Description
PROJECT ON FRANKLIN TEMPLETON INVESTMENT
High Growth Companies Fund
An equity fund with a high growth focus
Agenda
The India Story Why focus on Growth ? Franklin India High Growth Companies Fund
Why Franklin Templeton ?
India : Economy
Past
40
India
Share of World GDP (%)
30
China
20
Europe
10
US
0 1 1000 1500 1600 1700 India 1820 1870 1913 1950 1973 2001
China
Europe
United States
India and China starting to pick up
Source : Source: Angus Maddison, The World Economy: Historical Statistics, OECD 2003.
India : Economy
Present
GDP & Real GDP growth
10.0% 8.5% 8.0% 5.8% 6.0% 4.4% 4.0% 460 2.0% 475 509 3.8% 603 805 695 7.5% 1059 929 9.2% 9.3% 1600 1400 1200 1000 800 600 400 200 0.0% FY01 FY02 FY03 FY04 FY05 FY06 FY07E FY08E 0
9.0%
One of the fastest growing economies
Source: CSO, RBI, Ministry of Finance, Citigroup estimates (March end)
GDP (US$ bn)
Real GDP growth (%)
India : Economy
Economic Power of the future
India to be among the biggest economies
Source: Economist
India : Economy
Relatively insulated to global upheavals
250 205.6 200 162.8 150 107.9 100 63.0 50 62.2 41.1 35.7 27.6 18.5
Share of Exports as a % of GDP
0
HK
Malaysia
Thailand
China
Phillipines
Singapore
Source: Citigroup
Source: CRIS INFAC Low export to GDP ratio compared to other Asian markets, but high forex reserves
Indonesia
Taiwan
India
Macro drivers
Increasing affluence leads to higher consumption
Source: Mckinsey Global Institute
Macro Drivers
Potential „Services Capital? of the world
US$bn 70 CAGR 26-27% 60 65
50
40
30 23.4 20 12.8 10 6.2 7.7 9.6 17.7
0 FY01 FY02 FY03 FY04 FY05 FY06E FY10E
? Services are tradable: India has cost and skill set advantages India has the 2nd largest pool of scientists and engineers in the world Gap in price of labor between India and the rest of the world plus a young population are the main drivers
Source: Citigroup
Macro Drivers
Infrastructure spending on the rise
Rs in bn
Roads Ports Railways Power
FY03-07
FY 08-12
%
Driven by • Government Infrastructure spending especially in the rural areas • Port/airport modernization/expansion • Cross-country road corridors • Upstream/midstream investments
1,020 125 606 1,800 3,551
2,150 560 2,340 3,720 8,770
110.8 348.0 286.1 106.7 147.0
• Significant capacity additions driven by rising demand and utilization • Rising telecom demand driven by lower handset prices and newer technologies
Total
* Source : CLSA - expected investments in 10th/11th plans
Source: CRIS INFAC GDP growth could be 2-3% higher with proper infrastructure backbone
Macro Drivers
Corporate India is a value creator
28 (%) 26
24
22
Return on equity
20
18
Value created
16
14
Current cost of equity Cost of Equity
FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07C L FY08C L
12
10 FY97
Source: CLSA
Capex phase in the late nineties sets foundation for value creation
Liquidity
India dedicated funds
Sharp rise in assets and number of India funds - $34 billion
Fund
HSBC GIF-Indian Equity-Ad JPMorgan F-India Fund-A$ Fidelity Fund-India Focus-AGBP India Fund Inc PCA India Equity Open Aberdeen Gl-India Opportu-A2 HSBC India Open Eaton Vance Greater India-B
Domicile
Luxembourg Luxembourg Luxembourg USA Japan Honk Kong Japan USA
Launch
23-Jan-96 31-Aug-95 23-Aug-04
Assets (US Mln)
6115 3970 3370 1913 1293 1269 1268 1082
23-Feb-94
30-Sep-04 28-Mar-06 30-Nov-04 02-May-94 22-Jun-05 13-Dec-05
Nomura Indian Stock Fund
Blackrock India Stock Fund Source: Bloomberg, Apr 07
Japan
Japan
1055
1022
Liquidity
Domestic savings
Vast pool of untapped household savings can provide support to equity markets:
Financial savings accounting for 16.8% of GDP Available savings pool if household accumulations are assumed at 6-7 years? savings Equity inflows at different levels of allocation Allocation 2% 5% 10% USD Bln 17.76 – 20.72 44.41 – 51.81 88.82 – 103.60 Rs. Crores 82,567 – 95,849 205,392 – 239,624 410,783 - 479,247 : $888 - $1036 bln : $ 148.03 bln *
*Source: RBI data-FY06, 1 USD = Rs.45.25
Why High Growth ?
Economy and investment styles
Different styles are pertinent for the various stages of the economic/business cycle
1 year Developed Economy 10 years
MSCI USA Growth
MSCI USA Value
9.84%
16.23%
5.31%
6.51%
Emerging Economy
MSCI India Growth MSCI India Value 29.04% 27.20% 16.03% 9.82%
Source: MSCI (Compounded & Annualised returns as on April 30, 2007 and in US$ terms)
What is Growth Style?
