Equity PMS

Piper Serica Leader

Portfolio Strategy ™

August 2020
Piper Serica Advisors Pvt. Ltd. 1
 INVESTMENT OBJECTIVE

To grow wealth over a long period of time by

investing in natural compounders of earnings that
produce above-average absolute returns with
below-average business volatility.

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OUR TRACK RECORD
Strict adherence to our Investment Framework and our deep research expertise has not only
given better returns but has also helped us beat the benchmarks.

IRR Comparison

5 Year 3 Year 2 Year 1 Year 6 month 3 month 1 Month

Piper Serica PMS 21.1% 15.5% 17.8% 10.6% -6.9% 12.8% 8.7%

Top 10 Multi Cap

MF Avg.
4.2% -0.2% -3.5% -3.5% -12.0% 9.9% 5.5%

Nifty 5.4% 3.2% -1.3% -0.4% -7.4% 12.3% 7.5%

Nifty Midcap 100 2.3% -5.9% -9.7% -3.3% -14.5% 14.1% 4.8%

Sensex 6.1% 5.1% 0.2% 0.7% -7.3% 11.9% 8.1%

Source: Piper Serica PMS, Bloomberg, Valueresearch

▪ Return for less than 1 year is absolute (not annualized) calculated by an independent accountant on a TWRR basis post fees and expenses.
▪ Returns generated on other pools of capital vary based on their vintage and mandated risk level.
▪ Past Performance Is Not Indicative Of Future Results. We do not guarantee returns.
▪ All returns are post expense.
▪ 1 year returns are based on the PMS platform. 2,3,5 year returns include advisory platform returns as well.
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INVESTMENT STRATEGY

Identify FAST GROWTH SECTORS that are benefitting from changing

demographic profile and consumption patterns.

Invest in LEADERS in these identified sectors that COMPOUND earnings for

a very long period of time with very little business volatility.

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 Our Strategy – Investing in LEADERS

▪Our “Piper Serica Leader Portfolio Strategy™” portfolio consists only of companies that are not only numero uno in their respective industry but
have constantly grown the competitive moat to protect their pole position.

▪We start by looking at the emerging sectors that will benefit from the rapidly changing demographic profile of India. We draw guidance from the
sectors that have grown exponentially in China over the last 15 years.

▪With a very large share of young population that has same consumption aspirations as rest of the world, these emerging sectors will grow much
faster than the traditional sectors.

▪ As global products and services become available in India we expect the leaders in these sectors to grow at a much faster pace and create much
higher value than what leaders in traditional sectors would create.

▪We believe that the emerging sectors are:

➢Consumer Internet ➢Home building and home improvement

➢Consumer electronics ➢Insurance and asset management

➢Travel and entertainment ➢Personal care products

➢Increase in agricultural productivity ➢Financial technology

➢Healthcare ➢Conversion of real assets into financial assets

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Emerging Sectors – Guidance from China
• Economics follows demographics. If one overlays policy measures on top of both demographics and economics one starts to get a good sense of potential economic growth.
• In this case, we are fortunate that we have China to provide us guidance on potential economic growth based on policy measures and demographics and the sectors that will benefit
from the growth.
• India is arguably 13-15 years behind China on the economic growth curve which is about the same difference when the countries opened up the economy – China in 1978 and India
in 1991. India’s current GDP & per capita income is roughly that of China in 2005.
• We believe that with similar demographics i.e. a large population of emerging millennial & young professionals that have very high aspirations of improving their standard of living,
India will follow China on the consumption path. So we use this guidance to identify emerging sectors that will create immense wealth for the next 10-15 years.

