Disclaimer

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Kindly note case studies/examples discussed during the presentation are for study purpose only and not any kind of recommendation

Identifying Long Term Sectoral Opportunities using FTPM approach

Disclaimer*

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CONFIDENTIAL AND PROPRIETARY

Any use of this materials without specific permission of JM Financial Services Ltd is strictly prohibited

ICAI National Conference on Capital Market 2024-25 New Delhi

Fusion Investing – Science & Art – FTPM Framework

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Fundamentals

Technical Analysis

Market Dynamics

Psychology

• Markets are driven by Fear & Greed.
• Herd Mentality over rules rational investment decision.
• Market sentiment

• Market dynamics may change dramatically., portfolio construct takes various aspect of market dynamics into accounts.
• Sector rotation, Growth to value, large to mid cap.

• Quality is paramount
• Sustainable Earnings visibility
• Businesses with strong moats
• Sectors witnessing high growth/tailwinds & strong operating metrics.

• Price discounts everything
• Prices move in trends & creates pattern
• History repeat itself
• Trend line, Support & Resistance.
• Technical momentum indicators.

Fundamentals

Technical Analysis

Market Dynamics

Psychology

Fundamental Analysis�Quality is Paramount

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• Pricing Power
• Sectoral Tailwind with Barriers to Entry
• Good Brand Reputation
• Large Industry Size
• Innovation

• Good Corporate Governance Policies
• Strong Parentage
• Significant Promoter Holding (with low pledge)

• Low Leverage
• Good Cash Conversion Cycle
• High Cash Flow from Operations
• Reasonable ROC and ROE
• Strong Revenue, EBITDA and PAT growth

Robust Business

Good Management

Strong Operating Parameters

Robust Business

Good Management

Fundamental Parameters Considered

Technical Analysis�Finding Winning Trades

Top Down Analysis

• Monthly Charts
• Weekly Charts
• Daily Charts

Identifying Market Structure

• Patterns
• Support & Resistance
• Long Term Trendline
• Volume and Delivery Activity

Other Technical Indicators

• Pattern within Pattern
• Fibonacci Retracements
• Averages
• Indicators

Bullish Patterns: Rounding bottom, Multi year breakout, Double Bottom, Inverted Head & Shoulders Pattern, etc.

Comparative strength vs Peers vs Sectors vs Benchmark

Pickup in volumes and delivery %

Institutional & HNI activity - Increase in Bulk & Block deal

Liquidity, Index inclusion, Portfolio concentration

Buy Value stocks only once momentum sets in otherwise stuck in consolidation

Stop loss either on time or particular % correction whichever is earlier depending on market cap

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What leads to Growth in Earnings?

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• New product innovation – Astral – from pipes to complete home building solutions – internal as well as external
• Geographical expansion – Varun beverages expanding into African continent
• Growth in end user industry – wires and cables
• Client mining – increasing wallet share and new customer acquisition – SRF started with ref gas and now CDMO
• Taking away market share from competitors – Sting energy drink launched by Varun Beverages
• Industry growth - Defence industry production push due to indigenization theme
• New brand introduction – Havells ad “Wires that don’t catch fire”
• Expanding distribution - Pipes companies – Prince pipes, Apollo pipes
• Acquisitions/M&A – Uno Minda /Motherson Sumi Systems
• Capex – Greenfield or brownfield – Chemicals sector

Why do stocks move fundamentally?

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Peter Lynch stock picking

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• Peter Lynch bought and sold 14,000+ stocks during his journey at Magellan Fund.
• Peter Lynch's average holding period was 6 months for a stock.
• At age 33, Peter Lynch was appointed to manage the legendary Magellan Fund at Fidelity. The fund earned an annualized return of 29.2% during his time running it, more than twice what the S&P 500 earned during that time. After 13 years managing the Magellan Fund, Lynch retired in 1990 at age 46.

NTPC Ltd�CMP – Rs416 Mcap – Rs403575cr

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Business Overview & Investment Thesis

Growth Opportunity

What we like in the company

Outlook for business and earnings

• NTPC is a likely winner in India’s renewable energy transition story as it attempts to extend its thermal power generation dominance to the renewable space. The company targets 60GW renewable capacity by FY32E – essentially creating another NTPC in 1/5th the time it took to build its current 60GW generation portfolio.
• NTPC is the largest power generating company of India with an aggregate group installed capacity of 72.37 GW as on May 31, 2023, constituting around ~17.37% of India’s total installed capacity.