MSCI measures
Growth investment style characteristics
? Long-term forward earnings per share growth rate
? Short-term forward EPS growth rate ? Current Internal Growth Rate ? Long-term historical EPS growth trend
? Long-term historical sales per share growth trend
Companies with above average revenue growth/potential and ROE
Value investment style characteristics
? Book value to price ratio
? 12-month forward earnings to price ratio
? Dividend yield Out-of-favour stocks/sectors with good fundamentals, turn-around opportunities and undervalued
Growth Drivers
India is undergoing a paradigm shift due to changing lifestyles and dynamics Industry-specific investment themes are used to identify sectors/companies with above-average market growth
CHANGING LIFESTYLES DEMOGRAPHICS INVESTMENTS OUTSOURCING NEW TECHNOLOGIES
• • • • • • •
Luxury Goods Specialty Retail Tour Operators Fashion Apparel Mail Order Games New Media
• • • • •
Financial Services Insurance Products Asset Management Retail chains Housing
• • • • • •
Capital Goods Infrastructure Construction Power Telecom Utilities
• IT/ IT Enabled services • Auto Components • Engineering goods • Pharmaceuticals • Financial Research • Risk Management • Training & Development
• • • • • • • •
Biopharmaceuticals Specialized Software Videoconferencing Testing Equipment Networking Products Smart / SIM Cards Consumer Electronics Flat Panel Components • Cell Phone Components
High Growth Companies
Companies expanding sales as well as earnings at a much higher rate than that of the general economy. Because these companies tend to grow earnings at a fast pace, they will typically have higher valuations (P/E) Enjoy competitive advantages
? Proprietary intellectual property ? Strong management ? Distribution/cost advantages ? Entry barriers specific to the respective sector
High Growth strategy
How the strategy would have worked with a focus on “high growth companies”
May 02 – Apr 07$ Earnings Revision Ratio Long Term PEG Ratio Q1 51.9% 54.2% Q II 51.0% 45.0% Q III 39.4% 50.1% Q IV 35.1% 29.0% QV 23.5% 26.3%
Source: Citigroup investment research (compounded and annualised as on April 30, 2007). Quintile-I being the top 20% and Quintile-V the bottom 20% of the group.
$The table denotes Annualised Compounded returns over the specified period on a portfolio of companies constructed based on the following two parameters. Earnings Revision Ratio (ERR) = the number of upward revisions (of estimates of company's earnings by analysts) over the past month minus the number of downward revisions over the past month divided by the total number of estimates. Long Term Price / Earnings to Growth (PEG) Ratio = Trailing P/E ratio divided by Annualised Mean Earnings Growth Rate over the company's Next Business Cycle, usually 3 to 5 yrs. Annualised Mean Earnings Growth Rate is the Mean value of Growth forecasts of all contributing analysts. The companies considered are forming part of the S&P Emerging markets global indices.
High Growth Companies
Some well known examples from the last decade - .
1 year 3 years 5 years 7 years 10 years
Infosys Bharti Airtel ABB HDFC Kotak Mahindra Bank BSE Sensex CNX Midcap S&P CNX 500
29.0 99.1 31.3 26.5 74.7 17.1 4.5 12.1
47.1 68.5 73.5 40.8 90.3 34.8 31.3 30.9
34.7 87.4 72.6 38.5 72.0 32.9 N.A 34.3
10.6 58.3 32.1 68.0 16.9 N.A 17.8
56.9 20.3 26.4 49.9 13.7 N.A 17.0
For illustrative purposes only. Source: DB Research. Compounded and annualised returns as on April 30, 2007. Please note that this should not be construed as an investment advice.
High Growth Companies Infosys
Rs. in Crs
Industry : IT Services Opportunity : To deliver software services in a cost effective manner remotely. US & Europe became target markets
1996 Sales 89
2006 9028
CAGR 58.8%
PBIDT
PAT Market Cap RONW (%)
34
21 359 29.53
3146
2421 81830 39.89
57.2%
60.8% 72.1%
Macro drivers : Global offshoring trend and friendly regulatory environment
Competitive Advantages : Strong team, flexibility to reinvent itself along with market opportunities, Ability to build long-term drivers of cost efficiency, brand name, High quality of services, Corporate Governance
Management Quality/Execution : Built capable & stable management; attracted new and skilled talent with strong retention policies, delivered derisked growth without dilution in profitability, followed shareholder friendly practices
High Growth Companies
Bharti Airtel
Industry : Telecom Services Opportunity : New market for mobile telephony with evolving regulatory environment Macro drivers : Changing lifestyles and aspirations helped in rapid growth for the sector
Competitive Advantages : Spearheaded a unique business model which competitors took time to catch up with, Presence in wider geographic segment providing scale benefits, Innovative service packages, Brand equity Management Quality/Execution : Entrepreneurial and highly innovative, exhibited ability to generate consistently high growth rates, trend-setting financial management and leadership
High Growth Companies
ABB
Rs. in Crs
Industry : Engineering capital goods
Sales
1999 776 75 37 1036 9.16
2006 4274 560 340 15729 32.88
CAGR 27.6% 33.2% 37.2% 47.5%
Opportunity : Huge demand for Power & Urban infrastructure Macro drivers : Infrastructure spending and capex
PBIDT PAT Market Cap RONW (%)
Competitive Advantages : World class product and services, Higher-end technology, Dependable execution, Strong support of the parent
Management Quality/Execution : High quality management with strong track record, sound financial management, consistent ability to introduce new products and deliver growth.
High Growth Companies HDFC
Rs. in Crs
Industry : Home Loan Mortgages
Sales
1996
970 931 196 3859 16.52
2006
4208 4074 1257 33342 30.11
CAGR
15.8% 15.9% 20.4% 24.1%
Opportunity : Rising middle-income households and their need for affordable housing Macro drivers : Strong economic growth and rising income levels
PBIDT PAT Market Cap RONW (%)
Competitive Advantages : Strong brand name, competitive pricing, customer-friendly practices, Reliability and stability, Efficient management of balance sheet, Low cost structure & Focus
Management Quality/Execution : Stable management team with strong corporate philosophy, Shows consistent ability to understand the environment well, willingness to forego unprofitable growth, Minimal dilution to fund growth.
