Kotak Special Situations Value Investment Approach- Series I PMS


Key Portfolio Attributes

Mr. Anshul Saigal

Inception Date: 19 Sep 2017

Number of Stocks: 20-24

Portfolio Manager’s Name: Mr Anshul Saigal

Portfolio Manager’s Experience: 20 years total. 14 years with Kotak AMC

Portfolio Manager’s Qualification: MBA (Finance) from Management Development Institute, Gurgaon and an Engineer (Industrial Engineering) from SIT, Tumkur.

Investment Objective

The main objective of the Investment approach is to generate capital appreciation through investments in equities with a medium to long-
term perspective.

Portfolio Strategy

The portfolio shall essentially target to invest in Value Opportunities and Special Situations in individual stocks and related instruments. Value Opportunities are ones, wherein in the opinion of the fund manager, the company’s Intrinsic Value is ‘X’, while the stock is trading at a discount to X. Special Situations are dependant on the probability of occurrence of one or more corporate events, rather than market events. These situations can largely be classified as follows:

a. Price arbitrage: In such situations securities are bought at a discount to the price, which is/ may be guaranteed by any institution. These situations can arise in the form of buybacks, delistings, etc.

b. Merger arbitrage: In such arbitrage, shares of a company can be created at a discount to the current market price.

c. Corporate restructuring: Such arbitrage is a consequence of specific corporate action in the form of spin offs, asset sales, management change, etc. leading to either value unlocking or cash payouts to investors

Investment Philosophy

The Universe – Value Opportunities

• 1000 – Total universe of top 1000 market capitalization companies
804 – Companies having greater than 30% promoter shareholding
536 – Rank companies based on ROE and 1/PER (Earnings Yield). Add the two parameters to arrive at a combined rank. Identify the top 2/3rd of this combination to arrive at stocks likely to perform best
421 – Capital Efficiency i.e. ROE of at least 15% trending toward and higher than 20%
227 – Compounded PAT Growth of at least 10% in the last three years
50 – Assess companies based on Management quality, Integrity, Balance Sheet strength, Capital Allocation, Execution Capabilities, Vision for the business, fairness to stakeholders, etc
12-18 – Valuation not more expensive than peer set and Price to Value Gap of at least 30%

 

Fundamental Analysis Process

Management

• Is management trustworthy and rational
Is it candid with its shareholders

 

Return ratios

• Is ROCE/ROE stable over the last few years? Why?
Expectation of ROCE/ ROE going forward
Expansion or contraction because of – a) Asset turns, b) Margin changes or, c) Leverage

 

Capital Allocation

• Asset turn
Assets tied up in non-core businesses
Revenues from core activities

 

Earning Power

• Revenue growth expectation
Expense trend (as % of sales)
Margin trend
What are the company’s owner earnings i.e. the FCF

 

Valuation

• EV/EBITDA, PER, FCF Yield, P/B, Replacement Cost
Comparison with other players within sector and benchmark indices
Can the business be bought in the market at a discount to current market value

 

What are Special Situations?

Investment operations whose results are dependent on happening or not happening of one or more corporate events rather than market events

 

Key Advantages – Investment results of Special Situations opportunities are largely independent of market moves

 

Key variants

• Price related – Securities bought at a discount to (expected) price guarantees by buyer in the form of de-listings, buy-backs, open offers, etc.


Merger related – Shares can be created at a discount to current market price


Corporate restructurings – Value unlocking due to corporate restructuring, assets sales, demergers, business triggers, etc.




Performance Table #


Trailing Returns (%) 1m return 3m return 6m return 1y return 2y return 3y return 5y return 10y return Since inception return
Portfolio3.6%5.0%2.7%5.6%35.8%20.2%3.9%14.2%13.7%
India Value Index5.5%6.8%9.8%9.2%32.4%18.6%4.7%9.8%8.9%



QRC Report Card *




VIEW DETAILED QUALITY, RISK, CONSISTENCY ANALYSIS

Portfolio Holdings


Holding %
STATE BANK OF INDIA 8.43
ICICI BANK LTD 7.35
CENTURY PLYBOARDS (INDIA) LTD 5.29
POLYCAB INDIA LTD 5.04
BLUE STAR LTD 4.63
BALRAMPUR CHINI MILLS LTD 4.62
SRF LTD 4.57
OBEROI REALTY LTD 4.51
VIP INDUSTRIES LTD 4.42
CARBORUNDUM UNIVERSAL LTD 4.16
CYIENT LTD 4.13
WHIRLPOOL OF INDIA LTD 4.07
SAMVARDHANA MOTHERSON INTL LTD 3.86
UNITED SPIRITS LTD 3.77
ISGEC HEAVY ENGINEERING LTD 3.57
HDFC BANK LTD 3.37
APL APOLLO TUBES LTD 3.31
PERSISTENT SYSTEMS LTD 3.20
SUVEN PHARMACEUTICALS LTD 3.11
ZYDUS LIFESCIENCES LTD 3.04
ASHOKA BUILDCON LTD 2.52
ANGEL ONE LTD 1.95
CASH & CASH EQUIVALENT 7.07
Top 23 Equity Holdings 92.93

Sector Allocation


Holding %
Transportation 1.50
Cement & Cement Products 1.90
Power 3.00
Construction 3.90
Auto Ancillaries 3.90
Cash & Cash Equivalent 5.00
Pharmaceuticals 7.70
Banks 8.90
Ferrous Metals 9.10
Software 9.30
Industrial Products 9.60
Consumer Non Durables 11.30
Chemicals 11.90
Consumer Durables 12.90

Market Cap Allocation


Allocations %
Large Cap 34.5
Mid Cap 24.5
Small Cap 37.2
Cash 3.8


Do Not Simply Invest, Make Informed Decisions

WISH TO MAKE INFORMED INVESTMENTS FOR LONG TERM WEALTH CREATION

imageBook a call with our PMS AIF Specialists




Disclaimer

#Returns as of 31 Aug 2022. Returns up to 1 Year are absolute, above 1 Year are CAGR.

*QRC Report Card data is updated quarterly. Current data is as of Jun 22.




Related Investments


Related Videos

Do Not Simply Invest, Make Informed Decisions