• The base and peak demand is expected to maintain growth at above long-term trajectory during FY24 driven by higher industrial and commercial activities, digitalization and electric transportation. Share of thermal power generation is likely to remain strong during FY24 with all-India PLF peaking beyond 64%. Elevated peak deficits caused by sharp seasonal charges, lag in coal production/transportation and volatility in coal cost is expected to keep merchant rates firm, which augurs well for plants with untied capacity. The sector is expected to witness FGD capex of around ₹1 lakh crore in the medium term.

• The coal-based power stations of the NTPC group continued to be cost-competitive in terms of generation thus maintaining a sizable spread of ~10% over the national average PLF consistently. Driven by higher demand during FY23, PLF, on standalone basis, stood considerably higher than FY22 at 75.90% (FY22: 70.74%) for the coal-based plants, which was higher than the all India thermal PLF of 64.21%. The solar and wind projects of the company continue to supplement the total generation of the company thereby diversifying the generation mix. PAF, on standalone basis, stood at 92.60% in FY23 vis-a-vis 88.49% in FY22.
• The GoI continues to hold a majority stake (51.1% as on May 31, 2023) in NTPC. The GoI provides adequate operational support.

• NTPC has provided visibility on 6GW brownfield coal capacity addition beyond the 16GW capacities presently under-execution with potential of adding another 20-30GW coal capacities at its existing power plants. Limited presence of private developers in thermal power is also a positive for NTPC.

NIFTY CPSE

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Long term consolidation of 10 years

Source: Falcon7

Consolidation prior to breakout

NTPC

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Long term consolidation of 15-16 years

Source: Falcon7

First breakout

2^nd breakout further confirmation

Classical high tops and higher bottom formation which not seen earlier

cmp 315

Up 47%

Entry @215

Inox Wind Ltd�CMP – Rs221 Mcap – Rs28828cr

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Business Overview & Investment Thesis

Growth Opportunity

What we like in the company

Outlook for business and earnings

• Inox Wind (INOX) is part of the INOXGFL group of companies, The group has interests in two business verticals – Chemicals and Renewable Energy. The Jain family is the principal shareholder of the group. Set up in 2009 to offer integrated / turnkey solutions in the Wind sector in India, the company was listed in 2015; promoters own 72% stake.
• It has four manufacturing plants in India; two in Gujarat and one each in HP and MP; facility at MP being the largest in India with an aggregate capacity of 800MW. This will get enhanced to 2GW when 3MW machines will be launched in FY24.

• It operates on two business models: 1) Turnkey Solutions, where it undertakes all aspects related to the development of wind power projects including O&M, assessments, land acquisition, statutory approvals, etc. 2) Equipment Supply Model (ESM), under which Inox supplies the WTG and associated equipment to the customers ex-factory. O&M services are offered by Inox Green, INOX’s 61% subsidiary (on a fully-diluted basis), which was listed separately only in 2022.
• The company has an asset-light model; while it manufactures blades and towers, it purchases generators, gearboxes, and other critical components from external vendors (domestic and imports) and assembles it to make the nacelle. To that extent, it has an asset light, and scalable model, which allows it to set up low-cost manufacturing plants near the high wind velocity sites and capture the market.

• INOX is gearing to supply 500MW WTG in FY24. Of this, the share of 2MW machines should be 50-55% while that of 3MW machines 45-50%. Share of the new machines should increase to 80-90% from FY25 onwards.
• 50MW NTPC Renewables wind farm in Gujarat was commissioned during the quarter (out of NTPC’s total order of 500MW in the order book), and the company is on track to execute the rest of the order.
• Receivables, inventory levels, and working capital cycle are expected to normalize by FY24 with a full ramp up in manufacturing and commencement of 3MW order execution.
• Wind capacity addition and the RE sector overall are likely to benefit from the Gujarat and Maharashtra RE policies which came into effect in Oct’23.

