Beruflich Dokumente
Kultur Dokumente
Mumbai
11 Aug 2007
Rakesh Jhunjhunwala
RARE Enterprises
Insight I Intellect I
AGENDA
Value Investing
RARE Enterprises
Insight I Intellect I
OUR ETHOS
• Prayer
God’s Grace, Elder’s Blessings
• Aim
To win all wars despite losing many a battle
• Motto
Where the head is held high, and the mind is
without fear . . .
• Baseline
Insight, Intellect, Integrity
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Insight I Intellect I
EVOLUTION
• Aspiration (2005 - . . . .)
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Insight I Intellect I
EARLY DAYS (1984 -1989)
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Insight I Intellect I
PARADIGM SHIFT (1990 -1994)
• Prudent betting
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Insight I Intellect I
LEARNING CURVE (1995 -2000)
• Rudder-less period
• Introspection
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Insight I Intellect I
DEFINING TIME (2001 – 2005)
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Insight I Intellect I
ASPIRATION: 2005 AND BEYOND
• Institutionalization
• Perpetual view
• Other asset classes
• Other geographies
• Investor of choice
• Philanthropy
• De-leveraging
• Strategic thinker
• People, skill focused
RARE Enterprises
Insight I Intellect I
RAKESH AS AN INDIVIDUAL
• Independent thinker
• Passion for equities. Measured risk taker
• A trader, an investor, a venture capitalist
• Not afraid to make mistakes, but affordable ones
• No religion, no emotion, no ego, no rules. But, means remain
more important than the ends
• Accept with an open heart and mind that the only constant is
change. The urge to learn is a journey, not a destination
• Magic of emotion-less leverage, with discipline
• Patience born out of conviction. Be greedy, but be long-term
greedy – understanding the role of time
• His word is his bond, highest integrity
• Loves his independence
RARE Enterprises
Insight I Intellect I
RARE ENTERPRISES TODAY
RARE
Enterprises
Private Equity +
Trading Public Investments
Value Addition
RARE Enterprises
Insight I Intellect I
AGENDA
Value Investing
RARE Enterprises
Insight I Intellect I
OUR INVESTMENT APPROACH
What We Look For
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Insight I Intellect I
INVESTMENT BELIEF
Realism - Safety of
1 a
Conviction
Rigidity -
3 Capital - a
Religion
Absolute
2 a
Taboo 4
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Returns -
a Passion
Insight I Intellect I
AGENDA
Value Investing
RARE Enterprises
Insight I Intellect I
INDIA ON A STRONG GROWTH
TRAJECTORY
“A moment comes, which comes but rarely
in history, when we step out from the old to
the new, when an age ends and when the
soul of a nation, long suppressed, finds
utterance.”
RARE Enterprises
Insight I Intellect I
GROWTH ENABLERS
CULTURAL POLITICAL
Tolerance Democratic
Educational base Secular
Skilled People Populous
Savings Oriented Welfare
Consensus
GROWTH Judicial System
ENABLERS
DEMOGRAPHIC GEO-
S population
Young working ECONOMIC POLITICAL
Sub-continent
54% of population S
Entrepreneurial Vast natural resources
<25 years old class well Nuclear power
Vast domestic market developed
Top 4 Middle classResilience (no boom-bust cycles)
in the world Amongst largest economies
Irrelevance of Geographies
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Insight I Intellect I
INDIA ON A STRONG GROWTH
TRAJECTORY
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Insight I Intellect I
GROWTH SOLIDIFIERS AND
ACCELERATORS
1.
A democratic growth process rather than an imposed one; a bi
3.
Resurrection of a dormant and vigorous entrepreneurial gene.
