Portfolio Management Services

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Hexagon : Small-Midcap Focused Portfolio

The Four ‘P’s of Hexagon Portfolio

Philosophy
Positioning Stock Prices are
slaves of earning
Small-midcap
power
focused portfolio.

Process Period
Stringent Long term
investment Investing with
process and Risk minimum churn
Management

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 Small & Midcaps : Wealth Creation

Over long term Mid Caps have outperformed Large Caps

INR 1 cr invested in 2001 in Nifty Mid Cap is INR 22 cr today Vs just INR 9 cr in Nifty (Large Cap)

Nifty MidCap Index Vs Nifty Index

3000

2500
22x
2000

1500

1000 9x

500

0
Mar-01

Mar-02

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18
Nifty Free Float MidCap Index Nifty Index

Some examples are Lupin, Crisil, Titan

Source: Capitaline
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 Small & Midcaps : Home of Multi Baggers

97% of the multi baggers were from Small & Midcap universe
(<INR 5000 cr Mcap)

Mcap -INR 50 cr to INR 1000 cr to Greater than

INR 1000 cr INR 5000 cr INR 5000 cr

152 24 4

Note: Multi bagger is defined as stocks which have given more than 25% CAGR for more than 3 years. Market cap filtering is done based
on initial Mcap. 4
 Wealth Creation: Stock Picking Matters !!

Returns since January 2008 Multibaggers = 100%

Multibaggers = 75%
Index = 25%
34x
Multibaggers = 50%
Index = 50%
26x
Multibaggers = 25%
Index = 75%
18x
Mutual Funds
9.8x
If 25% of the portfolio comprised of
Index = 100%
2.6x Multibaggers & remaining 75% was
invested in index funds, the
portfolio would have still delivered a
1.8x stellar 9.8X returns

Returns calculated from 1st April 2008 till 31st March 2015 taking top 50 multibaggers into account. Multibaggers are stocks that have grown by more than 5
times from 2008 till 2015. Mutual funds returns have been calculated using HDFC Equity Fund, HDFC Top 200 Fund, Birla SL Frontline Equity Fund, ICICI Pru
Focussed BlueChip Equity Fund, Franklin India BlueChip Fund, DSP BR Top 100 Equity Fund, Reliance Vision Fund. Index returns have been calculated using
CNX NIFTY. 5
Portfolio Management Services

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Investment Philosophy

1. Identify Companies with strong Earnings Growth potential

Portfolio of companies which are going to double their cash flows in 3 years- Price
will follow!

“Stock Prices are slaves of earning power”

9,000 500
8,000 450
7,000 400
350
6,000
300
5,000
250
4,000
200
3,000
150
2,000 100
1,000 50
0 0

Nifty (LHS) EPS (RHS)

Over last 16 years Nifty Index has followed Nifty Earnings - Nifty EPS up by
6.6x Vs Nifty Index up 6.4x
7
Investment Philosophy: Key Tenets

2. Do not overpay – Take advantage of ‘Mispricing’

• Invest at reasonable or relatively cheaper

valuations

• Mispriced buys protect downside and

have a higher re-rating potential

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Hexagon: Investment Strategy

CONSISTENT
EXCELLENCE
COUNTER
CLIMBING
CYCLICAL
THE VALUE
CURVE

EMERGING
TURNAROUND INDUSTRY
COMPANIES LEADERS
CORPORATE
ACTIONS

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Hexagon: Investment Strategy explained
Consistent excellence
• Steady growth in profits
• Cheap valuation
Climbing the value curve
• Better product mix
• Forward integration, rising
margins
Emerging industry leaders
• Leaders in relatively new
industries
• Fast growing stocks
Corporate action
• Value unlocking due to special
situations
Turnaround companies
• Erstwhile winners who
faltered, but are coming
back now
Counter cyclical
• Performance negatively
correlated with the overall
economy
• Good hedge to standard market
declines
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Illustrations of
our approach

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 Consistent Excellence : APL Apollo Tubes Ltd.

