Sundaram Select Micro Cap

NEW FUND OFFER – Series 1

From – 16th December 2013

To – 30th December 2013

INTRODUCING

(A five-year closed-end equity scheme)

Micro to Mega – Case Study #1

Right Product at the Right Time

Rising per capita incomes

Inadequate public transportation

system

Need for reliable & safe personal

transportation

Fuel-efficient value for money

product

During this 20-year period, the

company’s sales grew by over 800 times

- from Rs 300 crore to Rs 23,770 crore

HERO MOTOR COMPANY LIMITED

Company tapping exploding markets

Source: Bloomberg; Data as of October 31, 2013

Market Capitalization

Micro to Mega – Case Study #2

Micro caps are under-

researched, or mostly not

researched

Hence, no market price

discovery in these stocks

As these companies scale up,

they start getting into the

radar of institutional investors

Consequently, greater stock

returns are realized not only

by capturing higher growth,

but also better valuation

multiples

While profits grew 6.4x, the valuations

increased 5x and hence, the stock

returned 32x

IPCA LABORATORIES LIMITED

Multiplier effect on returns

Source: Bloomberg; Data as of October 31, 2013

Micro to Mega – Case Study #3

1997: S&P Acquires 9.68 % in

CRISIL from ADB

February 2005: Open offer to

acquire 3.53mn shares

representing 55.57% equity at

Rs 68 per share

April 2005: Revised Open offer

at Rs 77.5 per share to

acquire 4.17mn shares

representing 65.57% equity;

Premium of 55.74% over

average weekly high

June 2013: S&P made another

open offer at Rs 1210

CRISIL LIMITED

Growth due to acquisition

Market Capitalization

Source: Bloomberg; Data as of October 31, 2013

Post Feb 2005, in a one-year period the

market cap of the company grew 2.9 times

- from Rs 340 crore to Rs 1000 crore

Many mega caps have started as micro caps

India, being a land of entrepreneurs, provides opportunities for young people

to build on their dreams

Market opportunity is small in the starting phase and hence not meaningful for

larger players

Companies go through a significant evolution process (regulatory and

otherwise) which requires entrepreneurs to be nimble footed

Over time, businesses move from unorganized to organized segment (e.g.,

retail, multiplexes, fashion)

As these new business are established and scaled up meaningfully, they:

Witness large expansion in sales and profits

Enter the radar of institutional owners and price discovery happens

Become valuable acquisition targets

Significant buying opportunity

Across Cap Curve

The Small Cap Index is currently trading at significant discount compared to

mid & large caps

S&P BSE Sensex S&P BSE Mid Cap S&P BSE Small Cap

*Price Earning Ratio

19.4 13.7 11.9

Discount vs S&P BSE Sensex 42% 63%

Across Time

The Small Cap Index is trading at a 73% discount from its historical high in

January 2008

January 2008 October 2013

20.6 11.9

* Current PE based on FY 13 earnings Source: Bloomberg; Data as of October 31, 2013; Research: In-house

Growth has bottomed out; the recovery is here to stay

MSCI India*, Net Sales (%YoY) MSCI India*, PAT (%YoY)

Q2 GDP has clearly established the troughing of growth

FY14 inflation will be at least 100bps below last fiscal and monetary policy

easing is round the corner

Q2 results have been encouraging and are reflecting the recovery

Net Sales and PAT have seen a clear pick-up in growth

* MSCI India Ex-Energy Source: Morgan Stanley, Sundaram Mutual Data as of October 31, 2013; Research: In-house

Micro Cap sector profile displays cyclical bias

Sectors Weights

Materials 22.7

Industrials 22.0

Consumer Discretionary 20.6

Financials 11.9

Health Care 6.1

Consumer Staples 5.9

Information Technology 5.2

Utilities 2.9

Energy 1.9

Telecommunication Services 0.8

Share in NSE Market Cap (%)

6%

Micro Cap sector profile Total universe is 1108 stocks

The total market cap of micro cap

stocks is Rs 4 lakh crore

Microcaps are 6% of the total

universe of NSE stocks

They are diversified among sectors

with a bias towards cyclical

Source: Bloomberg; Data as of October 31, 2013; Computation: In-house

Hence, micro caps tend to outperform in upcycles

Micro-caps are high-beta stocks

Hence, during the economy and market up

cycle they have returned 14x in the 5-year

period 2003-08

10-year Performance of Large, Mid & Small cap indices

CAGR of Large, Mid & Small Cap indices

Source: Returns in %; Bloomberg; Data as of October 31, 2013

As we believe that the stage is set for the

next up-move in the economy and

markets, we believe the micro caps are

set to outperform their larger cap space

Investment Strategy

The fund will invest in stocks that are equal to & greater than the 301st stock

in the NSE (after sorting the stocks by market-cap in descending order)

The portfolio will predominantly invest in multi-national companies:

companies that have more than 26 per cent foreign promoter ownership

The fund manager will aim at building a reasonably diversified, 30-stock

portfolio

The fund proposes to adopt an investor-friendly dividend policy (surpluses

permitting) to ensure that liquidity is not restricted for a 5-year horizon.

Dividends maybe declared between NAV band of Rs 12 to Rs 16

The fund manager will book 50% of the profits in stocks that rise more than

400%

If the 400% rise happens within the first 3 years, the fund manager will

reinvest in new micro cap ideas

Should the 400% rise happen after the first 3 years, the fund manager will

deploy the proceeds outside the micro cap theme to help protect investor

interest

Why MNC?

