Kotak India Special Situation Fund PPT-May 22.pdf

Special situation fund

1. Special Situations
Portfolio
May 2022
The views expressed in this presentation are through the period ending 31sst May 2022 and are subject to change at any time based on market and other conditions.
This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. Referencestospecific securities and issuers
are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.

2. OUR INVESTMENT PROCESS

3. ATTRIBUTES WE SEEK
Business
Scalable
businesses with
better returns
dynamics, run by
a quality
management
Valuations
Seek Margin of
Safety or
Prevailing price at
a steep discount
to Intrinsic Value
Large Market Opportunity
Sustainable Competitive Advantages
Better Returns on Incremental Capital
Strong Corporate Governance &
Execution
Intrinsic Value > Prevailing
Market Price
Return on Capital Employed
better to Cost of Capital
Industry Size at least 2x of company
Growing industry with large untapped opportunity
Market share gains potential for business
Cost leader
Pricing power (Brands, Technology, Regulation)
Network Benefits
High ROI Opportunities for Reinvestment of profits
Direction of competitive intensity
Founders’ drive to create long term value
Interests aligned with minority shareholders
Focus on shareholder cash flows (FCF) rather than
accounting cash profits
Strength of business determines size of Terminal Value
Cash flows above cost of capital are assessed
Businesses where reinvestment opportunities with high
ROI are available, trade at premium multiples

4. WHAT WE AVOID
Bad Capital
Allocation
Weak
Corporate
Governance
Weak Balance
Sheet
Excessive
Debt
Equity
Dilution
High Working
Capital
Cheat
stakeholders
partners/ investors
Misaligned interest
of founders vs
minority
Shareholders
Weak
accounting
Exposes co. to
risk of external
shocks
Reduction in
shareholder
interest
Capital intensive
business and low
free cash flow for
Shareholder
Siphoning cash,
padding capex/costs
Manipulation of
price by talking
up prospects
Under reporting
of costs and over
reporting of revs

5. WHAT IS THE SOURCE OF OUR EDGE?
There are three broad sources of better performance on the Street
Superior analysis of same data
Possible only in pockets, as the street is crowded
with analysts
Information Asymmetry
Insider trading rules, hence better monitored
Our focus areas
Awareness of human biases and avoidance of same
Behavioral differentiation
Durable Differentiator
Work to consciously avoid Common human biases
Social Proof: Herd like behavior, for safety in crowds
Overconfidence and Over-optimism: In one’s business assessment
Present-ism: Projecting immediate past into future
Misunderstanding randomness: Seeing patterns where none exist
Anchoring: On irrelevant data, etc.

6. WHAT ARE SPECIAL SITUATIONS
Investment operations whose results are dependent on happening or not-happening of one or more
corporate events rather than market events.
KEY ADVANTAGES
Investment results of Special Situations opportunities are largely independent
of market moves
KEY VARIANTS
Price related Merger related Corporate restructurings
Securities bought at a discount to
(expected) price guarantees by
buyer in the form of de-listings,
buy-backs, open offers, etc.
Shares can be created at a
discount to current market price
Value unlocking due to corporate
restructuring, assets sales,
demergers, business triggers, etc.

7. WHAT IS VALUE INVESTING?
Value investing is the
discipline of buying stocks
at a significant discount
from their current underlying
values. The element of a
bargain is the key to
the process.
–Seth Klarman
Thinking as business owners
We look at stocks not as tickers but as fractional ownership in
the business. If the business has sustainable competitive ad-
vantages and it does well, chances are the stock may do well
Is Value equal to absolute cheapness
We seek businesses where growth is not priced in. A 20x PER
stock may hold value as compared to 5x PER stock, due to
growth & business dynamics. Valuation multiples are less rele-
vant
Prevention of permanent capital loss a key focus area
Our portfolios are concentrated and we seek a margin of safety,
so downsides remain capped. Business strength is key to pre-
venting downsides
Quality of Business
Good quality businesses may outperform markets, irrespective
of cycles & sectors

8. THE UNIVERSE -SPECIAL SITUATIONS VALUE
Events based
strategy
Inherently unstructured
Tracking, analysinga large
number of corporate
events
Market Growth
Dynamics
Balance Sheet
strength
Risk
conditions
Corporate
Governance
Issues
Business
Fundamentals
Upside
potential
Liquidity
in the stock
Size of
opportunity
Valuations
of Stocks