High Growth Companies
Kotak Bank
Rs. in Crs
Industry : Financial Services
Sales
2002 122 134 55 845 10.90
2006 694 542 118 8598 14.75
CAGR 54.4% 41.8% 21.4% 78.6%
Opportunity : Growing affluent middle class with high savings and need for comprehensive financial services Macro drivers : Changing financial landscape
PBIDT PAT Market Cap RONW (%)
Competitive Advantages : Complete range of services under one brand, Customer-focused approach, competitive pricing, Unique business model, Brand Equity
Management Quality/Execution : Strong and aggressive team, Highly entrepreneurial, Stable and confident top management, Have shown ability to build a large retail franchise without dilution of quality
Franklin India High Growth Companies Fund
Benefit from the fastest growing companies in India
Franklin India High Growth Companies Fund
An open end diversified equity fund that seeks to achieve capital appreciation through investments in Indian companies/sectors with high growth rates or potential Investment style is „growth? & Blend of top-down and bottom-up approach of investing Asset Allocation:
Type of instruments Equity & Equity Linked Instruments Debt securities* and Money Market Instruments Normal Allocation# 70% - 100% 0% - 30%
# including investments in foreign securities as may be permitted by SEBI/RBI up to 35% of the net assets of the scheme, exposure in derivatives up to a maximum of 50%. * including securitised debt upto 30%
Investment Style
Primary focus will be to identify „high growth? companies, especially in sectors witnessing above-average growth.
Blend of top-down (macro analysis to identify sectors) and bottom-up approach (micro analysis to pick stocks within these sectors)
The top-down considerations will include an analysis of –
Domestic and global economic drivers Macro factors such as interest rates, inflation, regulatory environment, political environment and global market dynamics Identification of sectors based on the above and relative valuations & liquidity
Investment Process
Identify key trends based on various economic drivers Analyze and ascertain the nature, certainty and predictability of such growth trends List companies that provide exposure to these growth themes
Research further for ? Management quality, business strengths, competitive advantages, financial strength
Value these businesses through appropriate measures
High Growth – High returns
The impact of an extra 5% on an initial investment of Rs.1 lakh
% returns
10% 15% 20% 25%
1 year
1.10 1.15 1.20 1.25
3 years
1.33 1.52 1.73 1.95
5 years
1.61 2.01 2.49 3.05
7 years
1.95 2.66 3.58 4.77
10 years
2.59 4.05 6.19 9.31
(Please note that this is for illustrative purpose only and the actual returns would depend on the market conditions and the performance of the fund)
Longer the horizon, higher the potential
Volatility is part & parcel of stock market investing. Staying invested for a longer period reduces the risks
Simulation for Bluechip Fund
1 Year 3 Year 5 Year 7 Year 9 Year
Maximum returns 199.4% 81.0% 50.9% 41.1% 40.9%
Minimum returns -36.4% -9.6% 14.0% 9.5% 16.0%
Average of rolling returns 34.9% 29.7% 28.2% 27.2% 28.4%
Possibility of making money 75.6% 86.3% 100.0% 100.0% 100.0%
Possibility of losing money 24.4% 13.7% 0.0% 0.0% 0.0%
Past performance may or may not be sustained in future.
Annualised compounded returns based on growth plan NAV; Period - Inception date (1.12.1993) to 30.4.2007; Sales load has not been taken into consideration. Dividends are assumed to be reinvested and bonus is adjusted. BSE Sensex rolling returns for the same period: Maximum returns, Minimum returns, Average returns, Possibility of making money, Possibility of losing money: 1 Year, 101.7%, -41.3%, 13.8%, 57.8%, 42.2%; 3 Year, 62.2%, -18.5%, 9.9%, 64.1%, 34.9%; 5 Year, 36.4%, -7.8%, 7.1%, 71.1%, 28.9%; 7 Year, 20.4%, -7.6%, 5.8%, 71.5%, 28.5%; 9 Year, 17.9%, -2.9%, 7.2%, 82.1%, 17.9%. Sales load has not been taken into consideration. Dividend/Bonus are adjusted.
As the investment time horizon increases, the numbers change in favour of investors... the possibility of losing money reduces and so do the minimum returns.
Equity investing is attractive
No long term capital gains tax for investments over a 1-year period*
Short term capital gains are only 10%*
Dividends are totally tax-free in the hands of the investors and no dividend distribution tax is required to be paid by the Fund
* However investors are liable to pay securities transaction tax (STT). As per current tax laws
Why Franklin Templeton ?
Franklin Templeton Worldwide
More than 50 years of experience in global investing Extensive international presence and breadth of product line with offices in 29 countries, supported by over 450 investment professionals Over US$ 601.1 billion assets under management#; over 17.1 million billable investor accounts world-wide Offers more than 200 investment solutions under the Franklin, Templeton, Mutual Series, Bissett, Fiduciary Trust and Darby names globally
# As on April 30, 2007
Franklin Templeton in India
Established office in 1996 and currently one of the leading fund houses in India. Manages Rs.24,510 crores# for over 21 lakh shareholder accounts
One of the largest equity assets in India*
Assets Under Management & Asset Mix (in Rs. Crs) 23060 24510
20%
18492
13403 8193
23% 57% 20% Sep-02 23% 26% 28% 33%
17435
27% 22%
33%
15%
21% 41% 49% 46% 58% 58%
Sep-03
Sep-04 Equity Debt
Sep-05 Cash
Sep-06
Apr-07
*# Source: AMFI Website (as on April 30, 2007)
Rich Experience & Product innovation
Manages 4 equity funds with a track record of over 10 years Manages 3 of the 15 largest equity funds* in the country First to launch an open end private sector fund – Prima Fund First to launch a value fund - Templeton India Growth Fund India?s first Infotech/Pharma Fund India?s first fund of funds – FT India Dynamic PE Ratio Fund of Funds Category starters – Franklin India Flexi Cap Fund, Franklin India Smaller Companies Fund First Capital Protection Fund Templeton India Equity Income Fund
* Source: AMFI Website (April 30, 2007)
Equity team - Key strengths
People: Continuity and depth of experience of the team.
