Transcript Equity Overview

Franklin India 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
30
Share of World GDP (%)
China
20
Europe
10
US
0
1
1000
1500
1600
China
1700
1820
India
1870
Europe
1913
United States
India and China starting to pick up
Source : Source: Angus Maddison, The World Economy: Historical Statistics, OECD 2003.
1950
1973
2001
India : Economy
Present
GDP & Real GDP growth
10.0%
9.0%
8.5%
9.2%
9.3%
1400
7.5%
8.0%
1059
5.8%
929
6.0%
4.4%
805
3.8%
460
1000
600
509
475
1200
800
695
603
4.0%
1600
400
2.0%
200
0.0%
0
FY01
FY02
FY03
FY04
GDP (US$ bn)
FY05
FY06
FY07E FY08E
Real GDP growth (%)
One of the fastest growing economies
Source: CSO, RBI, Ministry of Finance, Citigroup estimates (March end)
India : Economy
Economic Power of the future
India to be among the biggest economies
Source: Economist
India : Economy
Relatively insulated to global upheavals
Share of Exports as a % of GDP
250
205.6
200
162.8
150
107.9
100
63.0
62.2
41.1
50
35.7
27.6
18.5
India
Indonesia
China
Phillipines
Thailand
Taiwan
Malaysia
HK
Singapore
0
Source: Citigroup
Source:
CRIStoINFAC
Low export
GDP ratio compared to other Asian markets, but high forex reserves
Macro drivers
Increasing affluence leads to higher consumption
Source: Mckinsey Global Institute
Macro Drivers
Potential ‘Services Capital’ of the world
US$bn
70
65
CAGR 26-27%
60
50
40
30
23.4
17.7
20
12.8
10
6.2
7.7
9.6
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
Total
Driven by -
FY03-07
FY 08-12
%
1,020
2,150
110.8
• Port/airport modernization/expansion
125
560
348.0
• Cross-country road corridors
• Government Infrastructure spending
especially in the rural areas
• Upstream/midstream investments
606
2,340
286.1
1,800
3,720
106.7
3,551
8,770
147.0
* Source : CLSA - expected investments in
10th/11th plans
• Significant capacity additions driven
by rising demand and utilization
• Rising telecom demand driven by
lower handset prices and newer
technologies
Source:
CRIS
INFACcould be 2-3% higher with proper infrastructure backbone
GDP
growth
Macro Drivers
Corporate India is a value creator
28
(%)
26
24
Return on equity
22
20
Value created
18
16
14
Current cost of equity
12
10
FY97
Cost of Equity
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07C L
Source: CLSA
Capex phase in the late nineties sets foundation for value creation
FY08C L
Liquidity
India dedicated funds
Sharp rise in assets and number of India funds - $34 billion
Fund
Domicile
HSBC GIF-Indian Equity-Ad
Luxembourg
JPMorgan F-India Fund-A$
Luxembourg
Fidelity Fund-India Focus-AGBP
Luxembourg
India Fund Inc
PCA India Equity Open
Aberdeen Gl-India Opportu-A2
HSBC India Open
Eaton Vance Greater India-B
USA
Japan
Honk Kong
Japan
USA
Nomura Indian Stock Fund
Japan
Blackrock India Stock Fund
Japan
Source: Bloomberg, Apr 07
Launch
23-Jan-96
31-Aug-95
23-Aug-04
23-Feb-94
30-Sep-04
28-Mar-06
30-Nov-04
02-May-94
22-Jun-05
13-Dec-05
Assets (US Mln)
6115
3970
3370
1913
1293
1269
1268
1082
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
: $ 148.03 bln *
Available savings pool if household accumulations
are assumed at 6-7 years’ savings
: $888 - $1036 bln
Equity inflows at different levels of allocation
Allocation
USD Bln
Rs. Crores
2%
17.76 – 20.72
82,567 – 95,849
5%
44.41 – 51.81
205,392 – 239,624
10%
88.82 – 103.60
410,783 - 479,247
*Source: RBI data-FY06, 1 USD = Rs.45.25
Why High Growth ?
