Fairfax India AGM 2019 Final€¦ · 31/12/2018 · Goods and Services Tax –improving direct tax...

Annual MeetingApril 11, 2019

Forward-Looking StatementsThis Presentation has been prepared for informational purposes only from information supplied by Fairfax India Holdings Corporation (“Fairfax India” or the “Company”) and from third-party sources indicated herein.

Such third-party information has not been independently verified. The Company makes no representation or warranty, expressed or implied, as to the accuracy or completeness of suchinformation.

Any graphs, tables or other data demonstrating the historical performance of Fairfax India or its Indian Investments contained in the presentation are intended only to illustrate pastperformance and are not necessarily indicative of the future performance of Fairfax India or its Indian Investments.

This Presentation may contain forward-looking information within the meaning of applicable securities legislation. Forward-looking statements may relate to the Company’s or an IndianInvestment’s future outlook and anticipated events or results and may include statements regarding the financial position, business strategy, growth strategy, budgets, operations,financial results, taxes, dividends, plans and objectives of the Company. Particularly, statements regarding future results, performance, achievements, prospects or opportunities of theCompany, an Indian Investment, or the Indian market are forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-lookingterminology such as ‘‘plans’’, ‘‘expects’’ or ‘‘does not expect’’, ‘‘is expected’’, ‘‘budget’’, ‘‘scheduled’’, ‘‘estimates’’, ‘‘forecasts’’, ‘‘intends’’, ‘‘anticipates’’ or ‘‘does not anticipate’’ or‘‘believes’’, or variations of such words and phrases or state that certain actions, events or results ‘‘may’’, ‘‘could’’, ‘‘would’’, ‘‘might’’, ‘‘will’’ or ‘‘will be taken’’, ‘‘occur’’ or ‘‘be achieved’’. Wecaution readers not to place undue reliance on these forward-looking statements which speak only as of their dates. We are under no obligation to update or alter such forward-lookingstatements as a result of new information, future events or otherwise, except as may be required by applicable law.

Forward-looking statements are based on the opinions and estimates of the Company as of the date of this Presentation, and they are subject to known and unknown risks, uncertainties,assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking statements, including but not limited to the following factors: oil price risk; geographic concentration of investments; foreign currency fluctuation; volatility of the Indian securitiesmarkets; investments may be made in foreign private businesses where information is unreliable or unavailable; valuation methodologies involve subjective judgments; financial marketfluctuations; pace of completing investments; minority investments; reliance on key personnel and risks associated with the Investment Advisory Agreement; lawsuits; use of leverage;significant ownership by Fairfax may adversely affect the market price of the subordinate voting shares; weather risk; taxation risks; emerging markets; economic risk; and trading price ofcommon shares relative to book value per share risk. Additional risks and uncertainties are described in the Company’s annual information form which is available on SEDAR atwww.sedar.com and on the Company’s website at www.fairfaxindia.ca. These factors and assumptions are not intended to represent a complete list of the factors and assumptions thatcould affect the Company. These factors and assumptions, however, should be considered carefully.

The preparation of financial statements requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities, the disclosure of contingentassets and liabilities, the reported amounts of income and expenses and the calculation of the Net Asset Value of the Company during the reporting periods. Financial informationprovided throughout this Presentation is prepared in accordance with IFRS, unless otherwise noted.

Bangalore Terminal, 2008

Bangalore Terminal, 2018

Meerut Highway, 2014

6

Meerut Highway, 2018

7

Growth in Book Value

Note: Fairfax India’s 4 year compound annual growth in book value per share is calculated since its January 2015 IPO at $10 per share

Compound Annual Growth Rate

1 Year 4 Years(Since IPO)

Fairfax India's book value per share (4.1%) 8.7%

USD S&P BSE Sensex 30 (3.0%) 2.5%

% Change

INR / USD (8.6%) (11.3%)

At December 31, 2018

China (29.3%)

Sri Lanka (20.3%)