9. THE UNIVERSE -VALUE OPPORTUNITIES
Total universe of top 1000 market
capitalisationcompanies
Rank companies based on ROE and 1/PER
(Earnings Yield). Add the two parameters to arrive at a
combined rank. Identify the top 2/3rd of this combination
to arrive at stocks likely to perform best
Compounded PAT Growth of at
least 10% in the last three years
Valuation not more expensive than peer
set and Price to Value Gap of at least 30%
Companies having greater than
30% promoter shareholding
Capital Efficiency i.e. ROE of at least 15%
trending toward and higher than 20%
Assess companies based on Management quality, Integrity,
Balance Sheet strength, Capital Allocation, Execution Capabilities,
Vision for the business, fairness to stakeholders, etc.
1000 804 536 421 227 50 15-30
Above is an illustration of how various screeners are used to shortlist value opportunities which are then further analyzed in detail on their fundamentals

10. OUR INVESTMENT APPROACH IS
BOTTOM UP SECTOR AGNOSTIC
India Value Index
Benchmark
Investment Tenor
Investment Approach
Portfolio Composition
Open Ended
Portfolio Closure at the discretion of the Portfolio Manager
Bottom-up
Agnostic to business segments/ Sectors
10-30 Stocks
Multi-Cap

11. MARKET IGNORANCE IN CERTAIN SEGMENTS MAY PROVIDE
OPPORTUNITY FOR BETTER PERFORMANCE
Coverage of Mid & Small Cap stocks is sparse, which offers value in this segment. MF reclassification of
market caps in 2018 has enhanced the attractiveness of this segment

12. SMALL / MID CAPS CAN BE MARKET LEADERS
This is provided for illustrative purposes only and is not intended to constitute investment advice or a recommendation to buy or sell any security.

13. KEY RISK MITIGATION MEASURES
Risk
Mitigation
Portfolio Diversification
Sector Diversification
Strong Businesses
Reasonable Valuations
Portfolio Liquidity
Scuttlebutt

14. Performance
Update

15. PORTFOLIO COMPOSITION
Index Fund
Data as on 31st Dec, 2021; Source: Internal Research; KMAMC
Range(%)

16. PORTFOLIO METRICS
Source: Bloomberg estimates Data as on 31st Dec, 2021

17. PORTFOLIO BREAKUP BY MARKET CAP
Source: Internal Research KMAMC
Data as on 31st Dec, 2021

18. KEY HOLDINGS IN PORTFOLIO
Data as on 31st Dec 2021; Source: Internal Research; KMAMC

19. PORTFOLIO PERFORMANCE: SPECIAL SITUATIONS VALUE
INVESTMENT APPROACH
Performance used is of SSV1, Data as on 31st Dec, 2021; Past performance may or may not be sustained in the future

20. Sugar
Sector

21. HIGHLY CYCLICAL SECTOR ~ DOMINANT EARNINGS FROM
SUGAR SALES
Volatile Sugar Sector cash flows
Prices of Sugarcane (raw material) were fixed by
Government under the Fair & Remunerative
Price (FRP) regime due to farmer sensitivities
On the other hand Price of Sugar was market
(supply/demand) determined, hence cash flows
of mills were highly volatile
Low valuation multiples reflected this cash flow
volatility and general unprofitability of business

22. CHANGE 1 -MINIMUM SUGAR PRICE MADE APPLICABLE
IN 2018. SELLING PRICE REGULATED FOR THE FIRST TIME
To make the sector viable a Minimum Sugar Price, combined with mill wise Selling quota, was introduced
*This is provided for illustrative purposes only and is not intended to constitute investment advice or a recommendation to buy or sell any security.