• Management anticipates EBITDA margin expansion led by the migration to 3MW WTGs and the O&M business likely doubling its portfolio. The company has been consistently delivering 45%-plus EBITDA margin, not to mention further operating advantage benefits from greater execution volume.

Inox Wind Ltd

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Long term rounding bottom formation in process

Source: Falcon7

Double bottom within larger rounding bottom

Short term

consolidation

High volumes

Entry @262

Recently crossed its previous all-time high to new high of 540

Up 106% from entry

Mazagon Dock Shipbuilders Ltd�CMP – Rs4241 Mcap – Rs85546cr

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Business Overview & Investment Thesis

Growth Opportunity

What we like in the company

Outlook for business and earnings

• Mazagon Dock Shipbuilders Ltd. (MDL), a Mini Ratna Defense Public Sector Undertaking under Ministry of Defense is the premier Defense Shipyard in India primarily catering to the Maritime Defense of our country by building frontline warships and submarines.
• Since 1960, MDL has built a total of 802 vessels including 28 warships and 7 submarines. MDL has also delivered cargo ships, passenger ships, supply vessels, MSVs, water tankers, tugs, dredgers, fishing trawlers, barges etc. for various customers in India and abroad. MDL is recognized as an “In-house R&D unit” by Department of Scientific and Industrial Research (DSIR), Ministry of Science and Technology.

• We expect defence opportunity to be Rs 10 lakh crs over the next 10 years on an overall basis for the local defence manufacturing industry.
• The orderbook position as on date is close to Rs 37500 crs and order book to bill ratio of 4x assures 15-20% topline growth over the medium term.
• Management anticipates significant opportunities over the next 10 years including: 1) order for six submarines; 2) extension of P75 order for three additional submarines; 3) next-gen destroyers (four for MDSL); 4) eight next-gen frigates; and 5) next-gen corvettes.

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• MDL is the lead shipyard for building 4 of the Nilgiri class Stealth frigates.
• Executing P15B project of 4 destroyers of which 3 have been delivered.
• Delivered 5 submarines between 2017-2022.
• Indigenous content in warships have reached around 75% by equipment sourcing and indigenization within the organization.
• Order inflow for FY24 expected at INR50bn, including ~INR20-25bn of export opportunities of which Rs 4200 crs worth order to be won in the next 2-3 months.

• Discussions with the Indian Navy for a follow-on order for P-17A destroyers and next-generation destroyers.
• Submitted a bid for the P75(I) project for six submarines in collaboration with TKMS Germany.
• Received a letter from the Navy for three additional Scorpene submarines.

Mazagon Dock Shipbuilders Ltd

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Consolidation

Source: Falcon7

Consolidation

Uptrend

Uptrend

Uptrend

Correction

Stock is in uptrend forming high tops and higher bottom

Recent low didn’t break below previous low

Titagarh Rail Systems Ltd�CMP – Rs1491, Mcap – Rs20082cr

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Business Overview & Investment Thesis

• Titagarh Rail Systems Ltd. (TRSL), India's largest wagon manufacturer, has transformed itself into a complete railway transportation company, with a successful entry into the passenger transport sector. It is also among India's very few integrated manufacturers of passenger rail systems.
• Capacity to generate INR 140 bn annual revenue in the next 5–6 years 70% utilization may take revenue to INR 10 bn (+25% CAGR over five years).

Growth Opportunity

• Indian Railways (IR) expects to spend US$750 bn during FY22-FY30 to increase their share in logistics from ~27% in FY22 to 45% by FY30 as per the plan.
• The government is looking to add over 1.5L wagons during FY22-FY27E at a total capex of nearly Rs700 bn. IR had a plan to source over 220,000 freight wagons over 2022-2030 in order to enhance its market share in the logistics sector to 45% by 2030 from its current 27%
• IR has budgeted to invest overall Rs3.2tr in FY24 including doubling the lines, new lines construction, rolling stocks, and upgrading its infrastructure. Investment in rolling stocks (more important for the company) has seen a whopping increase of 147% YoY to Rs376 bn for FY24
• It is among India's very few integrated manufacturers of passenger rail systems.
• Capex by the co in the next 5 years would be close to Rs 1000 crs for capacity building across segments.