11.Examples
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Insight I Intellect I
INDIA ON A STRONG GROWTH
TRAJECTORY
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Insight I Intellect I
INDIA HAS ALL INGREDIENTS THAT
MARKETS VALUE
• Efficient capital allocation
USA
INDIA
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Source: Bloomberg Insight I Intellect I
WHAT COULD GO WRONG
• Slowdown in US economic growth
• Politicians mess up
However, decreasing influence in causing damage
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Insight I Intellect I
US: CHEAP CREDIT FUELS ECONOMIC
GROWTH
Enable loans to
Quest for higher
customers with
returns: use of
poor credit rating
financial engg from
– 15% of all loans
regular mortgages Consumptio
in 2006 , $ 1.2
CDOs, CLOs n boom
Trillion
Low interest
rates after dot Demand Rising GDP
com for home growth
Collapse… housing prices
from 4.5 to 1%
in 8Q
Investment
Poor housing
Boom
credit
Cheap shielded by
credit innovative
structures, rising
home prices
Low interest rates led to US Economy Debt surging to 340% of GDP from 280%
of GDP in 2000 and 175% in 1980 … thereby fueling an extra ordinary
consumption and investment boom
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Source: UBS
Insight I Intellect I
US: VICIOUS CYCLE OF GDP GROWTH
Consumption
Declines
Jobs lost significantly
Unsold
Rise in Increase in inventories Housing GDP
credit EMIs @ 15 yr high, Prices slows
standards to As interest 1.7 M homes decline down
sub prime rates
due to reset
defaults upward Investment in
housing
declines
Default by
sub prime
Inability to
refinance
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Insight I Intellect I
CONCLUSIONS: WE ARE IN A TOUGH PERIOD
FOR EQUITIES
High degree of complacency as too much easy money has been made too quickly
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Insight I Intellect I
WORLD ECONOMY IMPLICATIONS
EARNINGS
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AS YOU EMBARK ON PROMISING
LIVES
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Insight I Intellect I
Thank You
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Insight I Intellect I
INDIA UTILIZES CAPITAL MORE
EFFICIENTLY
China India
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Insight I Intellect I
GROWTH DESPITE CYNICISM
Mark Twain
Growth Growth 9 -11 % Growth and
enablers solidifiers & future Indian stock
accelerators growth a markets
reality
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Insight I Intellect I
INDIA's PEOPLE - ITS STRONGEST ASSET
Based on IMD World Competitiveness Survey
A large pool of skilled people... ...with high end qualifications... ...and extremely cost efficient
Availability of skilled labour, 2003 Availability of qualified engineers, Total compensation for
2003 manufacturing workers, 2002
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Insight I Intellect I
FAVOURABLE DEMOGRAPHICS WILL AID
CONSUMPTION LED GROWTH
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Insight I Intellect I
CONSUMPTION: EXPANDING MIDDLE CLASS
India To Have 4th Largest Number Of House Holds
Earning > US $5000
Number of households with income >US $5,000 p.a.
1994 2004 2008
U.S. U.S. U.S.
Japan Japan China
Germany Germany Japan
UK UK India
France France Germany
Italy Italy Russia
Brazil China Brazil
Mexico Russia UK
Korea Brazil France
Spain Mexico Italy
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Source: EIU Country Data Insight I Intellect I
INDIA: ECONOMIC RESILIENCE
Least Volatile Economic Growth
% GDP growth
15
10
5
0
-5
-10
-15
India Taiwan S Korea Thailand Singapore Hongkong Malaysia
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Insight I Intellect I
INDIA’s GROWTH – A BIOLOGICAL
EVOLUTION
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Insight I Intellect I
GLOBAL OPINION LEADERS RECOGNIZE
THE CHANGE
12000
10000
8000
6000
4000
2000
0
2002 2003 2004 2005 2006E
Confluence
Insurance Competition Bill
of Reforms
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Insight I Intellect I
IN GOOD MACROECONOMIC SHAPE
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Insight I Intellect I
PRODUCTIVITY IMPROVEMENTS: MARGIN
EXPANSION
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Insight I Intellect I
STRONG BALANCE SHEETS
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POTENTIAL TO ENHANCE EQUITY
OWNERSHIP
Distribution of Financial Savings
80%
60%
40%
20%
0%
FY91 FY96 FY01 FY05 FY06 FY11
Re/$ 44 44 44 44 44 44 44 44
Equity $ bn 5 8 12 18 24 33 44 57
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Insight I Intellect I
EXAMPLES OF TRANSFORMATION
3. Airlines industry
5. Mobile phones
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Insight I Intellect I
FUND FLOW FOR EQUITY MARKETS
Savings Composition
USD Bn 1994 1995 2004 2005 2006 2007 2008 2009 2010 2011
GDP 274 323 601 694 798 904 1,026 1,163 1,319 1,496
Gross domestic savings 62 80 174 202 235 271 315 365 425 494
Savings to GDP % 22.5% 24.8% 28.9% 29.1% 29.5% 30.0% 30.7% 31.4% 32.2% 33.0%
Financial savings 35 46 83 97 133 156 184 216 253 299
- % of GDP 12.8% 14.4% 13.8% 14.0% 16.7% 17.3% 17.9% 18.6% 19.2% 20.0%
Savings in Equity/Deb/MF 4.7 5.5 0.1 1.1 6.5 5.9 11.8 21.2 34.0 44.9
- % of Financial Savings 13.5% 11.9% 0.1% 1.1% 4.9% 3.8% 6.4% 9.8% 13.4% 15.0%
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Insight I Intellect I