APL APOLLO TUBES LTD. • APL Apollo Tubes (APL) makes steel pipes that find
application across a wide range of uses in agriculture,
APL Apollo Tubes Ltd Nifty infrastructure, construction and household.

700 • Due to scale economies and distributed

manufacturing, it is the lowest cost manufacturer
600 commanding market share that is 3X the market share
of the No.2 player (Tata, Jindal)
500 465

400
• To further fortify its position and maintain leadership,
the company has introduced new technology DFT
300 (Direct Forming Technology) which will enable APL to
decrease the cost further and expand customer base.
200
130
100
• With GST implementation, APL is in a strong position
to grab market share from unorganized players which
0 is 50% of the tube industry. Based on the shift from
unorganized to organized, new use-cases (import
Sep-15

Mar-16

Sep-16

Mar-17

Sep-17

Mar-18
Dec-15

Dec-16

Dec-17
Jun-16

Jun-17

substitution, rust-proof), new markets (exports) and

margin expansion (DFT technology), we expect the
company to deliver strong EPS growth of 47% CAGR
Prices are rebased to 100 for comparison purpose
over FY18E-20E

Source : Capitaline | Stocks referred to are not an endorsement of their soundness or a recommendation to buy or sell. The same may or may not be a part of the
Hexagon Portfolio. 12
 Turnaround Companies: Himadri Sp. Chem. Ltd

HIMADRI SPECIALITY CHEMICAL LTD • Himadri Speciality Chemical Ltd (HSCL) continues to
be a market leader in its core business of coal tar
(HSCL) pitch (CTP) with a 70% market share and is a cost
leader in carbon black and CTP due to integrated
Himadri Sp. Chem. Ltd Nifty
manufacturing.

1400 • It was able to improve margins from 9% in FY15 to

1200
20% plus in H1FY18 due to better pricing
arrangement with its customers. The margins would
1000 further improve as HSCL looks to expand capacities.
961
800 • A new opportunity in the form of Advanced Carbon
materials (ACM) is also taking shape.
600
• ACM finds application in Lithium Ion batteries. ACM
400 should be a key growth driver with the demand for
Lithium Ion batteries skyrocketing.
200 130
• Profit margins in ACM are superior and volume
0 growth rate is quite rapid.
Sep-15

Mar-16

Sep-16

Mar-17

Sep-17

Mar-18
Dec-16
Dec-15

Dec-17
Jun-16

Jun-17

• HSCL could become the lowest cost producer in this

segment as well, as they are fully backward
integrated. We expect the company to deliver
Prices are rebased to 100 for comparison purpose strong EPS growth of 37% CAGR over FY18E-20E

Source : Capitaline | Stocks referred to are not an endorsement of their soundness or a recommendation to buy or sell. The same may or may not be a part of the 13
Hexagon Portfolio.
 Consistent Excellence: Mold-Tek Packaging Ltd

MOLD-TEK PACKAGING LTD • Mold-Tek Packaging Ltd (MTPL) is into

manufacturing of plastic containers used in paint,
FMCG and lubricant packaging and its ability to
Mold-Tek Packaging Ltd Nifty integrate backward has resulted in 35% lower
500
capital and variable costs.

• Packaging being an integral function for B2C

400 companies, IML Packaging (In-Mould Labeling) is
better compared to screen printing (older
technology) as brand visibility (as seen on the
300
305 container which does not peel off) remain for a
longer period of time.
200
• FMCG players have shown interest in adopting this
130 new technology and revenue is growing quite
100 rapidly.
• Another source of growth is expansion into the
0 Middle East market where MTPL has set up a
plant.
Sep-15

Mar-16

Sep-16

Mar-17

Sep-17

Mar-18
Dec-15

Jun-16

Dec-16

Jun-17

Dec-17

• The stock is an excellent long term consumption

play with limited competition. The EPS is set to
Prices are rebased to 100 for comparison purpose grow at 39% CAGR over FY18E-FY20E.

