Amitabh Singhi's Value Investing Congress Presentation on India ~ market folly

Thursday, September 11, 2014

Amitabh Singhi's Value Investing Congress Presentation on India

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Amitabh Singhi of Surefin Investments who talked about India and investment plays there.

Amitabh Singhi's Value Investing Congress Presentation

• India is an elephant: large and frustratingly slow, but when it moves it really moves. As India gets  less socialistic, people will become more capitalist and consumer-focused.  
• Signs of progress over time: illiteracy rate for women + GDP: 
o 1951: 147mm women, 91% illiteracy, $21bn GDP 
o 1970: 222mm women, 78% illiteracy, $57bn GDP (2x in 20 years) 
o 1990: 342mm women, 61% illiteracy, $293bn GDP 
o 2010: 503mm women, 35% illiteracy, $1,289bn GDP 
o 2025: 620mm women, 17% illiteracy, $6,000bn GDP – his predicion  
• 2010 to 2014 was a frustrating time characterized by bureaucracy, resulted in $2tn GDP 3 years in a   row

• Catalyst: 2014 election of Modhi 
o Out of 834mm eligible to vote, 553mm voted (66% vote rate) 
o Since 84 no single party got an absolute majority. India has always had a coalition with many parties and interests.  To have a majority of the lower house in one   party is the first time in 30 years
o India is famously awful at executing plans. Modhi is fanatical about tracking progress and the execution of plans 
• The money that will be made in India will be made where there are maximum problems today.   Singhi points to housing as an obvious area for improvement. He estimates 30mm housing shortage   today, increasing by 4mm homes each year 

Idea #1: ARO Granite

• India has a monopoly of certain colors of granite 
• ARO is India’s largest granite processor with a 20% 10yr average ROE before the US real estate bust.   Since then, average ROEs have hovered around 10%. He thinks ARO’s ROEs will expand to 15% as   they do more value-added products and tap the domestic market 
• Negative: Lots of working capital. In 2006-2009 working capital cycle elongated and the company   uses short-term debt for its working capital.  
• $13mm market cap, $50mm sales, priced at 0.5x P/BV and 4x P/E

Idea #2: Tata Motors Differential Voting Rights (DVRs)

• Tata motors issued DVRs in 2009 after buying Jaguar because it didn't want to dilute voting rights 
• Each DVR has 1/10th voting right, slightly higher dividend 
• Tata owned 80% of these DVRs but has been selling and currently owns less than 1% of them 
• Discount to NAV bounced around 40% but is currently at 28%... buy DVRs and short Tata to close the discount

Idea #3: Tata Investment Corporation

• Tata Group has its hands in every part of the Indian economy... Singhi actually thinks it’s a better   proxy for the economy than the SENSEX 
• Tata Investment Corporation’s post-tax liquidation value is $840mm vs. $500mm mkt cap (40%   discount). In bull markets this discount narrows and vice versa 
• You get paid to wait with a high dividend yield

Be sure to check out the rest of the Value Investing Congress presentations here.

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