Hong Kong (13.8%)

Singapore (12.3%)

Vietnam (11.2%)

Thailand (10.8%)

Indonesia (8.8%)

Malaysia (7.6%)

India (3.0%)

8

Asian Equity Markets in 2018

(% change, in US$ terms)

9

Major Indian Equity Indices in 2018

% Change

(in US$ terms)

Fairfax India's book value per share (4.1%)

S&P BSE Sensex 30 (3.0%)

Nifty50 (5.5%)

S&P BSE 500 (11.2%)

BSE midcap (20.5%)

10

2018 Results($ millions, except for per share data)

2018 2017

Income 167 610

Net earnings 96 453

Earnings per diluted share 0.63 2.94

Investments (excluding cash) 2,661 2,636

Common shareholders' equity 2,118 2,132

Book value per share 13.86 14.46

Income Increased

Demonetization – curtailed shadow economy

Goods and Services Tax – improving direct tax collection

Disinvestment – from public sector undertaking companies

Expenses Decreased

Insolvency and Bankruptcy Code – improve flow of capital and recapitalize public sector banks

Jan Dhan, Aadhaar, Mobile (JAM) – direct transfer of financial benefits to beneficiaries’ bank account

Reduction in Subsidies

India’s Structural Reforms

11

4.6

3.4

3.0

3.4

3.8

4.2

4.6

5.0

2014 2015 2016 2017 2018 2019

Fiscal deficit as a % of GDP

3.3

1.2

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2014 2015 2016 2017 2018 2019

Current account deficit as a % of GDP

12

India’s Structural Reforms – Improvements in Deficits

(1) Sources: Bloomberg, IIFL Asset Management. All data is for the financial years ending March 31st.

Current Account Deficit (% of GDP)

Fiscal Deficit (% of GDP)

7th largest country by GDP – expected to be in the top 3 by 2030(1)

13

India’s Economy – Global Comparison

(1) Sources: HSBC – The world in 2030, IIFL Asset Management

20.4

14.1

5.2

4.0

3.0

3.0

2.8

1. United States

2018Nominal GPD (US$ trillions)

2. China

3. Japan

4. Germany

5. United Kingdom

6. France

7. India

India’s GDP is projected to grow to ~$5.9 trillion by 2030, or 6.4% annually

26.9

5.4 5.4 4.8 3.1 2.2 2.1 2.0

USA Japan China Hong Kong UK France India Germany

7th largest country by market capitalization(1)

14

India’s Economy – Global Comparison

Market Capitalization (US$ trillions)

(1) Sources: Bloomberg, IIFL Asset Management

Once China reached $2,000 per capita GDP, it took only 6 years to triple to $6,300 and another 6 years to grow to $9,600

India’s GDP per capita is following China’s with a lag of ~12 years

China reached $2,000 in 2006, while India just surpassed that mark in 2018

15

India’s Per Capita Income at an Inflection Point

(1) Sources: IMF, IIFL Asset Management

China GDP per capita(US$ at current price)

India GDP per capita(US$ at current price)

276

463

2,016

3,040

0

500

1,000

1,500

2,000

2,500

3,000

3,500

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

E

20

22

E

309 959

2,111

6,329

9,633

13,780

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

E

20

22

E

28%

9%

1%

16

India – Compounding Machine

(1) Source: IIFL Asset Management

Number of Companies with 20+%

20 year CAGR in stock price

% of Companies with 25+%

10 year CAGR in stock price

India US China

> 25% CAGR

93

17

3 3

India BSE500

US S&P 500 ChinaSCHOMP

1500

Japan TPX500

17

Summary of Investments

(1) Return calculated using the internal rate of return

Amount Fair Value at % of Annual Rate

($ millions) Ownership Invested Dec 31, 2018 Portfolio of Return(1)

IIFL (including 5paisa) 26.5% 277 625 27% 35.8%

BIAL 54.0% 653 704 30% 5.2%

SanmarDebentures

and 30.0%300 610 26% 31.2%

NCML 89.5% 174 165 7% (1.7%)