Source : Capitaline | Stocks referred to are not an endorsement of their soundness or a recommendation to buy or sell. The same may or may not be a part of the Hexagon 14
Portfolio.
 Turnaround
Climbing theCompanies: Vaibhav
Value Curve: Shree Global
Pushkar

SHREE PUSHKAR CHEMICALS • Shree Pushkar Chemicals & Fertilisers Ltd (Shree
Pushkar) is a dye intermediates (DI) manufacturer
& FERTILISERS LTD and is forward integrating into dyes stuff (DS)
manufacturing. Dyes are colouring agents which are
Shree Pushkar Nifty mainly used in textile.
600
• In an industry where effluent treatment is a major
550 risk for sustenance of the business, Shree Pushkar
500 has achieved status of ‘zero-waste plant’. They have
450 achieved that by converting effluents into saleable
400 products like fertilizer.
350
300 322 • The company is “moving up the value curve” by
250 forward integrating into dye-stuffs. It is in the process
200
of establishing its own brand as well.
150 130 • The company is expanding capacity backed by orders
100 from MNCs and establishing its own brand. We
50 expect 21% PAT CAGR over FY18E-20E.
Sep-17
Sep-15

Mar-16

Sep-16

Mar-17

Mar-18
Dec-15

Jun-16

Dec-16

Jun-17

Dec-17

• Improving asset utilization, no debt and efficient

working capital management will enable it to
maintain free cash flows for future expansion.

Prices are rebased to 100 for comparison purpose

Source : Capitaline | Stocks referred to are not an endorsement of their soundness or a recommendation to buy or sell. The same may or may not be a part of the Hexagon
Portfolio. 15
Investment
Process

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Small-Midcaps- High Returns ≠ High Risk

 Larger Selection Pool allows for high rejection- Investable Pool for Small-Midcaps is 5x of
large caps

 High Rejection rate ensures cherry picking stocks with strong fundamentals- Out of 100
companies we reject 80 companies

 Stringent Stock selection process and diversification lowers the risk

Investment universe – Market capitalisation wise

874

336

159
87

INR 100-1,000 cr INR 1,000-5,000 cr INR 5,000-10.000 cr INR 10,000 cr >

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 Stringent Investment Process

Stock Identification Evaluation Access Investment Decision

• Hexagon approach to • Intense Private Equity- • Meeting with senior Meeting with Investment
shortlist like process management of potential Advisory Committee for
• Strong incremental cash • Detailed business investee companies to detailed discussions on key
flows analysis & industry understand strategy and investment hypothesis and
mapping focus and key growth risks
• Good corporate
governance • Build detailed financial drivers
• Strong Competitive models • Meeting with Investment decision taken
Advantage competitors, lenders, based on the
industry experts etc to recommendation provided by
• Attractive valuation the Investment Advisory
get a holistic perspective
• Channel checks Committee
• Reference checks on
management

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Risk Management Framework

Diversification Review

20 Stock Portfolio
Spend 50% of time
revisiting stocks
within portfolio
No Over Exposure to
single sector

Stock Liquidity Regularly meet

management, and
track quarterly
Time Diversification results/news
(SOP,COP)

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 Risk Management - Time Diversification
Why Time diversification ? How do we do that ?
Certain events are un predictable (Brexit, China, New clients or New stocks are on-boarded in 3
Interest rates etc) tranches over 30 days
Benefit from short term volatility  COP – Client On boarding Protocol
Dollar Cost Averaging principle - Potential for lower  SOP – Stock On boarding Protocol
average cost of buying

Client On-boarding Protocol* Stock On-boarding Protocol**

(COP) (SOP)

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*Assuming target equity weight in portfolio for client is 100% **Assuming target weight of 5% in each stock 20
Note: In few cases portfolio manager might take new clients or stocks directly to Step 2 /Step 3 of COP/SOP depending upon the market scenario.
Performance
and Portfolio

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 Hexagon Portfolio Performance

Hexagon Portfolio has delivered 21% annualized returns (since inception till 30-April-18)

