market folly

We couldn't make it to the Sohn India Conference but luckily Alpha Ideas has allowed us to share their notes from the event as a guest post. 


Sohn India Conference Notes 2017


Raamdeo Agarwal (Motilal Oswal):  Pick was PNB Housing Finance. He termed it a ‘Lakh Crore Ki Kahani’In India, there are only 27 Companies which have a market cap of more than 1L Crores.  For a company to break into this elite club, there must be strong tailwinds and a long runway in place.  Some such megatrends that he has seen in his career are IT Services, Private Banks, Pharma etc.  He analyzed the Company using his QGLP model.  Its a business with secular growth drivers.  India’s Mortgage to GDP is very low (9%) and level of urbanization is only 33%.  Both these figures can only go up.  The Gross NPAs in this business is only 0.8%For all practical purposes, it is Carlyle which owns 38% of the company is running the business.  They have put in top class processes and practices.  Agarwal quipped –‘I own a housing finance business myself and hence can judge the high quality and scalability of PNB’s processes.’  The management plans to double assets by 2020.  Modi’s ‘Housing For All’ can create a 50L Crores Mortgage Market.  The Company has grown at 52% CAGR in the last 4 years and increased its market share.  He expects the stock to break into the 1 Lakh Crore Club by 2024…a CAGR of 24%.


Sunil Singhania (Reliance Mutual Fund):  Being from Mutual Fund Industry, compliance demands he can’t give stock picks but can speak on sectors.  His pick was the Cement Sector.  Felt while the current demand is low, the sector will benefit from the Govt’s infrastructure and housing boost.  The problem is that cement stocks have significantly increased in price.  He presented an interesting way to play this sector.  Said the most significant wealth creation in Shree Cements happened when capacity when from 15 Million Tonnes to 25 Million Tonnes–stock price went up by 3x/4x.  He suggested to buy two companies - one North/Central India and the other South India - which have around 15 Million Tonnes each and are ramping up capacity.  Enjoyed the clear thinking and analysis of Sunil Singhania.


Shankar Sharma (First Global):   Explained that he liked companies with high leverage because when debt gets paid off, correspondingly market value increases.  Recommended MEP Infrastructure Developers Ltd.  Basically, a toll operator with 19 Toll Plazas including Mumbai entry points, Bandra sea link etc.  For the first time since inception it has made a profit now.  Expects debt leveraging to happen.


Saurabh Mukherjea (Ambit):  Recommended Garware Wall Ropes.  Top manufacturer of nets and ropes in the world.  Exports 3000 SKUs to 80 countries.  Its expertise in blending high end polymer chemistry with high labor intensity is unmatched.  His Primary checks tell him customers are very satisfied with the Company products.  Growth will come from Defense, Agri, Infra etc.  Management is prudent in their capital allocation, had bought back their own shares in the past.


Navneet Munot (SBI Mutual Fund):  Being from Mutual Fund Industry,compliance demands he can’t give stock picks but can speak on sectors.  His sector pick was Telcos.  There will be a bloodbath in the sector for next 2-3 quarters.  The Telcos which survive will make a lot of money as Data addiction now is a bigger addiction than alcohol, tobacco etc.  Push by the Govt - show a Modi video clip.  Consolidation–>Pricing Power—>ROCE.


Aanand Chouhan (Stockpicking Competition Winner):  Aanand had won a stock picking competition organized by Sohn and hence was given opportunity to present his idea.  His stock pick was Infoedge.  Felt the company’s core business (Naukri), Internet Portfolio (99acres, Jeevansathi, etc) and VC Investments (Zomato, PolicyBazaar etc) were valuable and could grow well.  Gave a target price of 1570 Rs/share over the next 3 years.


Jeff Gundlach (DoubleLine Capital):  Via video: He said there is no such thing as passive investing as the index constituents are decided by a committee.  Said to go long emerging markets and short S&P 500.


Kenneth Andrade (Old Bridge Capital Management):  His top pick was ENI.  Its the market leader in the Radio space with 30% market share and recognizable brand (Radio Mirchi).  It will have second frequency in 11 Metros.  National footprint with 60 cities.  Radio is an attractive space with 4% of Media spend and growing at a CAGR of 16.9%.  ENI has already done significant capex and its time to reap the benefits.


Shashank Singh (Apax Partners):  His top pick was DCB Bank.  His investment thesis was Retail private banks with clear product/customer strategy will do well.  DCB Bank reinvented itself after 2010 under current leadership.  Suppressed earnings due to network rollout and hence attractive valuations.  Felt the Bank has a conservative credit culture with the CEO himself doing surprise audits.  Earnings will improve with time as the branch network gets more ‘seasoned.’


Hiren Ved (Alchemy Capital):  His top pick was Varun Beverages.  Said the Company is a good proxy for Pepsi in India.  Not just a bottler but also a manufacturer, marketer and distributor.  Felt one unanticipated impact of 24*7 electricity is more people consuming more beverages.  Coming to valuations, he said Varun is cheap compared to other consumer plays like Jubilant Food/Page Industries.  Found the comparison very funny.


Ashwini Agarwal (Ashmore):  His top pick was Persistent Systems.  Said the company was not a typical IT services provider as it is into outsourced product management.  Three investment reasons IBM-Watson tie up begins to pay off.  Growth in Digital business -40% CAGR is possible.  Core IT services revenue shows 6-8% CAGR.  Two investment risks:  Rupee Strengthening, Curbs/high fees on H1B Visas.


Akash Prakash (Amansa):  His top pick was Infoedge.Second time the stock was discussed today.  He felt it was the ultimate India Internet play.  He also felt due to network effects the value of Naukri, 99 acres, Zomato etc will keep growing.  He feels the real estate classifieds space is 5x bigger than the recruitment space and the restaurant space is bigger than the real estate classifieds space.  The company's VC fund also lets the investor bet on interesting Internet opportunities which otherwise one could not.  He felt the downside risk was minimal while upside could be 3x/4x.


The conference ended by a video clip of Social Capital's Chamath Palihapitiya who discussed Tesla and made a case for buying its convertibles.  (MF note: he pitched this idea at a previous conference as well).


Thanks again to Alpha Ideas for the guest post.


For coverage of other Sohn Conferences, head to our notes from Sohn Hong Kong 2017 as well as notes from Sohn New York 2017.