Technology

Leaders

As India evolves, technological excellence will become more important

Possess the required expertise and experience of dealing in many

developing markets

Immense pricing power

Importance of

India

Significant part of growth for MNCs for the next decade will come from

markets like India

Hence, the management in MNCs are giving more importance to their

Indian subsidiaries

Export

Potential

Over time, some of the companies would achieve critical scale, where

exports from Indian entities would become viable

We have already seen some of the growth stories based on exports

Why MNC?

The “25% free

float” advantage

It has taken away “de-listing premium”; cheaper valuations

Free float has increased and hence made the universe more investible

Managements have become more accessible

Scarcity

Advantage

FDI opening up is reducing the opportunity to play MNC in listed space

More and more companies going for 100% owned entities; hence,

limited number of players in the listed space

Corporate

Action

MNCs are looking to increase their stake in Indian subsidiaries

CY13 witnessed the largest ever buy-back in India whereby Unilever

increased its stake in Indian entity; This leads to a permanent re-rating

of the stock

Global

Consolidation

Global consolidation has also led to value creation

This has led to open offers due to “change in management”

In many cases, since the parent already owns 75%, another open offer

has resulted into eventual de-listing

Micro cap MNCs have outperformed their larger peers

10-year Performance of MNC micro caps

An equal weighted portfolio of top

30 stocks by market-cap

Displayed stronger performance

across cycles

While they have returned 8x in the

5-year period 2003-08, they have

hugely outperformed all market

segments in the next 5-years

Outperformance due to:

better balance sheet with zero

debt

better pricing power because

of technology edge leading to

no impact on profitability

Source: Bloomberg; In-house computation ; Data as of October 31, 2013

Strong re-rating in MNC microcap in upcycle

Source: Bloomberg; In-house computation

MNC microcaps got re-rated from a PE of 8.5x to a peak PE of 21x during

the period FY03-08

Micro Cap MNCs – Case Study

Revenue (Rs Crore) PAT (Rs Crore) Market Cap (Rs Crore) PE Ratio (x)

FY03 FY08 FY13 FY03 FY08 FY13 FY03 FY08 FY13 FY03 FY08 FY13

Amara Raja 199 1083 2961 7.4 94 287 57 1114 4690 7.7 11.8 16.4

Bata India 650 868 1843 -7.2 41 172 142 914 4616 -19.9 22.5 26.8

Fag Bearings 244 641 1436 20 80 159 86 988 2443 4.4 12.4 15.3

Whirlpool 1095 1565 2773 21 32 128 190 567 2811 8.7 17.5 22.0

Source: Bloomberg; In-house computation

Disclaimer

Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Copies of the Statement of Additional

Information, Scheme Information Document and application form with Key Information Memorandum may be obtained from the offices / Investor Service

Centres of Sundaram Mutual or its authorized distributors or downloaded from www.sundarammutual.com. Past performance is no guarantee of future

result. General Risk Factors: There can be no assurance or guarantee that fund's objectives will be achieved. NAV may go up or down, depending on

the factors and forces affecting the securities market. Main types are market risk, liquidity risk, credit risk and systemic risks. At times, liquidity of

investments may be impaired. There is uncertainty of dividend distribution and risk of capital loss. Past performance of the Sponsor/Asset Management

Company/Fund does not indicate the future performance. Investors in the schemes are not being offered any guaranteed or indicated returns. Sundaram

Select Micro Cap Series I is only the name of the scheme and do not in any manner indicate either quality or future prospects and returns. General

Disclaimer: This document is issued by Sundaram Asset Management, an Investment Manager registered with the Securities and Exchange Board of

India in India and is produced for information purposes only. It is not a prospectus or Offer Document or Scheme Information Document or an offer or

solicitation to buy any securities or other investment. Information and opinion contained in this document are published for the assistance of the recipient

only; they are not to be relied upon as authoritative or taken as a substitution for exercise of judgment by any recipient. They are subject to change

without any notice and not intended to provide the sole basis of any evaluation of the instrument discussed or offer to buy. It is neither a solicitation to

sell nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or be taken as investment advice. The

information and opinions contained in this communication have been obtained from sources that Sundaram Asset Management believes to be reliable; no

representation or warranty, express or implied, is made that such information is accurate or complete and it should not be relied upon as such. Sundaram

Asset Management neither guarantees its accuracy and/or completeness nor does it guarantee to update the information from time to time. This

communication is for private circulation only and for the exclusive and confidential use of the intended recipient(s) only. Any other distribution, use

or reproduction of this communication in its entirety or any part thereof is unauthorized and strictly prohibited. By accepting this document you agree to

be bound by the foregoing limitations. This communication is for general information only without regard to specific objectives, financial situations and

needs of any particular person who may receive it and Sundaram Asset Management is not soliciting any action based on this document. Sundaram Asset

Management in the discharge of its functions, may use any of the data presented in this document for its decision-making purpose and is not bound to

disclose the same. For scheme specific risk factors, asset allocation, load structure, fund facts and taxation aspects please refer the Statement of

Additional Information and Scheme Information Document available online and at branches/Investor Service Centres. Statutory: Mutual Fund: Sundaram

Mutual Fund is a trust under Indian Trusts Act, 1882 Liability for sponsor is limited to ` 1 lakh. Sponsor: Sundaram Finance Ltd. Investment Manager:

Sundaram Asset Management Company Ltd. Trustee: Sundaram Trustee Company Ltd.