HEXAGON PORTFOLIO PERFORMANCE

Since
1 Month 3 Month 6 Month 1 Year 2 Year
Inception
Hexagon Portfolio 5.4% -5.5% -7.1% 15.0% 23.9% 21.0%
S&P BSE SmallCap Index 8.3% -1.7% 4.6% 19.7% 29.2% 22.4%
Returns are calculated on compounded annualised basis for a period of more than a year & absolute basis for a period of less than or equal a year. Inception
Date: 1-Sep-15

Hexagon Portfolio NAV comparison Vs S&P BSE SmallCap Index

200
190
180
170
160
150
140
130
120
110
100
90
80
Feb-17

Jan-18
Nov-15

Jan-16

Apr-16

Jul-16

Nov-16

Jan-17

Apr-17

Jul-17

Nov-17

Apr-18
Sep-15

Feb-16
Mar-16

Aug-16
Sep-16

Mar-17

Sep-17

Feb-18
Mar-18
Aug-15

Aug-17
Dec-15

Dec-16

Dec-17
Oct-15

Jun-16

Oct-16

Jun-17

Oct-17
May-16

May-17

Hexagon Portfolio S&P BSE SmallCap Index

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 Hexagon Portfolio Characteristics

Valuations are lower Growth is high

60.0 70% 66%
49.4

`
50.0 60%
50%
40.0 38%
40%
30.0 23.9 30% 24%
22.4
20%
20.0
10%
10.0 0%
P/E FY 18E EPS Growth (FY18E-20E)
Hexagon Portfolio Sensex S&P BSE MidCap Index Hexagon Portfolio Sensex S&P BSE MidCap Index
Quality of Business is Better
Risk is Lower
25% 6.0
19%
20% 4.2
15%
15% 4.0
10%
10% 1.8
2.0
5% 0.3
0% 0.0
ROE-FY20E Net Debt/EBITDA-FY20E
Hexagon Portfolio Sensex S&P BSE MidCap Index Hexagon Portfolio Sensex S&P BSE MidCap Index

*Estimates of S&P BSE SmallCap Index are not included for comparison purposes as the volatility of these estimates is high.
Source of Indices Data: Bloomberg
Hexagon Portfolio Vs BSE Sensex & BSE Mid Cap Index - Growth is High, Quality of business is better, Balance sheet risk is lower while
valuations are lower Vs BSE Sensex & BSE Mid Cap Index 23
Top 5 Alpha Contributors

Average
%
Sr No Stock Name Holding Period
Returns*
(Days)

1 APL APOLLO TUBES LTD 942 345%

2 HIMADRI SPECIALITY CHEMICAL LTD 425 190%

3 MOLD – TEK PACKAGING LTD 809 134%

4 SHREE PUSHKAR CHEMICALS & FERTILISERS LTD 838 65%

5 V2 RETAIL LTD 268 47%

* Returns mentioned are the returns of the stock since their buying, till date i.e. 30th April 2018

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Portfolio – Salient Features

NO USE OF
DERIVATIVES

SMALL - • Small & Mid Cap: 70-100%

SECTOR
MID CAP • Large cap: 0-30%
AGNOSTIC
BIASED • Cash: 0-30%
PORTFOLIO
PORTFOLIO

PORTFOLIO
TARGET • 25% p.a.
• Min 4% CONCENTRATION
RETURN • 2x in 3 years
• Max 15% PER STOCK

BENCHMARK:
S&P BSE NUMBER OF
STOCKS • Min 15
SmallCap
• Max 25
Index

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Edelweiss
Advantage

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The Edelweiss Advantage – 3 fold approach

Edelweiss Edge
• Generation of synergies help us in providing more detailed and insightful analyses
• Strong corporate relationships enable us in taking a holistic view

The
Equity Investment
Lending Edelweiss
Research Banking
Advantage

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Awards and recognitions

March 2010 July 2013 Feb 2014 July 2014 28

Investment
Team

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Investment Specialists

Anil Sarin, Chief Investment Officer – Equity, Global Asset Management

• More than 20 years of fund management experience

• Managed investments for institutions like SBI, Birla SL,
ICICI Prudential
• Served as MD and Partner at India office of Bessemer
Venture Partners, a top tier US based venture capital
firm
• Experience of investing in both private and public equity
• Anil holds a bachelor’s degree in commerce and a MBA
from IMT Ghaziabad
• Funds managed by Anil have won awards for sector
leading performance
• Permanent Invitee as Investment Specialist in the
Hexagon Investment Committee and Mentor to the
Investment Management Team.