Potential Sector China Leader’s India Leader’s Potential Market

Sector China Metric India Metric
Expansion Market Cap Market Cap Cap Expansion
No. of Pvt. Hospitals (accredited) 69244 3154 22x
$35 Bil $2.25 Bil 16x
Hospital Revenue $442 Bil $18 Bil 24x
Electric Consumer Durables $126 Bil $10 Bil 13x $45 Bil $6 Bil 8x
Consumer Internet (Listed MCap) $1240 Bil $4.7 Bil 264x $445 Bil $2.85 Bil 156x
Banking & Financial Services (Total Assets) $37000 Bil $1200 Bil 31x $300 Bil $80 Bil 4x
Home Mortgage (Lending) $2400 Bil $30 Bil 80x $300 Bil $46 Bil 7x
Annual Passenger Traffic (Airline) 1.32 Bil 0.12 Bil 11x $22 Bil $6 Bil 4x
City Gas Distribution $66 Bil $4.2 Bil 16x $105 Bil $1.2 Bil 88x
Passenger Vehicles (Annual Volume) 25 Mil 3.2 Mil 8x $50 Bil $29 Bil 2x
Agro Chemicals $62 Bil $6.2 Bil 10x $20 Bil $6 Bil 4x
Decorative Wood $104 Bil $6 Bil 17x $11 Bil $0.5 Bil 22x
Compound Animal Feed 211 Mil MT 24 Mil MT 9x $28 Bil $1.3 Bil 22x

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Piper Serica Advisors Pvt. Ltd.
Investment Process
Investment Decision Making Process Investment Management Process

Establish the
COMPETETIVE Establish a FAIR Risk Management &
As part of Piper STRENGTH of the VALUATION range Portfolio Allocation
Serica Leader Leader
Portfolio Strategy ™
we filter the
We have developed a We establish a fair The Porter model score
industry leader proprietary model that is updated every
value range for the
through a 2 stage is based on the Michael leader using various quarter.
proprietary Porter’s 5 Forces valuation models.
investment process. Model. We force-rank These models take into We continuously track
the industry leader account margins, the model score and
across 35 different growth, management the valuation range to
competitive quality, capital rebalance the portfolio
parameters. A weighted allocation efficiency etc. by either skimming
average score is arrived These valuation models profits or by averaging
through these rankings. have been developed down.
by us after years of
application.

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Porter’s 5 Forces Model– The Backbone of Our Framework

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 Primary Research – Our Competitive Edge
❑ Our research is done in 2 parts. On one side, we constantly keep doing channel checks and meeting distributors, retailers, stockist. On the other side, we actively meet the
management and do frequent plant visits. Through these two dimensions, we are able to connect the feedback that we get and draw a conclusion.
A. Field Research
1. Channel checks with dealers, distributors and retailers of:
I. Autos - 2 wheeler, 4 wheeler, commercial vehicles.
II. Home Building Materials - Cement, steel, plywood, tiles, paints, pipes etc.
III. Consumer Durables - Home Appliances, cookware etc.
2. Active discussions with Banks and NBFCs in:
I. Lending Department
II. Collection Department
III. Credit Department
3. Active engagements in media and entertainment to check on:
I. Media buyers
II. Advertisers
4. Discussions in the Pharma and Healthcare channels.
5. Discussion in the real estate sector with:
I. Developers
II. Lenders
III. Brokers
6. Various government department for policy changes and projects.
B. Timely plant visits and engagement with management of portfolio companies and also with that of the competitors.
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Dynamic Portfolio Allocation & Risk Management

1. Maximum single sector and company weightage of 8% of the total portfolio.

2. Average weightage per company of 5% of the total portfolio.
3. Maximum 25 and minimum 15 stocks perportfolio.
4. Maximum 1 stock persector.
5. Dynamic review (at least quarterly) of portfolio weights and consequent re-alignment.
6. Booking profits or making addition based on where the stock is trading compared to our valuation range.

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 Alpha generation through Dynamic Portfolio Management
– Stocks exited before prices fell

Average
Average Sale Current Price Holding Our capital
Company Exit Date Purchase Reason for exit
Price 15/04/2020 Period return (x)
Price
Deterioration in Porter model score because of lack of control over supply chain.
Kajaria Ceramics Nov-19 505 575 366.9 >1 Year 1.14
Also, the company missed volume growth guidance twice in a row.
Valuation exceeded our fair value range. The company was trading at 22% of AUM
HDFC AMC Dec-19 1420.0 2980 2616 < 1 Year 2.10 vs. avg valuation of 6% to 8% for developed market AMCs and 10% to 15% for
emerging market AMCs
Weak management commentary. Downward revision of growth targets. Excessive
VIP Industries Feb-20 315.0 445 236.5 > 1 Year 1.41 dependency on China. Continuous increase in inventory and loss of
competitiveness.
Interglobe Aviation Feb-20 970.0 1300 1007.5 > 1 Year 1.34 Onset of worldwide shut downs of airlines because of Covid 19.
Economic uncertainty leading to drop in real estate demand and stoppage of
Godrej Properties Mar-20 830.0 800 655.3 > 1 Year 0.96
construction work because of lock-down.
Closure of malls, reduction in discretionary spends leading to lower earnings.
Phoenix Mills Mar-20 645.0 800 533.3 > 1 Year 1.24
Tenants enforcing force majeure clause. Debt servicing.
Closure of theatres leading to sharp earnings decline in the short to medium term.
PVR Mar-20 1470.0 1300 1077.9 > 1 Year 0.88
High fixed costs.