Contacts and Presence: Constant company visits and frequent
meetings with industry people help in forming independent views.
Local and Global: Team focused on local needs, at the same time,
tuned in to global trends.
Discipline : Consistent adherence to investment objectives and
philosophy.
Global standards : Disclosure and compliance with independent
dealing desk. Constant interaction with risk management team to gauge risk-adjusted performance.
Long Term: The longevity of the team has led to combined experience
of market cycles which has inculcated a long term perspective and the ability to take out emotions out of investing
Investment process
5
STEP
Portfolio and Risk Management
4
3
STEP
Portfolio Construction
STEP
Stock Recommendations
2 Business Analysis 1
Idea Generation
STEP
STEP
Fund Facts
New Fund Offer : May 31, 2007 to June 29, 2007
Minimum Investment Amount: Rs.5000/1
New Fund Offer Price: Rs.10 plus applicable load Load Structure - Entry: <Rs.5 Crs: 2.25%, =>Rs.5 Crs: Nil; Exit Load : <Rs.5 Crs: 0.5% (for redemption within 6 months of allotment), =>Rs.5 Crs: 1% (for redemption within 1 year of allotment) Options: Growth & Dividend Plan (Payout & Reinvestment options) Fund Managers: Sivasubramanian K.N & Anand Radhakrishnan Systematic Investment Plan: Rs.1000 or more for atleast 12 months & all installments should be for the same amount (Only through ECS/Direct debit)
Summing up…
Participate in India?s robust economic growth Access the potential of India?s fastest growing companies in terms of revenue and earnings Benefit from FT?s rich investment experience in the Indian equity markets for over a decade You can do all of this with a single investment in Franklin India High Growth Companies Fund
Thank You
*The information contained in this commentary is not a complete presentation of every material fact regarding any industry, security or the fund and is neither an offer for units nor an invitation to invest. This communication is meant for use by the recipient and not for circulation/reproduction without prior approval. The views expressed by the portfolio managers are based on current market conditions and information available to them and do not constitute investment advice. Scheme classification and investment objective: Franklin India Bluechip Fund (FIBCF) is an open end growth scheme with an objective to primarily provide medium to long term capital appreciation. Entry Load: 2.25%, Exit Load: Nil. FIHGCF is an open-end diversified equity fund that seeks to achieve capital appreciation through investments in Indian companies/sectors with high growth rates or potential. Asset allocation: Equity and Equity Linked Instruments#: 70% - 100%, Debt securities* and Money Market Instruments: 0% - 30%. #including investments in Foreign Securities as may be permitted by SEBI/RBI up to 35% of the net assets of the scheme, exposure in derivatives up to a maximum of 50% * including securitised debt up to 30%. Terms of the offer: The Units are being offered at Rs.10 per unit plus applicable load during the NFO and NAV based prices upon reopening. Risk Factor: All investments in mutual funds and securities are subject to market risks and the NAV of the scheme may go up or down depending upon the factors and forces affecting the securities market. There can be no assurance that the schemes investment objectives will be achieved. The past performance of the mutual fund managed by the Franklin Templeton Group and its affiliates is not necessarily indicative of future performance of the schemes. The above is only the name of the scheme and does not in any manner indicate the quality of the scheme, its future prospects or returns. The Mutual Fund is not guaranteeing or assuring any dividend under the scheme and the payment of the dividend is subject to availability of distributable surplus. The investments made by the schemes are subject to external risks. Please read the offer document carefully before investing. Offer Documents / Application Form are available free of cost at any of the Investor Service Centres or distributors or from the website www.franklintempletonindia.com. Statutory Details: Franklin Templeton Mutual Fund in India has been set up as a trust by Templeton International Inc. (liability restricted to the seed corpus of Rs.1 lac) with Franklin Templeton Trustee Services Pvt. Ltd. as the Trustee (Trustee under the Indian Trusts Act, 1882) and Franklin Templeton Asset Management (India) Pvt. Ltd. as the Investment Manager.
Product Positioning
Product Franklin India Bluechip Fund Franklin India Prima Fund Franklin India Prima Plus Franklin India Opportunities Fund* Franklin India Flexi Cap Fund Templeton India Growth Fund Templeton India Equity Income Fund Franklin India High Growth Companies Fund (FIHGCF) Positioning Invests in large cap stocks Invests in mid and small cap stocks Primarily large cap fund, with a marginal small/mid cap exposure Takes concentrated stock exposure based on four themes Invests in companies across market caps Value fund, investing predominantly in large cap stocks Focuses on Indian/overseas stocks that are attractive from a dividend yield perspective Invests in high growth companies across market caps Investment Style Blend, bottom up Blend, bottom up Blend, bottom up Blend, bottom up Blend, bottom up Value, bottom up Value, bottom up
Growth, mix of top-down (macro analysis to identify sectors) and bottom-up approach (micro analysis to pick stocks within these sectors)
Product Positioning
doc_875639839.ppt
PROJECT ON FRANKLIN TEMPLETON INVESTMENT
High Growth Companies Fund
An equity fund with a high growth focus
Agenda
The India Story Why focus on Growth ? Franklin India High Growth Companies Fund
Why Franklin Templeton ?