23. CHANGE 2 –EXPORT OF SUGAR ALLOWED & RS 10/KG
SUBSIDY PROVIDED
Exports allowed with subsidies, which led to over supply situation easing
*This is provided for illustrative purposes only and is not intended to constitute investment advice or a recommendation to buy or sell any security.
Jan 2020 details

24. CHANGE 3 –ETHANOL BLENDING TARGETS RAISED FROM 10%
BY 2030 TO 20% BY 2025
Government Incentivized Ethanol Production
Ethanol prices made remunerative and capacity building was incentivised
Price of ethanol obtained from B -Heavy increased from 47.3 Rs. to 52.4 Rs.
Oil Mktg Cos advised to prioritize ethanol in the following order
100% sugar cane juice
B-heavy molasses & partial sugar cane juice
C-heavy molasses
Reduced GST on ethanol from 18% to 5%

25. RESULT ~ CYCLICALITY OF CASH FLOWS COMES DOWN
Sector dynamics change meaningfully
Confirmed Sugar profitability since a spread is maintained over cost through application of Minimum
Sugar Price
Exports reduce the excess inventory in the system
Higher Ethanol blending reduces excess cane ~ since cane diverted toward production of Ethanol
Sugar prices firm up due to alternate use of cane and reduction of excesses
Mills become profitable and balance sheet repair is significant
Earnings growth over 3 years likely to be over 25% CAGR
ROICs of new Ethanol capacities as high as 90% due to higher prices and incentives
Sector helps in capping the country’s oil import bill
Sector traded at mid single digit PER multiples due to cyclicality of cash flows
Multiples expanded to high single digit and there is room for further expansion
As ROCEs expand and cash flows become demonstrably secular in nature, further expansion is likely
Sector Multiples Change
*This is provided for illustrative purposes only and is not intended to constitute investment advice or a recommendation to buy or sell any security.

26. Conglomerate
spin off

27. CONGLOMERATE BUSINESS ~ CEMENT, ELECTRICALS, PAPER
Total capital employed of Rs 19.6 B for EBIT of Rs
3.6 B i.e18.3% ROCE
Pre Demerger Market Cap of Rs 9.2 B &
Total Debt of Rs 6.8 B i.e. EV of Rs 16.0 B
Stock trading at 3.6x EV/E
*This is provided for illustrative purposes only and is not intended to constitute investment advice or a recommendation to buy or sell any security.

28. CEMENT SPIN OFF UNLOCKED VALUE
Cement EBITDA of Rs 3.23 B and FCF
of Rs 2.20 B i.e. Post listing EV/E of
3.4x & EV/FCF of 5.1x. Sector traded
anywhere between 8-10x EV/E
Stock traded between Rs 35-40 for a
year as cement prices fell. Thereafter
with rising prices, it rallied to Rs200
over the next 3 years
*This is provided for illustrative purposes only and is not intended to constitute investment advice or a recommendation to buy or sell any security.

29. STUB ~ PAPER AND ELECTRICALS BUSINESS INCURRING LOSSES
BUT SEGMENTAL ANALYSIS SHOWS A DIFFERENT STORY
EBIT Loss
The stub (ex Cement) trades at a price of Rs 7 i.e. market cap of Rs 1.40 B, despite Electricals business being highly profitable
*This is provided for illustrative purposes only and is not intended to constitute investment advice or a recommendation to buy or sell any security.

30. OUR INVESTMENT PROCESS
The stub (ex Cement) trades at a price of Rs 7 i.e. market cap of Rs 1.40 B, despite Electricals business being highly profitable
*This is provided for illustrative purposes only and is not intended to constitute investment advice or a recommendation to buy or sell any security.

31. SPIN OFF OF ELECTRICALS BUSINESS
CREATES SIGNIFICANT VALUE
Background of Situation
Promoters decide to spin off Cement from the other two businesses through a 1:1 split in 2013
Thereafter in 2018 the paper and electricals businesses were split in a 1:1 split
Stock trading at Rs15 B market cap at the time of announcement
2017/Rs B PBIT Capital ROIC %Revenues
Electricals
Paper
Total
13.64
5.03
18.67
0.83
0.37
1.20
4.50
4.62
9.12
18.4
8.0
13.2
Electrical goods peers trading at over 20x EV/EBITDA, while company trades at 12x
Net of Paper business, the electrical business traded at under 10x EV/EBITDA
Previous demerger of Cement and Paper businesses created significant value (nearly 5x)
Insider interest –CEO and senior management received ESOPs in the electricals business
Electricals business trades at Rs 83 B and Paper businesses trades Rs 6.4 B i.e. a combined market cap of Rs90 B i.e. 5x+ over 3.5 yrs
*This is provided for illustrative purposes only and is not intended to constitute investment advice or a recommendation to buy or sell any security.