Economy and investment styles
Different styles are pertinent for the various stages of the
economic/business cycle
1 year
10 years
MSCI USA Growth
9.84%
5.31%
MSCI USA Value
16.23%
6.51%
MSCI India Growth
29.04%
16.03%
MSCI India Value
27.20%
9.82%
Developed Economy
Emerging Economy
Source: MSCI (Compounded & Annualised returns as on April 30, 2007 and in
US$ 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
•
•
•
•
•
•
•
Luxury Goods
Specialty Retail
Tour Operators
Fashion Apparel
Mail Order
Games
New Media
DEMOGRAPHICS
•
•
•
•
•
Financial Services
Insurance Products
Asset Management
Retail chains
Housing
INVESTMENTS
•
•
•
•
•
•
Capital Goods
Infrastructure
Construction
Power
Telecom
Utilities
OUTSOURCING
• IT/ IT Enabled
services
• Auto Components
• Engineering goods
• Pharmaceuticals
• Financial Research
• Risk Management
• Training &
Development
NEW TECHNOLOGIES
•
•
•
•
•
•
•
•
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
Q II
Q III
Q IV
QV
51.9%
51.0%
39.4%
35.1%
23.5%
54.2%
45.0%
50.1%
29.0%
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
29.0
99.1
31.3
26.5
74.7
47.1
68.5
73.5
40.8
90.3
34.7
87.4
72.6
38.5
72.0
10.6
58.3
32.1
68.0
56.9
20.3
26.4
49.9
17.1
34.8
32.9
16.9
13.7
CNX Midcap
4.5
31.3
N.A
N.A
N.A
S&P CNX 500
12.1
30.9
34.3
17.8
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
2006
CAGR
Sales
89
9028
58.8%
PBIDT
34
3146
57.2%
PAT
21
2421
60.8%
Market Cap
359
81830
72.1%
RONW (%)
29.53
39.89
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
1999
2006
CAGR
Sales
776
4274
27.6%
PBIDT
75
560
33.2%
PAT
37
340
37.2%
Market Cap
1036
15729
47.5%
RONW (%)
9.16
32.88
Industry : Engineering capital goods
Opportunity : Huge demand for Power &
Urban infrastructure
Macro drivers : Infrastructure spending
and capex
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
1996
2006
CAGR
Sales
970
4208
15.8%
PBIDT
931
4074
15.9%
PAT
196
1257
20.4%
Market Cap
3859
33342
24.1%
RONW (%)
16.52
30.11
Industry : Home Loan Mortgages
Opportunity : Rising middle-income households
and their need for affordable housing
Macro drivers : Strong economic growth
and rising income levels
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
2002
2006
CAGR
Sales
122
694
54.4%
Opportunity : Growing affluent middle class
with high savings and need for comprehensive
financial services
PBIDT
134
542
41.8%
PAT
55
118
21.4%
Market
Cap
845
8598
78.6%
Macro drivers : Changing financial landscape
RONW (%)
10.90
14.75
Industry : Financial Services
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
1 year
3 years
5 years
7 years
10 years
10%
15%
20%
25%
1.10
1.15
1.20
1.25
1.33
1.52
1.73
1.95
1.61
2.01
2.49
3.05
1.95
2.66
3.58
4.77
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
27%
22%
13403
8193
17435
33%
33%
15%
28%
21%
41%
23%
58%
58%
49%
57%
20%
Sep-02
46%
26%
23%
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
STEP
5
STEP
4
STEP
3
STEP
2 Business Analysis
STEP
Investment process
1
Portfolio and Risk Management
Portfolio Construction
Stock Recommendations
Idea Generation
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
Positioning
Investment Style
Invests in large cap stocks
Blend, bottom up
Franklin India Prima Fund
Invests in mid and small cap stocks
Blend, bottom up
Franklin India Prima Plus
Primarily large cap fund, with a
marginal small/mid cap exposure
Blend, bottom up
Takes concentrated stock exposure
based on four themes
Blend, bottom up
Franklin India Flexi Cap Fund
Invests in companies across
market caps
Blend, bottom up
Templeton India Growth Fund
Value fund, investing
predominantly in large cap stocks
Value, bottom up
Templeton India Equity Income
Fund
Focuses on Indian/overseas stocks
that are attractive from a dividend
yield perspective
Invests in high growth companies
across market caps
Value, bottom up
Franklin India Bluechip Fund
Franklin India Opportunities
Fund*
Franklin India High Growth
Companies Fund (FIHGCF)
Growth, mix of top-down
(macro analysis to identify
sectors) and bottom-up
approach (micro analysis to
pick stocks within these
sectors)
Product Positioning