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 Investment Specialists

2011-2015
AQF Advisors
Co-Founder

Start-up providing outsourced

asset management services

Bessemer Venture Partners 2006-2011

MD and Partner

Handled private investment for

a top-tier US based venture
capital fund ICICI Pru AMC
 Anil was named as a Platinum Fund Manager by
Co head-Equities and Economic Times -2006
2004-2006 Fund Manager
Joined as a fund manager and  ICICI Pru Dymanic Fund was awarded by CRISIL –
got promoted to Co-Head of 2005
Equities in a short time period
Birla Sun Life AMC  Birla Equity Fund was named Beat ELSS Tax Saving
Fund – 2003
Fund Manager 1995-2003
 Birla IT Fund was named as the Best IT Fund for
three consecutive years by CNBC – 2001, 2002,
Started as a research analyst,
2003
Played a pivotal role in the launch
of Birla Dividend Yield Plan, first of
its kind in India 31
Investment Specialists

Sahil Shah, Fund Manager – Hexagon Portfolio

• Experienced in both buy and sell side of the business

• 8 years of experience as an equity research analyst

• Prior to Edelweiss, Sahil worked at Anagram Capital Limited

• Sahil has earned a CFA degree from ICFAI university

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 DISCLAIMER & RISK FACTORS
Disclaimer and Risk Factors

Past Performance is not an indication of future performance. Investments in securities market are subject to market risks. Please read the Disclosure Document
carefully before investing.

The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the readers. This document
has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The Portfolio Manager, it’s
Holding Company, associate concerns or affiliates or any of their respective directors, employees or representatives do not assume any responsibility for, or warrant
the accuracy, completeness, adequacy and reliability of such information. Whilst no action has been solicited based upon the information provided herein, due care
has been taken to ensure that the facts are accurate and opinions given are fair and reasonable. Recipients of this information should rely on information/data arising
out of their own investigations. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any
investments. None of the Portfolio Manager, its Holding Company, associate concerns or affiliates or their respective directors, employees or representatives shall be
liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained
in this material. This document has been provided on a strictly private and confidential basis and is being furnished to you solely for your information and is not
intended as an offer or solicitation for the purchase or sale of any financial instrument/security. The information contained in this document should not be
reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. The
investments in the PMS Strategies may not be suited to all categories of investors. The Strategies may be exposed to various risks depending on the investment
objective, investment style and the asset allocation pattern of the Portfolio. The value of the portfolio can go up or down depending on various market factors.
Investors are not being offered any guaranteed or indicative returns through the Strategy. The name of the Strategy does not in any manner indicate its prospects or
returns. The performance of the PMS strategies may be adversely affected by changes in the market conditions, micro and macro factors and forces affecting capital
markets in particular like interest rate risk, credit risk, liquidity risk and reinvestment risk. The Portfolio Manager is not responsible or liable for any loss resulting from
the operations of the Strategy/ Portfolio. Investors are advised to refer to the Disclosure Document for detailed risk factors/disclaimers. Stocks referred to in this
document are not an endorsement of their soundness or a recommendation to buy or sell. The same may or may not be a part of the PMS Strategy in future or any
other PMS Strategies launched from time to time.

Edelweiss Multi Strategy Funds Management Private Limited is registered with Securities and Exchange Board of India as a Portfolio Manager vide Registration
Number INP000004631 and has its registered office at Edelweiss House, Off. CST Road, Kalina, Mumbai 400 098 and correspondence address at 801, 802 & 803, 8th
floor, Windsor, Off C.S.T. Road, Kalina, Santacruz(E), Mumbai – 400098
Corporate Identity No.:U67120MH2009PTC194273

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