32. WHY KOTAK ASSET MANAGEMENT PMS?
Amongst the Oldest PMS’ on the street
Over a decade of experience in the Indian capital markets
Parentage support from Kotak Mahindra Asset Management Co
Ltd.
Since inception, Special Situations Value portfolio I & II has
generated a CAGR of 13.5% & 6.7% vs. India Value Index at 8.4%
& 2.8% respectively.*
Proven track record of market beating performance
14 member research team
Strong Research and Operations team
In-house, top-notch, IT systems and back-office support
Consistent client interaction
Quarterly performance reporting
Fund manager outlook
Data as on 31st May 2022. *Past performance may or may not be sustained in the future

33. OUR INVESTMENT LEADERSHIP
Mr. Nilesh Shah
(Group President & Managing Director)
Nilesh Shah is Group President & Managing Director of Kotak Mahindra AssestManagement Co. Ltd. He has over 25 years of
experience in financial and capital markets, and has managed funds across equity, fixed income securities and real estate forlocal
and real estate for local and global investors.
Prior to joining the kotakgroup, Nilesh was in senior leadership roles at Axis Capital,ICICIPrudential AssestManagement, Franklin
Templeton and ICICI Securities,
Nilesh was the recipient of the inaugural Business Standard Fund Manager of the Year Award-Debt in 2004. He was part of the
team that received the Best Fund House of the Year Award at Franklin Templeton as well as at ICICI Prudential
Nilesh is a gold Medalist chartered accountant and a merit ranking cost accountant. his hobbies include reading and educating
investors on financial planning. He has Co-authored a book on Financial called "A Direct Take"

34. Performance as on 31
st
May 2022
Kotak Special Situations Value Investment Approach -Series I
Kotak Special Situations Value Investment Approach -Series II

35. PMS TEAM
Core PMS Investment Team Business Development Team
Mr. Anshul Saigal(Head PMS)
Has spent close to 14 years with Kotak Portfolio
Management Services.
20 years of industry experience including that in
JP Morgan, ICICI Bank and Standard Chartered
Bank.
MBA (Finance), B.E (I.E)..
Mr. Ashish Jagnani
With Kotak Mahindra AMC since November
2017
Over 15 years of industry experience
including that in UBS and Citigroup
CA, Masters in Finance Management
Mr. Aditya Joshi
With Kotak Mahindra AMC since September
2016
13 years of industry experience of which the
last 11 years he has served with the Kotak
Group.
B.E. (Mechanical), MBA (Finance), CFP,
Chartered Financial Analyst, USA (CFA)
Mr. BirenDalal
Has spent close to 15 years with Kotak Portfolio
Management and Alternate Assets
23 years of industry experience including that in
Motilal Oswaland KRC shares and Securities.
B.Com, C.A

36. CENTRALIZED RESEARCH TEAM
Ms. ShibaniS Kurian
Fund Manager and Head of Equity Research
With Kotak Mahindra AMC since November 2007
20 years of industry experience
Sector / Portfollomanaged:
Banking & Financial Services Economy and Information Technology
PGDM and B.Sc(Hons.)-Economics
Mr. Bhargav Buddhadev
With Kotak Mahindra AMC since November 2018
15 years of industry experience
Sector/Portfolio managed: Specific stocks in small and
mid caps MMS (Finance) and C.A.
MMS (Finance) and C.A.
With Kotak Mahindra AMC since February 2008
16 years of industry experience
Sector / Portfolio monaged: Oil & Gas, Metain, Pipen,:
Shipping, Retail and Logistics
MMS and B.Com
Mr. Mandar Pawar
Mr. Devender Singhal
Mr. Dhananjay Tikariha
Has been with Kotak Mahindra AMC since February 2009
19 years of industry experience
PGDM -Fore School of Management and B.A. (Hons.)
Maths
With Kotak Mahindra AMC since March 2008
14 years of industry experience
Sector/Portfolio Managed: Telecom, Capital Goods,
Industrials, Pharmaceuticals & Hospitals
PGDM and B. Tech