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What we like in the company

Outlook for business and earnings

• Smallcap World Fund Inc. got allotment of shares to the tune of Rs 289 crs which would be used for growth capex at Rs 380/share for 6% stake in co.
• The co has, in partnership with Ramakrishna Forgings, is in the process of setting up a train wheel manufacturing plant.
• Expanding wagon mfg. capacity from 8400 to 12000 units pa and coach mfg. capacity from 250 to 1000 coaches pa.

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• TRSL's traction motor has been developed with the help of Firema, and the company has the capability to manufacture various ratings of traction motors. Traction converter is under development, jointly with ABB. The propulsion systems, once approved by the Indian Railways, will be a critical input for the company's future plans in the passenger segment.
• The company, in a JV with RK Forgings, has also bagged the contract to supply Indian Railways 1.54 mn wheelsets over 20 years (80,000 wheels per annum from the 3rd year), and the JV is setting up a wheel plant with a capacity of 200,000 wheels per year.
• Dedicated freight corridors, Metro projects, Vande Bharat both sitting and sleeper AC coaches presents a long runway for growth for Titagarh.

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Titagarh Rail Systems Ltd

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Long term consolidation of 15 years

Source: Falcon7

Long term breakout

Medium term rounding bottom within long term consolidation

Entry @345

Booked @780

Up 126%

Re-entry

@804

On resumption of uptrend

cmp 1007

Up 25 from re-entry

The times to sell

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• Even with the power of compounding firmly in mind, there may be times when we believe it is appropriate and necessary to sell. These include, but are not limited to, when a business –
• (1) is no longer growing at an above-average rate, - Our foundational idea is that our returns as investors will approximate growth in economic value per share of the businesses in which we invest (whether defined by book value or free cash flow, and always on a per share basis). To generate above average returns over the long term, we believe we must invest in businesses that are growing sustainably at above-average rates. When growth slows, we expect our returns will as well.
• (2) has had its competitive advantage impaired - Businesses are in a constant state of change. Changes in technology, distribution, or regulation might whittle away at a business’s competitive advantage. Even the most successful companies must reinvent themselves periodically to remain relevant and adapt as the world evolves around them. The moat must be dredged every now and then. Failure to do so may cause competitive advantage to weaken or disappear altogether.
• (3) has had an adverse change in management - We place heavy emphasis on identifying managers who possess equal parts skill and integrity. A consequence of our long-term investment horizon is that we tend to own businesses for multiple generations of management. Successors are not always up to the task. We have learned over time to withhold immediate judgement to give new management plenty of time to get settled in. However, at some point, we have to make a call, and a new management team that falls short of our expectations might cause us to sell.
• At all times, we have to keep a close eye on earnings growth drivers, valuations and continuous monitoring of risk

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• What are the changes in business environment – 2016 post demonetization and GST organized sector growing
• Balancesheet risk – leverage, mergers and acquisitions at peak of cycle, etc.
• Valuations – growth tapering, PE ratios running ahead of time
• Governance risk and is there a change in governance risk – unusual appointments in board of directors, subsidiary and related party transactions, etc.

Triggers for an exit decision

One 97 Communications. (PAYTM IN Equity)

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Investment Thesis

• PAYTM guided to continued strong trends in volume growth, with continued potential for strong growth over the medium term. This will be helped by increase in user base as well as widening of use cases. It expects to drive sustained market share expansion across its product categories. Its recently launched multiple innovative new sound box offerings will further help increase the size of the target addressable market.
• With respect to take rate, it expects overall moderation to 5-7bps from ~7- 9bps currently, largely owing to continued rise in the mix of UPI (where take rate is ~3-4bps). The share of UPI payments is likely to increase from roughly two-thirds currently to 85-90% over the next few years
• Management highlighted that there is no concern about asset quality of the portfolio disbursed through its platform. In fact, PAYTM witnessed moderation in expected credit

loss (ECL) for postpaid loans, while ECL for personal loans and merchant loans remains steady.

• Management expects growth momentum to be sustained, as it continues to see increase

in the cross-selling customer base, sustained traction with repeat customers, as well as new lending partnerships (three new potential partner additions during F24). During QE June 2023, PAYTM added Shriram Finance as a lending partner for digital credit for merchant loans and consumer loans.