Fairchem 48.8% 74 97 4% 11.5%

NSE 1.0% 27 60 3% 44.4%

Saurashtra 51.0% 30 25 1% (9.6%)

Catholic Syrian Bank - first tranche 19.7% 60 63 3% 27.3%

Investments completed at December 31, 2018 1,595 2,350 100%

Seven Islands - completed Mar 2019 41.4% 72

CSB - payable within 12-18 months 110

Total investments completed and committed 1,777

Fairfax India – Intrinsic Value

18(1) As of April 5, 2019

5 Year Compound

IIFL Holdings Limited Annual Growth

Book value per share 20%

Earnings per share 25%

Fairfax India average cost per share Rs 218

Current market price per share(1) Rs 452

Price/earnings ratio on expected earnings 13.3x

Private sector bank with 418 branches and 270 ATMs across India

51% FIH ownership –first $60m invested in Q4 2018

Private

Warehousing

Collateral management of agri commodities

NBFC

90% FIH ownership

Private

~$1.78 Billion Investments Completed (or Committed)

$174m

India’s 3rd

largest airport

Monopoly asset

Real estate assets

54% FIH ownership

Private

$653m

PVC and caustic soda producer

30% FIH ownership

7-year debentures

Private

Fairfax Financial Holdings Limited holds a 33.7% equity interest and

93.8% voting interest in Fairfax India

$277m

Loans and mortgages

Wealth management

Capital markets

27% FIH ownership

9% FFH ownership

Public

$300m $72m

Ocean-going tankers

41% FIH ownership –purchased March 2019

Private

Fairfax India Investments

$30m

Container freight station

Non‐vessel operating common carrier business

51% FIH ownership

Private

$74m

Specialty chemical manufacturer

49% FIH ownership

Public

$170m

(& 5paisa) SANMAR

BIAL

Note: not pictured above is a $27 million investment in National Stock Exchange of India

IIFL Finance

IIFL Wealth

IIFL Securities

Diversified NBFC –home, gold, commercial vehicle and SME business loans

AUM of $5.2 billion

Largest private wealth manager in India with AUM of $23.0 billion

Largest Alternative Investment Funds platform in India

Stock broking and financial advisory

Financial product distribution

Investment banking

21

IIFL Holdings (including 5paisa Capital)

(1) Average ROE over the last 5 years

(Rs billions - IGAAP/Ind-As) Mar 31, 2014 Dec 31, 2017 Dec 31, 2018

Total assets 145.1 392.1 429.3

Shareholders' equity 21.9 64.0 77.3 30%

Revenue 28.2 60.7 70.6 21%

Net earnings 2.9 9.8 11.9 34%

Return on equity 13.3% 15.2% 15.4% 16% (1)

Twelve months ended Compound

Annual Growth

Ownership % 26.5%

Amount invested $277

Fair value - Dec 31, 2018 $625

Annual rate of return 35.8%

Multiple of net investment 2.3x

Loans and mortgages

Loan book grew 33% in 2018 to $5.2 billion – driven by small home loans and loans to SMEs

Continued diversification into a more retail-focused loan portfolio

Asset quality deteriorated slightly – net non-performing assets of 1.5%

Well capitalized – capital adequacy ratio of 20.7% compared to its statutory requirement of 15%

22

IIFL – Business Update

IIFL took several steps to further strengthen its NBFC’s financial position in response to tightened liquidity in 2018:

Reduced commercial paper borrowings from 24% of liabilities to 12%

Increased longer term debenture funding and bank borrowings

Sold some loan assets to banks

Divested its entire commercial vehicle loan business

Slowed down loan disbursements

23


Wealth and Asset Management

Emerged as the largest private wealth manager in India – less than 10 years since its inception

Largest manager of Alternative Investment Funds in India, with AUM of $2.0 billion