India : Economy
Past
40
India
Share of World GDP (%)
30
China
20
Europe
10
US
0 1 1000 1500 1600 1700 India 1820 1870 1913 1950 1973 2001
China
Europe
United States
India and China starting to pick up
Source : Source: Angus Maddison, The World Economy: Historical Statistics, OECD 2003.
India : Economy
Present
GDP & Real GDP growth
10.0% 8.5% 8.0% 5.8% 6.0% 4.4% 4.0% 460 2.0% 475 509 3.8% 603 805 695 7.5% 1059 929 9.2% 9.3% 1600 1400 1200 1000 800 600 400 200 0.0% FY01 FY02 FY03 FY04 FY05 FY06 FY07E FY08E 0
9.0%
One of the fastest growing economies
Source: CSO, RBI, Ministry of Finance, Citigroup estimates (March end)
GDP (US$ bn)
Real GDP growth (%)
India : Economy
Economic Power of the future
India to be among the biggest economies
Source: Economist
India : Economy
Relatively insulated to global upheavals
250 205.6 200 162.8 150 107.9 100 63.0 50 62.2 41.1 35.7 27.6 18.5
Share of Exports as a % of GDP
0
HK
Malaysia
Thailand
China
Phillipines
Singapore
Source: Citigroup
Source: CRIS INFAC Low export to GDP ratio compared to other Asian markets, but high forex reserves
Indonesia
Taiwan
India
Macro drivers
Increasing affluence leads to higher consumption
Source: Mckinsey Global Institute
Macro Drivers
Potential „Services Capital? of the world
US$bn 70 CAGR 26-27% 60 65
50
40
30 23.4 20 12.8 10 6.2 7.7 9.6 17.7
0 FY01 FY02 FY03 FY04 FY05 FY06E FY10E
? Services are tradable: India has cost and skill set advantages India has the 2nd largest pool of scientists and engineers in the world Gap in price of labor between India and the rest of the world plus a young population are the main drivers
Source: Citigroup
Macro Drivers
Infrastructure spending on the rise
Rs in bn
Roads Ports Railways Power
FY03-07
FY 08-12
%
Driven by • Government Infrastructure spending especially in the rural areas • Port/airport modernization/expansion • Cross-country road corridors • Upstream/midstream investments
1,020 125 606 1,800 3,551
2,150 560 2,340 3,720 8,770
110.8 348.0 286.1 106.7 147.0
• Significant capacity additions driven by rising demand and utilization • Rising telecom demand driven by lower handset prices and newer technologies
Total
* Source : CLSA - expected investments in 10th/11th plans
Source: CRIS INFAC GDP growth could be 2-3% higher with proper infrastructure backbone
Macro Drivers
Corporate India is a value creator
28 (%) 26
24
22
Return on equity
20
18
Value created
16
14
Current cost of equity Cost of Equity
FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07C L FY08C L
12
10 FY97
Source: CLSA
Capex phase in the late nineties sets foundation for value creation
Liquidity
India dedicated funds
Sharp rise in assets and number of India funds - $34 billion
Fund
HSBC GIF-Indian Equity-Ad JPMorgan F-India Fund-A$ Fidelity Fund-India Focus-AGBP India Fund Inc PCA India Equity Open Aberdeen Gl-India Opportu-A2 HSBC India Open Eaton Vance Greater India-B
Domicile
Luxembourg Luxembourg Luxembourg USA Japan Honk Kong Japan USA
Launch
23-Jan-96 31-Aug-95 23-Aug-04
Assets (US Mln)
6115 3970 3370 1913 1293 1269 1268 1082
23-Feb-94
30-Sep-04 28-Mar-06 30-Nov-04 02-May-94 22-Jun-05 13-Dec-05
Nomura Indian Stock Fund
Blackrock India Stock Fund Source: Bloomberg, Apr 07
Japan
Japan
1055
1022
Liquidity
Domestic savings
Vast pool of untapped household savings can provide support to equity markets:
Financial savings accounting for 16.8% of GDP Available savings pool if household accumulations are assumed at 6-7 years? savings Equity inflows at different levels of allocation Allocation 2% 5% 10% USD Bln 17.76 – 20.72 44.41 – 51.81 88.82 – 103.60 Rs. Crores 82,567 – 95,849 205,392 – 239,624 410,783 - 479,247 : $888 - $1036 bln : $ 148.03 bln *
*Source: RBI data-FY06, 1 USD = Rs.45.25
Why High Growth ?
Economy and investment styles
Different styles are pertinent for the various stages of the economic/business cycle
1 year Developed Economy 10 years
MSCI USA Growth
MSCI USA Value
9.84%
16.23%
5.31%
6.51%
Emerging Economy
MSCI India Growth MSCI India Value 29.04% 27.20% 16.03% 9.82%
Source: MSCI (Compounded & Annualised returns as on April 30, 2007 and in US$ terms)
What is Growth Style?
