Post on 28-Jul-2018
transcript
Privatisation Unlocks Value
Example 1: Hindustan Zinc
Data Source: Bloomberg, Analysis: Sundaram BNP Paribas
Asset Management; Values rebased to 100.
Privatisation Unlocks Value
Example 2: Maruti Suzuki
Data Source: Bloomberg, Analysis: Sundaram BNP Paribas
Asset Management; Values rebased to 100.
PSUs have outpaced
the broad market
Wealth Creation
Data Source: Bloomberg; Analysis: In house
& Information as of October 30 2009
PSU Basket: Comparison of
48 PSUs listed since 2000
Returns for portfolio of 48 PSU stocks computed assuming investment based on
weight in Dec 2000 (and holding it without changes) & CAGR (Compounded Annual
Growth Rate) in prices of individual stocks through October 2009.
l Financials
v PSU banks account for about 73% of entire
banking system assets
v LIC commands an 88% share of industry AUM
l Energy
v In upstream oil production, ONGC and OIL India
account for 90%
v In refining PSUs have a 70% market share
v In marketing of petro-products PSUs hold 95%
market share
v In gas distribution GAIL & GSPL hold a major share
Data Source: Bloomberg; Analysis: In house
& Information as of October 30 2009
Big Players Across Sectors
l Power sector
v NTPC accounts for about 30% of
generating capacity
v Transmission & Distribution is almost
entirely with PGCIL & state discoms
l Coal Mining – Coal India has virtual monopoly
l Iron ore Mining – NMDC holds the major
reserves
l Engineering – BHEL is market leader in power
equipments
l Metals – SAIL and RINL control 26% of steel and
NALCO controls 33% of the country’s aluminium
Big Players Across Sectors
Data Source: Bloomberg; Analysis: In house
& Information as of October 30 2009
Strengths
l Managerial depth
l Superior Core Engineering skill-sets
l Immense land banks
l Ability to access low cost funds
l Undervalued assets
l Leveraging Government ownership
Value of Rs. 100 invested at the inception of CNX PSE Index in April 2008
Resilience
Data Source: Bloomberg, Analysis: Sundaram BNP Paribas
Asset Management; Values rebased to 100.
High Dividend Yield
Data Source: Bloomberg; Analysis: In house
& Information as of October 30 2009
Dividend Yield
l Transformation from looking inward to
looking outward
l Reduced Government interference
l Openness to private sector
management practices
l Better compensation structures
l More sensitive to market
– Example: Last year’s budget - When
Government decided to waive farm loans,
it took the entire hit and not the PSU banks
Owner’s Mindset Changes
Result: Improved Operations
This mindset change leads to significant
improvement in operating efficiencies.
Eg. In PSU banks over six years:
l Operating costs have declined from
over 2.8% of average assets to 1.7%
l Cost-to-income ratio (excl. treasury
income) has reduced from 68% to 48%
l Balance sheets have tripled despite
a 10% reduction in work force
Data Source: Bloomberg; Analysis: In house
& Information as of October 30 2009
Result: Improved Valuations
Data Source: Bloomberg; Analysis: In house
& Information as of October 30 2009
Multiple Value Unlocking Keys…
l Valuation upside
l Growth upside
l Privatisation upside
l High dividend yield
l Lower volatility
l High quality companies with dominance
in technology, market share and
cost structure
… make PSU a BIG Opportunity
In conclusion
Sundaram BNP Paribas PSU Opportunities
l Positioning: Thematic fund
l Approach: Dedicated vehicle to play the PSU
theme that will become an ever bigger part of
the market in the decade ahead
l Style: Aggressively managed fund with sector,
stock, trading and cash calls as well as a call
to stay outside the theme to the extent
permitted if conditions warrant
l Breadth of theme: Disinvestment stage to
partial privatisation to life-after-privatisation
(at least three years from date of full
privatisation)
l Post-privatisation event will be played using
the non-thematic enabler that is available to
the extent of 35%
l Benchmark: CNX PSE Index
l Cap curve: Thematic opportunities across the
cap curve; if outside-the-theme enabler is
used, emphasis on large-cap stocks.
l Enabler: Except in case of post-privatisation
events, investment outside the theme shall
be only in large-cap stocks preferably in the
S&P CNX Nifty
Sundaram BNP Paribas PSU Opportunities