396 bankers help manage the assets of 10,000+ high net worth individuals and families

AUM of $23 billion – an increase of 25% in 2018

Net earnings grew 6% in 2018 to $58 million

Transitioning from transaction-oriented to annuity-based revenue model

Capital Markets

Another excellent year – completed 12 transactions including 4 IPOs

Ranked 1st in private sector equity issuances in India in 2018


24

IIFL’s business units will be divided into three separate companies, each to be listed on the Indian stock exchanges

Strategic considerations include:

Each business now has critical mass required to operate independently

Provides more flexibility to retain high quality talent and ensure alignment of interests through stock options and employee share plans

Allows each business to raise capital as needed

25

IIFL – Group Reorganization

Bangalore International Airport- South India’s busiest airport

27

Bangalore International Airport Limited (BIAL)



Total assets 35.5 57.0 67.4


Revenue 6.5 15.0 16.1 21%

Net earnings 0.7 6.9 8.5 71%

Return on equity 8.6% 29.9% 28.4% 27% (1)


Annual Growth

Ownership % 54.0%





BIAL – Business Update

28

India’s 3rd largest and world’s 2nd fastest growing airport

Passenger traffic grew 29% in 2018 to 32 million

Aero revenue has grown at compound rate of 21% since 2009

Dependent on regulated tariffs, which are set for 5 year ‘control periods’

Non-aero revenue has grown at a compound rate of 17% since 2009

Real estate monetization – 460 acres available for development

BIAL – Business Update

29

Tariff order for second control period (2016 – 2021):

Issued in August 2018

Generally favourable

$100 million increase in revenue compared to original proposal

30% non-aero subsidy for both first and second control periods

Approval of capital expenses

Short term negatives

Lower aero revenue due to overachievement to date

Already in BIAL’s plans

Expanding capacity to 65 million passengers – second runway in 2019 and second terminal in 2021

Sanmar Chemicals GroupMajor PVC and Caustic Soda ManufacturerSANMAR

31

Sanmar Chemicals Group

SANMAR


Total assets 91.4 102.9 117.6

Shareholders' equity (deficit) 17.9 (18.2) (23.4)

Revenue 36.4 42.4 46.6 5%

Net earnings (loss) (2.7) (5.6) (6.2)


Annual Growth

Ownership % 30.0%

Amount invested - debentures $299

Amount invested - equity $1




Chemplast continued strong performance

Sales grew 7% to $469 million, EBITDA grew 41% to $86 million

TCI (Egypt) completed expansion on time, on budget

Sanmar agreed to repay Fairfax India loan in 2019

Principal plus interest of ~$400 million

Fairfax India will reinvest ~$200 million to increase its ownership to 43%

Highly accretive capex projects in pipeline at Chemplast (India)

Sanmar – Business Update

32

National Collateral Management Services Limited

Storage & Preservation

Procurement & Supply Chain

CollateralManagement

Finance Testing & Certification

Commodity and Weather Intelligence & Consultancy

34

National Collateral Management Services (NCML)


(Rs millions - IGAAP/Ind-As) Mar 31, 2014 Dec 31, 2017 Dec 31, 2018

Total assets 4,424 16,227 17,352

Shareholders' equity 2,545 6,176 7,505 26%

Revenue 3,324 10,797 14,511 36%

Net earnings 156 417 244 10%

Return on equity 6.1% 6.8% 3.2% 7% (1)


Annual Growth

Ownership % 89.5%



Annual rate of return -1.7%


Successful bids for 16 silo contracts from the Food Corporation of India will increase capacity by 800,000 MT

Land acquisition is nearing completion and construction has commenced

Strong performance from several business divisions – growth in profit (before tax):