MSCI measures
Growth investment style characteristics
? Long-term forward earnings per share growth rate
? Short-term forward EPS growth rate ? Current Internal Growth Rate ? Long-term historical EPS growth trend
? Long-term historical sales per share growth trend
Companies with above average revenue growth/potential and ROE
Value investment style characteristics
? Book value to price ratio
? 12-month forward earnings to price ratio
? Dividend yield Out-of-favour stocks/sectors with good fundamentals, turn-around opportunities and undervalued
Growth Drivers
India is undergoing a paradigm shift due to changing lifestyles and dynamics Industry-specific investment themes are used to identify sectors/companies with above-average market growth
CHANGING LIFESTYLES DEMOGRAPHICS INVESTMENTS OUTSOURCING NEW TECHNOLOGIES
• • • • • • •
Luxury Goods Specialty Retail Tour Operators Fashion Apparel Mail Order Games New Media
• • • • •
Financial Services Insurance Products Asset Management Retail chains Housing
• • • • • •
Capital Goods Infrastructure Construction Power Telecom Utilities
• IT/ IT Enabled services • Auto Components • Engineering goods • Pharmaceuticals • Financial Research • Risk Management • Training & Development
• • • • • • • •
Biopharmaceuticals Specialized Software Videoconferencing Testing Equipment Networking Products Smart / SIM Cards Consumer Electronics Flat Panel Components • Cell Phone Components
High Growth Companies
Companies expanding sales as well as earnings at a much higher rate than that of the general economy. Because these companies tend to grow earnings at a fast pace, they will typically have higher valuations (P/E) Enjoy competitive advantages
? Proprietary intellectual property ? Strong management ? Distribution/cost advantages ? Entry barriers specific to the respective sector
High Growth strategy
How the strategy would have worked with a focus on “high growth companies”
May 02 – Apr 07$ Earnings Revision Ratio Long Term PEG Ratio Q1 51.9% 54.2% Q II 51.0% 45.0% Q III 39.4% 50.1% Q IV 35.1% 29.0% QV 23.5% 26.3%
Source: Citigroup investment research (compounded and annualised as on April 30, 2007). Quintile-I being the top 20% and Quintile-V the bottom 20% of the group.
$The table denotes Annualised Compounded returns over the specified period on a portfolio of companies constructed based on the following two parameters. Earnings Revision Ratio (ERR) = the number of upward revisions (of estimates of company's earnings by analysts) over the past month minus the number of downward revisions over the past month divided by the total number of estimates. Long Term Price / Earnings to Growth (PEG) Ratio = Trailing P/E ratio divided by Annualised Mean Earnings Growth Rate over the company's Next Business Cycle, usually 3 to 5 yrs. Annualised Mean Earnings Growth Rate is the Mean value of Growth forecasts of all contributing analysts. The companies considered are forming part of the S&P Emerging markets global indices.
High Growth Companies
Some well known examples from the last decade - .
1 year 3 years 5 years 7 years 10 years
Infosys Bharti Airtel ABB HDFC Kotak Mahindra Bank BSE Sensex CNX Midcap S&P CNX 500
29.0 99.1 31.3 26.5 74.7 17.1 4.5 12.1
47.1 68.5 73.5 40.8 90.3 34.8 31.3 30.9
34.7 87.4 72.6 38.5 72.0 32.9 N.A 34.3
10.6 58.3 32.1 68.0 16.9 N.A 17.8
56.9 20.3 26.4 49.9 13.7 N.A 17.0
For illustrative purposes only. Source: DB Research. Compounded and annualised returns as on April 30, 2007. Please note that this should not be construed as an investment advice.
High Growth Companies Infosys
Rs. in Crs
Industry : IT Services Opportunity : To deliver software services in a cost effective manner remotely. US & Europe became target markets
1996 Sales 89
2006 9028
CAGR 58.8%
PBIDT
PAT Market Cap RONW (%)
34
21 359 29.53
3146
2421 81830 39.89
57.2%
60.8% 72.1%
Macro drivers : Global offshoring trend and friendly regulatory environment
Competitive Advantages : Strong team, flexibility to reinvent itself along with market opportunities, Ability to build long-term drivers of cost efficiency, brand name, High quality of services, Corporate Governance
Management Quality/Execution : Built capable & stable management; attracted new and skilled talent with strong retention policies, delivered derisked growth without dilution in profitability, followed shareholder friendly practices
High Growth Companies
Bharti Airtel
Industry : Telecom Services Opportunity : New market for mobile telephony with evolving regulatory environment Macro drivers : Changing lifestyles and aspirations helped in rapid growth for the sector
Competitive Advantages : Spearheaded a unique business model which competitors took time to catch up with, Presence in wider geographic segment providing scale benefits, Innovative service packages, Brand equity Management Quality/Execution : Entrepreneurial and highly innovative, exhibited ability to generate consistently high growth rates, trend-setting financial management and leadership
High Growth Companies
ABB
Rs. in Crs
Industry : Engineering capital goods
Sales
1999 776 75 37 1036 9.16
2006 4274 560 340 15729 32.88
CAGR 27.6% 33.2% 37.2% 47.5%
Opportunity : Huge demand for Power & Urban infrastructure Macro drivers : Infrastructure spending and capex
PBIDT PAT Market Cap RONW (%)
Competitive Advantages : World class product and services, Higher-end technology, Dependable execution, Strong support of the parent
Management Quality/Execution : High quality management with strong track record, sound financial management, consistent ability to introduce new products and deliver growth.
High Growth Companies HDFC
Rs. in Crs
Industry : Home Loan Mortgages
Sales
1996
970 931 196 3859 16.52
2006
4208 4074 1257 33342 30.11
CAGR
15.8% 15.9% 20.4% 24.1%
Opportunity : Rising middle-income households and their need for affordable housing Macro drivers : Strong economic growth and rising income levels
PBIDT PAT Market Cap RONW (%)
Competitive Advantages : Strong brand name, competitive pricing, customer-friendly practices, Reliability and stability, Efficient management of balance sheet, Low cost structure & Focus
Management Quality/Execution : Stable management team with strong corporate philosophy, Shows consistent ability to understand the environment well, willingness to forego unprofitable growth, Minimal dilution to fund growth.