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Some of Piper Serica Leader Portfolio constituents

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Exclusions Companies We Don’t Invest In
1. Public Sector Enterprises – The management has no incentive to create shareholder value.
2. Leaders but with questionable corporate governance e.g. Apollo Tyres and Eveready.
3. Cyclical businesses – They are not earning compounders e.g. Metals, Cement, infrastructure.
4. Export Industries – For export focused businesses like IT, Pharma, Textile we’re unable to rate the buyer
competitiveness section of the Porter model.
5. Large Conglomerates.

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Leader v/s Index
Piper Serica Portfolio’s key attributes are better than all indices
Piper Serica Leader Portfolio Strategy ™ Constituents

No. of Stocks Average Market p 3 year sales CAGR 3 year EBITDA CAGR EBITDA Margin Average ROE Average D/E
Nifty 50 9 273153 12.9% 15.6% 23.9% 30.4% 1.0
Nifty 200 17 45516 16.0% 26.0% 15.0% 22.0% 0.8
Nifty Mid-cap 150 6 13661 16.3% 15.0% 32.3% 19.7% 0.3
Nifty Small-cap 250 3 6102 13.0% 17.3% 23.2% 14.9% 0.5
Others 3 6035 13.3% 16.3% 11.3% 16.7% 0.1
Average 38 68893 14.3% 18.0% 21.1% 20.7% 0.5

No. of Stocks Average Market p 3 year sales CAGR 3 year EBITDA CAGR EBITDA Margin Average ROE Average D/E
Nifty 50 50 171200 10.0% 11.3% 20.3% 19.1% 1.1
Nifty 200 200 61500 12.0% 16.3% 13.2% 12.6% 1.9
Nifty Mid-cap 150 150 17600 13.0% 17.6% 15.2% 14.2% 2.5
Nifty Small-cap 250 250 5650 11.2% 15.3% 11.2% 12.2% 1.9
Average 650 63988 11.6% 15.1% 14.9% 14.5% 1.8
*Data as of 31/03/2019

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 Strong Adherence to Code of Ethics

We have adopted the CODE OF ETHICS AND STANDARDS OF PROFESSIONAL CONDUCT laid down by the CFA Institute (U.S.A)
We abide by:
1. Professionalism - Practicing high level of independence & objectivity.
2. Integrity of Capital Markets – Strong internal policies to deal with sensitive information and data.
3. Duties to Clients – Loyalty, Prudence & Care in dealing with every client
4. Investment Analysis, Recommendation & Action – Detailed diligence and a reasonable basis behind every investment
5. Conflict of Interest - To ensure that there is no conflict of interest the Portfolio Manager and his family make all direct
investment in the listed equity market in India through the PMS and have no other investment portfolio. Sponsor has
assured a minimum investment of Rs. 10 crore in the PMS.

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 Profile of Portfolio Management Team
The TEAM
Abhay Agarwal - CIO Rajni Agarwal - Research Head Ajay Modi - VP - Research
Age (years) 48 50 28
Years of Experience 26 26 7

Education - MBA, JBIMS - MBA, JBIMS - B.Tech, Pune Univ.

- B.Com, Sydenham College - MA (Eco), Delhi School of - CFA (L3)
Economics - Investment Management
- BA (Eco), Hindu College Program, CISI, (UK).

Last job Director, JP Morgan Private Equity, Fund Manager, SBI MF Research, Thomson Reuters
Singapore

Taha Siamwala – Naval Kanojiya – Prasad Shetty – Tarun Raval – Office

Research Analyst Investor Relations Accounts & Custody Administration
Manager Operations Manager
Age (years) 25 27 22 55
Years of 2 4 4 31
Experience

▪ SEBI PMS Reg. No.: INP000006749 | www.piperserica.com

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