37. CENTRALIZED RESEARCH TEAM
Mr. Nalin Bhatt
With Kotak Mahindra AMC since February 2016
16 years of industry experience
Sector/ Portfolio Managed: Infrastructure, Power Utilities
and Real Estate
CA and B.Com
Mr. Arjun Khanna
Mr. Ashish Jagnani
Mr. Devender Singhal
Mr. Umang Shah
Mr. Hrishikesh Bhagat
With Kotak Mahindra AMC since April 2016
13 years of industry experience
Sector/Portfolio Managed: Auto Ancillary, Media, Midcaps,
Hotel and Agricultural Commodities
MMS (Finance) CFA and BE
With Kotak Mahindra AMC since November 2017
15 years of industry experience
Sector / Portfolio Managed: specific stocks in small & mid
caps
CA and Masters in Finance Management
With Kotak Mahindra since December 2018
2 year of industry experience
Sector / Portfolio Managed: Consumer stapples and
Discretionary
CA(AIR 48) and B Com
With Kotak Mahindra AMC since August 2021
15 years of industry experience
ector/ Portfolio Managed: Banking & Financial Services
CFA and B.Com
With Kotak Mahindra AMC since February 2019
9 years of industry experience
Sector/Portfolio managed: Cement and Building Material
CFA and MMS

38. KEY RISKS
Kotak SSV Investment approach may invest substantially in equity and equity related securities. The level of concentration ofsectors and
stocks in this Investment approach is likely to be higher than a well-diversified equity strategy/fund. The risks associated with such an Invest-
mentapproach, are likely to be higher than in a well-diversified equity investment/fund. As the Investment approach will be invested in a limited
number of stocks, the movement of the corpus may be more volatile than in the case of a diversified equity Investment approach/fund. Since
the Investment approach follows a concentrated stock Investment approach, in case the chosen Stock does not perform, it couldadversely
impact the returns of the Investment approach. The value of the portfolio's investments may be affected by factors affecting thesecurities
market such as price and volume volatility in the capital markets, interest rates, currency exchange rates, changes in law/policies of the Govern-
ment, taxation laws and political, economic or other developments which may have an adverse bearing on individual securities, a specific sector
or all sectors. Consequently, the value of investments may be affected. Equity securities and equity related securities are volatile and prone to
price fluctuations on a daily basis. The liquidity of investments made in the portfolio may be restricted by trading volumes andsettlement periods.
Settlement periods may be extended significantly by unforeseen circumstances. The inability of the portfolio to make intendedsecurities purcha-
sesdue to settlement problems could cause the Portfolio to miss certain investment opportunities. Similarly, the inability to sellsecurities held in
the Investment approach's portfolio may result, at times, in potential losses to the Investment approach, should there be a subsequent decline in
the value of securities held in the Investment approach's portfolio. Investments in equity and equity related securities involvea degree of risk and
investors should not invest in the Investment approach unless they can afford to take the risk of losing their investment

39. DISCLAIMER
Investments in securities are subject to market risk and there is no assurance or guarantee of the objectives of the Portfolio being achieved or safety of corpus. Past perfor-
mancedoes not guarantee future performance. Investors must keep in mind that the aforementioned statements/presentation cannot disclose all the risks and characteris-
tics. Investors are requested to read and understand the investment strategy, and take into consideration all the risk factors including their financial condition, suitability to
risk return profile, and the like and take professional advice before investing. Opinions expressed are our current opinions as of the date appearing on this material only.
These materials are not intended for distribution to or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. The distribu-
tionof this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to
inform themselves about, and to observe, any such restrictions
We have reviewed the document though its accuracy or completeness cannot be guaranteed. Neither the company, nor any person connected with it, accepts any liability
arising from the use of this document. The recipients of this material should rely on their own investigations and take theirown independent professional advice. While we
endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so.
Investors and others are cautioned that any forward -looking statements are not predictions and may be subject to change without notice.
Statutory Details: Portfolio Manager: Kotak Mahindra Asset Management Company Ltd. SEBI Reg No: INP000000837-Registered Office:27 BKC, C-27, G Block, Bandra Kurla
Complex, Bandra (E), Mumbai -400 051, Principal Place of Business: 2nd Floor, 12 BKC, Plot No. C-12, ‘G’ Block, Bandra Kurla Complex, Bandra East, Mumbai –400 051,India.
Address of correspondence:6th Floor Kotak Towers, Building No 21 Infinity Park, Off W. E. Highway, Gen A K. Vaidya Marg, Malad(E), Mumbai 400097. –
Contact details:02266056825

40. Thank You
Stay Safe , Stay Healthy and Stay Invested