High Growth Companies
Kotak Bank
Rs. in Crs
Industry : Financial Services
Sales
2002 122 134 55 845 10.90
2006 694 542 118 8598 14.75
CAGR 54.4% 41.8% 21.4% 78.6%
Opportunity : Growing affluent middle class with high savings and need for comprehensive financial services Macro drivers : Changing financial landscape
PBIDT PAT Market Cap RONW (%)
Competitive Advantages : Complete range of services under one brand, Customer-focused approach, competitive pricing, Unique business model, Brand Equity
Management Quality/Execution : Strong and aggressive team, Highly entrepreneurial, Stable and confident top management, Have shown ability to build a large retail franchise without dilution of quality
Franklin India High Growth Companies Fund
Benefit from the fastest growing companies in India
Franklin India High Growth Companies Fund
An open end diversified equity fund that seeks to achieve capital appreciation through investments in Indian companies/sectors with high growth rates or potential Investment style is „growth? & Blend of top-down and bottom-up approach of investing Asset Allocation:
Type of instruments Equity & Equity Linked Instruments Debt securities* and Money Market Instruments Normal Allocation# 70% - 100% 0% - 30%
# including investments in foreign securities as may be permitted by SEBI/RBI up to 35% of the net assets of the scheme, exposure in derivatives up to a maximum of 50%. * including securitised debt upto 30%
Investment Style
Primary focus will be to identify „high growth? companies, especially in sectors witnessing above-average growth.
Blend of top-down (macro analysis to identify sectors) and bottom-up approach (micro analysis to pick stocks within these sectors)
The top-down considerations will include an analysis of –
Domestic and global economic drivers Macro factors such as interest rates, inflation, regulatory environment, political environment and global market dynamics Identification of sectors based on the above and relative valuations & liquidity
Investment Process
Identify key trends based on various economic drivers Analyze and ascertain the nature, certainty and predictability of such growth trends List companies that provide exposure to these growth themes
Research further for ? Management quality, business strengths, competitive advantages, financial strength
Value these businesses through appropriate measures
High Growth – High returns
The impact of an extra 5% on an initial investment of Rs.1 lakh
% returns
10% 15% 20% 25%
1 year
1.10 1.15 1.20 1.25
3 years
1.33 1.52 1.73 1.95
5 years
1.61 2.01 2.49 3.05
7 years
1.95 2.66 3.58 4.77
10 years
2.59 4.05 6.19 9.31
(Please note that this is for illustrative purpose only and the actual returns would depend on the market conditions and the performance of the fund)
Longer the horizon, higher the potential
Volatility is part & parcel of stock market investing. Staying invested for a longer period reduces the risks
Simulation for Bluechip Fund
1 Year 3 Year 5 Year 7 Year 9 Year
Maximum returns 199.4% 81.0% 50.9% 41.1% 40.9%
Minimum returns -36.4% -9.6% 14.0% 9.5% 16.0%
Average of rolling returns 34.9% 29.7% 28.2% 27.2% 28.4%
Possibility of making money 75.6% 86.3% 100.0% 100.0% 100.0%
Possibility of losing money 24.4% 13.7% 0.0% 0.0% 0.0%
Past performance may or may not be sustained in future.
Annualised compounded returns based on growth plan NAV; Period - Inception date (1.12.1993) to 30.4.2007; Sales load has not been taken into consideration. Dividends are assumed to be reinvested and bonus is adjusted. BSE Sensex rolling returns for the same period: Maximum returns, Minimum returns, Average returns, Possibility of making money, Possibility of losing money: 1 Year, 101.7%, -41.3%, 13.8%, 57.8%, 42.2%; 3 Year, 62.2%, -18.5%, 9.9%, 64.1%, 34.9%; 5 Year, 36.4%, -7.8%, 7.1%, 71.1%, 28.9%; 7 Year, 20.4%, -7.6%, 5.8%, 71.5%, 28.5%; 9 Year, 17.9%, -2.9%, 7.2%, 82.1%, 17.9%. Sales load has not been taken into consideration. Dividend/Bonus are adjusted.
As the investment time horizon increases, the numbers change in favour of investors... the possibility of losing money reduces and so do the minimum returns.
Equity investing is attractive
No long term capital gains tax for investments over a 1-year period*
Short term capital gains are only 10%*
Dividends are totally tax-free in the hands of the investors and no dividend distribution tax is required to be paid by the Fund
* However investors are liable to pay securities transaction tax (STT). As per current tax laws
Why Franklin Templeton ?
Franklin Templeton Worldwide
More than 50 years of experience in global investing Extensive international presence and breadth of product line with offices in 29 countries, supported by over 450 investment professionals Over US$ 601.1 billion assets under management#; over 17.1 million billable investor accounts world-wide Offers more than 200 investment solutions under the Franklin, Templeton, Mutual Series, Bissett, Fiduciary Trust and Darby names globally
# As on April 30, 2007
Franklin Templeton in India
Established office in 1996 and currently one of the leading fund houses in India. Manages Rs.24,510 crores# for over 21 lakh shareholder accounts
One of the largest equity assets in India*
Assets Under Management & Asset Mix (in Rs. Crs) 23060 24510
20%
18492
13403 8193
23% 57% 20% Sep-02 23% 26% 28% 33%
17435
27% 22%
33%
15%
21% 41% 49% 46% 58% 58%
Sep-03
Sep-04 Equity Debt
Sep-05 Cash
Sep-06
Apr-07
*# Source: AMFI Website (as on April 30, 2007)
Rich Experience & Product innovation
Manages 4 equity funds with a track record of over 10 years Manages 3 of the 15 largest equity funds* in the country First to launch an open end private sector fund – Prima Fund First to launch a value fund - Templeton India Growth Fund India?s first Infotech/Pharma Fund India?s first fund of funds – FT India Dynamic PE Ratio Fund of Funds Category starters – Franklin India Flexi Cap Fund, Franklin India Smaller Companies Fund First Capital Protection Fund Templeton India Equity Income Fund
* Source: AMFI Website (April 30, 2007)
Equity team - Key strengths
People: Continuity and depth of experience of the team.