• Management said that the profitability/take rate on its product segments remains steady, with postpaid at ~2.5-3% and personal loans/merchant loans at ~4-5% (including collection fees that come with a lag).
• In early August 2023, Mr. Vijay Shekhar Sharma (founder, MD & CEO) entered an agreement to purchase a 10.3% stake in PAYTM from Antfin (Netherlands) Holdings B.V. Management expressed a view that this transaction is a win-win for all the stakeholders involved.

Outlook

Risks

CMP: Rs.622 | M. Cap: Rs. 396bn ($4.74bn)

Promoter/FII /DII Holding: 0/58.3/7.00

52 Week H/L: 998/310

Financial Summary

Paytm does appear to be on the right side of disruption with its dominant payments platform and a head start in digital credit products. Paytm has leveraged its large Monthly Transacting User (MTU) base, thanks to its dominant position in payments, to gain a head start in the digital lending segment. It currently captures ~1.5-2% of high yield (>13% interest rate) household lending volumes.

• Higher-than-expected competitive intensity in payment and/or reduction in payment charges
• Weak execution in financial service
• Negative impact from changes to digital payment charges

One 97 Communications Ltd (PAYTM)

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J22

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A

M

J

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J23

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J24

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6 C

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5 C

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4 C

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3 C

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2 C

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1 C

410.85

1- One 97 Communications Lim - 21/03/24

F7

Qty Line , Avg(Qty Line :S:10)

33 Daily

Average buy price 938

Consolidation

Exit at 865

As price was failing

to show momentum post breakout

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Cmp 382 down ⁶⁰⁰

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^{56% from exit} 450

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Case – Specialty Chemicals

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1. Specialty chemicals was the sector that outshined all the sectors from 2014 to 2020. As stock like Aarti Industries, SRF, Vinati Organics, Navin fluorine etc were benefiting from the China +1 story and outing up large capacities which were yielding them strong benefit. As a result of which these stocks went up 4-5x where the market was digesting demonetization, Impact of GST, global slowdown of 2018 and IL&FS crisis
2. Specialty chemicals in simple words is value addition to existing chemicals or in other words it is something which against the basic nature of commodity chemicals i.e high margin low volume products.
3. Post covid as commodity prices increased, the earnings of all the chemical companies increased on an absolute basis.
4. However, as the prices started to ease owing to china and global slowdown owing to rising interest rates, etc., various companies started witnessing lower volume offtake and correction is key commodity prices. Hence, the impact was from both sides i.e. lower realization, poor demand and inventory correction.
5. In the said case, we held Laxmi Organics as the company manufactured Acetyl Intermediates, Specialty Intermediates, and soon-to-be-launched Fluorine Intermediates. In the Acetyl Intermediates segment, the company ranks as 1 in India and the 6th largest globally, with the largest market share (~30%) in India, the prices of which were in uptrend. As soon as the acetic acid prices started correcting, 600 levels to sub 250 level in just 18 months.
6. Hence, here we exited Laxmi organics and entered SRF which is stable till date as compared to other chemical stocks. 

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High volumes at lower levels

Moving average support

Stock is forming long term rounding bottom pattern

Exited around 450 levels after support level breakdown

Laxmi Organics

Source: F7

Support zone

Resistance at previous support

Price yet to recover

Case – SRF Ltd

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While most of the stocks in the sector declined, quality name like SRF in the same time has remained sideways, thus providing stability

“When do you want get diagnosed?”

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Case – Edelweiss Financial Services

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Source:F7

Who am I ?

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Technical Analysis = Brahmastra

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Art of exiting :�Arjun vs Abhimanyu��In Smallcap/high beta/fancy names/new flavours/top newsmakers you have to be Arjun not Abhimanyu

Vakrangee

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Source:F7

PC Jewelers

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Source:F7

Infibeam Avenues

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Source:F7

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“Avoid falling knives”

Indiabulls Housing Finance

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Source:F7

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“is when kidnapped falls in love with kidnapper. Holding to dicey stocks where promoter ethics is hazy is exactly the same thing. Averaging it when it crashes is one step ahead – actually marrying the kidnapper”

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