Supply Chain Management +19%

Testing and Certification +443%

NCML Finance +12%

Collateral Management has cut back on the riskier parts of its portfolio

This division had a pre-tax loss of $0.5 million in 2018

NCML – Business Update

35

FAIRCHEM SPECIALITY LIMITEDRenewable Specialty Chemicals

Aroma Chemicals

Nutraceuticals

Oleochemicals

Fairchem Speciality Limited

37(1) Average ROE over the last 5 years


Total assets 6,604 10,358 12,896

Shareholders' equity 2,188 4,615 5,231 20%

Revenue 6,660 9,678 12,164 14%

Net earnings 305 394 666 18%

Return on equity 13.9% 8.5% 12.7% 10% (1)


Annual Growth

Ownership % 48.8%

Amount invested $74




Fairchem Speciality (consolidated)

2018 was an excellent year – revenue grew by 37% to $194 million and net income by 71% to $10 million

Fairchem (former Adi)

Further improvements to plant operations in 2018 resulted in a 60% increase in capacity

Revenue grew 4% and net earnings grew 65%

Privi

Returned to operations in a record 29 days after a major fire in 2018

Revenue grew 48% and net earnings grew 59%

Fairchem Speciality – Business Update

38

Saurashtra Freight Private LimitedWorld Class Container Freight Station

40

Saurashtra Freight Private Limited


Ownership % 51.0%

Amount invested $30


Annual rate of return -9.6%



Total assets 950 2,127 2,242

Shareholders' equity 186 1,955 2,046 66%

Revenue 634 1,166 1,405 18%

Net earnings 54 (14) 77 8%

Return on equity 29.1% -0.7% 3.8% 13% (1)


Annual Growth

A turnaround year for Saurashtra despite headwinds

Ease-of-doing-business initiatives have eased customs procedures, reducing dwell-time for container freight stations

Grew revenue by 20% and returned to profitability after losses in 2017

The newly launched Non-Vessel Operating Common Carrier (NVOCC) business is progressing well

Saurashtra – Business Update

41

SMEBANKING

RETAIL BANKING

TREASURYOPERATIONS

CORPORATEBANKING

43

Catholic Syrian Bank (CSB)

To be invested - next 18 months $110

Ownership once funding is complete 51.0%

Invested October 2018 $60


(Rs billions - IGAAP) Mar 31, 2014 Dec 31, 2017 Dec 31, 2018

Total assets 153.2 158.7 177.4


Revenue 5.0 5.1 5.3 2%

Net earnings 0.3 (0.9) (0.8)

Return on equity 3.5% -9.0% -6.5%


Annual Growth

Received all regulatory approvals to acquire a 51% fully diluted equity stake in CSB

Mr. Rajendran (CEO since December 2016) continues to make improvements to human resources, asset quality and liability franchise

Created plan focusing on profitability, productivity, efficiency and asset quality

We have retained Paresh Sukthankar, former Deputy Managing Director of HDFC Bank, as an advisor

Bank is carrying higher provisions for NPAs under Indian GAAP compared to the requirement under IFRS

44

CSB – Business Update

2nd largest tanker private shipping company in India

45

46

Seven Islands Shipping

Ownership % 41.4%

Amount invested - Mar 2019 $72


Total assets 2,285 8,871 9,541

Shareholders' equity 837 4,679 5,211 47%

Revenue 1,028 4,296 4,527 37%

Net earnings 180 934 545 26%

Return on equity 21.5% 20.0% 10.5% 25% (1)


Annual Growth


Outstanding first generation entrepreneur in Captain Thomas Pinto

Excellent track record – compounded 5 year revenue growth of 37% and net earning growth of 26%

Compelling valuation at a EV/EBITDA ratio of 5.4x, price/earnings ratio 15.1x and price/book ratio of 1.5x

Niche and focused business model

Part of our investment is infusing growth capital into the company

47

Seven Islands – Investment Rationale

Fairfax India AGM 2019 Final€¦ · 31/12/2018 · Goods and Services Tax –improving direct tax...

Documents

Transcript of Fairfax India AGM 2019 Final€¦ · 31/12/2018 · Goods and Services Tax –improving direct tax...