Contacts and Presence: Constant company visits and frequent
meetings with industry people help in forming independent views.
Local and Global: Team focused on local needs, at the same time,
tuned in to global trends.
Discipline : Consistent adherence to investment objectives and
philosophy.
Global standards : Disclosure and compliance with independent
dealing desk. Constant interaction with risk management team to gauge risk-adjusted performance.
Long Term: The longevity of the team has led to combined experience
of market cycles which has inculcated a long term perspective and the ability to take out emotions out of investing
Investment process
5
STEP
Portfolio and Risk Management
4
3
STEP
Portfolio Construction
STEP
Stock Recommendations
2 Business Analysis 1
Idea Generation
STEP
STEP
Fund Facts
New Fund Offer : May 31, 2007 to June 29, 2007
Minimum Investment Amount: Rs.5000/1
New Fund Offer Price: Rs.10 plus applicable load Load Structure - Entry: <Rs.5 Crs: 2.25%, =>Rs.5 Crs: Nil; Exit Load : <Rs.5 Crs: 0.5% (for redemption within 6 months of allotment), =>Rs.5 Crs: 1% (for redemption within 1 year of allotment) Options: Growth & Dividend Plan (Payout & Reinvestment options) Fund Managers: Sivasubramanian K.N & Anand Radhakrishnan Systematic Investment Plan: Rs.1000 or more for atleast 12 months & all installments should be for the same amount (Only through ECS/Direct debit)
Summing up…
Participate in India?s robust economic growth Access the potential of India?s fastest growing companies in terms of revenue and earnings Benefit from FT?s rich investment experience in the Indian equity markets for over a decade You can do all of this with a single investment in Franklin India High Growth Companies Fund
Thank You
*The information contained in this commentary is not a complete presentation of every material fact regarding any industry, security or the fund and is neither an offer for units nor an invitation to invest. This communication is meant for use by the recipient and not for circulation/reproduction without prior approval. The views expressed by the portfolio managers are based on current market conditions and information available to them and do not constitute investment advice. Scheme classification and investment objective: Franklin India Bluechip Fund (FIBCF) is an open end growth scheme with an objective to primarily provide medium to long term capital appreciation. Entry Load: 2.25%, Exit Load: Nil. FIHGCF is an open-end diversified equity fund that seeks to achieve capital appreciation through investments in Indian companies/sectors with high growth rates or potential. Asset allocation: Equity and Equity Linked Instruments#: 70% - 100%, Debt securities* and Money Market Instruments: 0% - 30%. #including investments in Foreign Securities as may be permitted by SEBI/RBI up to 35% of the net assets of the scheme, exposure in derivatives up to a maximum of 50% * including securitised debt up to 30%. Terms of the offer: The Units are being offered at Rs.10 per unit plus applicable load during the NFO and NAV based prices upon reopening. Risk Factor: All investments in mutual funds and securities are subject to market risks and the NAV of the scheme may go up or down depending upon the factors and forces affecting the securities market. There can be no assurance that the schemes investment objectives will be achieved. The past performance of the mutual fund managed by the Franklin Templeton Group and its affiliates is not necessarily indicative of future performance of the schemes. The above is only the name of the scheme and does not in any manner indicate the quality of the scheme, its future prospects or returns. The Mutual Fund is not guaranteeing or assuring any dividend under the scheme and the payment of the dividend is subject to availability of distributable surplus. The investments made by the schemes are subject to external risks. Please read the offer document carefully before investing. Offer Documents / Application Form are available free of cost at any of the Investor Service Centres or distributors or from the website www.franklintempletonindia.com. Statutory Details: Franklin Templeton Mutual Fund in India has been set up as a trust by Templeton International Inc. (liability restricted to the seed corpus of Rs.1 lac) with Franklin Templeton Trustee Services Pvt. Ltd. as the Trustee (Trustee under the Indian Trusts Act, 1882) and Franklin Templeton Asset Management (India) Pvt. Ltd. as the Investment Manager.
Product Positioning
Product Franklin India Bluechip Fund Franklin India Prima Fund Franklin India Prima Plus Franklin India Opportunities Fund* Franklin India Flexi Cap Fund Templeton India Growth Fund Templeton India Equity Income Fund Franklin India High Growth Companies Fund (FIHGCF) Positioning Invests in large cap stocks Invests in mid and small cap stocks Primarily large cap fund, with a marginal small/mid cap exposure Takes concentrated stock exposure based on four themes Invests in companies across market caps Value fund, investing predominantly in large cap stocks Focuses on Indian/overseas stocks that are attractive from a dividend yield perspective Invests in high growth companies across market caps Investment Style Blend, bottom up Blend, bottom up Blend, bottom up Blend, bottom up Blend, bottom up Value, bottom up Value, bottom up
Growth, mix of top-down (macro analysis to identify sectors) and bottom-up approach (micro analysis to pick stocks within these sectors)
Product Positioning
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