, and capital.
partner relationships, and a recent capital raise to deleverage the balance
sheet.
We expect Bharti Airtel’s revenues to conservatively compound at an
18% CAGR over the next 3 years, well ahead of market expectations of
revenues compounding at ~12%.
• Strong subscriber growth as the market settles around a relatively stable,
effective 4G duopoly between Bharti and Reliance Jio.
• Improving realizations: on the back of price increases, data
consumption, and premium entertainment content partnerships, we
expect ARPUs to compound at ~15% annually:
• Digitization to drive demand for fixed and wireless broadband,
structurally lower customer churn, and higher realizations thanks to
unique partner content being produced by the likes of Zee5, Amazon
Prime, and Hotstar.
• Significant growth opportunity with the country’s burgeoning small and
medium size companies looking for enterprise solutions and digital
customer outreach.
We expect Bharti Airtel’s operating profits to compound at 65%
annually over the next 3 years versus the market’s expectations closer
to a +40% CAGR:
• Strong subscriber growth and rational competition to drive higher price
realizations and significant operating leverage.
• Digitization to reduce churn and improve the revenue mix.
• Significant deleveraging of the balance sheet to reduce interest expense,
and boost free cash flow conversion.
• Over the next three years we expect ROE to track at 20%+, and ROCE
to track at 15%+.
In conclusion:
• We expect global markets to remain volatile as investors (re)assess
their outlook for global growth and corporate profitability, evolving
geo-political risks, demand/supply imbalances across the commodity
complex, and massive sovereign paper issuance globally.
• Acknowledging the risks posed by a near-certain, significant
spike in COVID infections as the country reopens, but, anchored
against our expectations of policy/fiscal/monetary support, we
expect to systematically increase our exposure to pharmaceutical stocks,
chemicals, telecoms, agricultural and rural beneficiaries, construction
and building materials.
• The strong are getting stronger. We retain strong fundamental
conviction for our portfolio holdings, and in earnings/cash flows
compounding at 15%+ annually over the next 3-5 years.
Amidst the volatility, we would urge investors to take the long view and
intentionally look through the near-term hiccup to reported earnings
to increase exposure to Indian equities.

The stock we would like to highlight this month is Bharti Airtel, India’s second Please do let us know if you would like a follow-up conversation, or a catch-up in the next
largest integrated telecom operator offering mobile cellular services, broadband, few days.
DTH television, and wireless and enterprise solutions. With a decade of hyper-
competition and painful sector consolidation behind us, the Indian telecom sector
is at a structural inflection point as the survivors transition their customers to 4G
networks, look to re-farm spectrum, and are finally compelled to raise pricing, and
to bring in foreign capital in order to meet their spectrum obligations, and to
continue to re-invest into network upgrades, customer acquisition, and developing
their e-commerce platforms. Bharti Airtel is uniquely positioned to benefit given
the quality of the network, the significant leverage to higher price realizations,

Portfolio Overview
Top 5 Positions Fund’s Sectoral Break-down: As % NAV Sector Contribution to Monthly Performance
Reliance Industries Ltd Financials: 22% Financials: -2.49%
Nestle India Ltd Materials: 21% Materials: -0.28%
Hindustan Unilever Ltd Consumer Staples: 16% Consumer Staples: -0.08%
Max Financial Services Ltd Consumer Discretionary: 16% Consumer Discretionary: -0.27%
Shree Cement Energy: 11% Energy: -0.19%
Health Care: 10% Health Care: -0.05%
Communications: 4% Communications: +0.15%
Industrials: 0% Industrials: +0.08%
Property: 0% Property: 0.00%
Real Estate: 0% Real Estate: 0.00%
Technology: 0% Technology: 0.00%

The Fund has appointed ACOLIN Fund Services AG, succursale Genève, 6 Cours de Rive, 1204 Geneva, Switzerland, as its Swiss Representative. Banque Heritage SA, 61 Route de Chêne, CH-1208 Geneva, Switzerland is
the Swiss Paying Agent. In Switzerland shares shall be distributed exclusively to qualified investors. The fund offering documents, articles of association and audited financial statements can be obtained free of charge
from the Representative. The place of performance with respect to shares distributed in or from Switzerland is the registered office of the Representative.

TANTALLON CAPITAL, 137 TELOK AYER ST #03 -05, SINGAPORE 068602. T: +65 6327 3920 F: +65 6327 3924
www.tantalloncapital.com The information contained in this report is intended for presentation purposes only. This report is not, and should
not be construed, as an offer to sell or the solicitation of an offer to purchase or subscribe for any security or financial prod uct.