sundaram services fund · 2018. 9. 5. · services plays a leading role in the economy source :...

Sundaram Services Fund An open ended equity scheme investing in Services Sector

NFO Opens: August 29, 2018

NFO Closes: September 12, 2018

Scheme Reopens for Ongoing Subscription/Redemption - 26/09/2018

2

India Services

Re-defining the growth narrative

3

SERVICES PLAYS A LEADING ROLE IN THE ECONOMY

Source : CMIE, Sundaram Asset Management

• India is a unique case-study where the growth narrative shifted from

Agriculture to Services; instead of Industry

• Services account for more than 53% of the GDP but only ~35% of

Total Market cap of India.

GDP sectors, as a % of GDP

14

19

24

29

34

39

44

49

54

59

64

FY62

FY66

FY70

FY74

FY78

FY82

FY86

FY90

FY94

FY9

8

FY02

FY06

FY10

FY14

FY18

Agriculture Industry Services

15%

31%

54%

• Economic growth, rising per capita income, highly skilled manpower,

rising government spends and technological progress; all contributed

and redefined the Services growth story

Sectoral GDP (10 year moving avg. in % )

0

1

2

3

4

5

6

7

8

9

10

FY61

FY6

4

FY67

FY70

FY73

FY76

FY79

FY8

2

FY85

FY88

FY91

FY94

FY97

FY0

0

FY03

FY06

FY09

FY12

FY15

FY1

8

Total Agriculture Industry Services 7.9%

6.5%

5.5%

3.4%

4

INDIA AMONGST THE FASTEST GROWING SERVICES SECTOR

Source :Morgan Stanley, CEIC, Sundaram Asset Management, Japan is CY16

• Services growth in India is led by rising purchasing power, fast growth in social mobility and increasing urbanisation trends

• Outsourcing by foreign companies in the business services, BPO and IT services segment have given Services a significant boost

• Overall GDP India ranks 5th in 2017 and is among the top2 in services GDP growth, achieving 7.6 per cent growth.

Services growth across countries (CY2017) Services Sector as a % of GDP (CY2017)

0.4

1.5 1.5 1.6 2.2 2.3

2.9

7.6 8.0

Ja

pa

n*

UK

Italy

Fra

nce

Germ

any

US

Cana

da

Ind

ia

Chin

a

51.6 53.8

61.9 66.3 69.1 69.3 70.1 70.2

77.7

Chin

a

Ind

ia

Germ

any

Italy

Cana

da

Ja

pa

n

UK

Fra

nce

US

5

GLOBAL CONSUMER SERVICE SECTOR

US Consumer Service vs S&P 500

0

50

100

150

200

250

300

350

Sep

-10

Feb

-11

Jul-

11

De

c-1

1

May

-12

Oct

-12

Mar

-13

Au

g-1

3

Jan

-14

Jun

-14

No

v-14

Ap

r-1

5

Sep

-15

Feb

-16

Jul-

16

De

c-1

6

May

-17

Oct

-17

Mar

-18

US Consumer Services S&P 500

0

100

200

300

400

Oct

-10

Feb

-11

Jun

-11

Oct

-11

Feb

-12

Jun

-12

Oct

-12

Feb

-13

Jun

-13

Oct

-13

Feb

-14

Jun

-14

Oct

-14

Feb

-15

Jun

-15

Oct

-15

Feb

-16

Jun

-16

Oct

-16

Feb

-17

Jun

-17

Oct

-17

Feb

-18

Jun

-18

MSCI Japan Consumer Services Nikkie

Japan MSCI Consumer Service vs Nikkei

UK Consumer Service vs FTSE 100

90

110

130

150

170

190

210

230

Sep

-10

Feb

-11

Jul-

11

Dec

-11

May

-12

Oct

-12

Mar

-13

Au

g-1

3

Jan

-14

Jun

-14

No

v-14

Ap

r-1

5

Sep

-15

Feb

-16

Jul-

16

Dec

-16

May

-17

Oct

-17

Mar

-18

UK Consumer Service FTSE 100

US Consumer Service Index has delivered a CAGR of 15.4% vs 11.5%

of S&P 500.

MSCI Japan Consumer Service Index has delivered a CAGR of 17.8%

vs 11.5% of Nikkei.

UK Consumer Service Index has delivered a CAGR of 9.9% vs 4.1% of

FTSE 100.

Globally Consumer Service Index has outperformed key Indices…

Source : Bloomberg, Sundaram Asset Management

6

INDIA SERVICE SECTOR INDEX

141.4

578.8

110.5

206.6

0

200

400

600

800

Jan

-08

Jun

-08

No

v-0

8

Ap

r-0

9

Sep

-09

Feb

-10

Jul-

10

Dec

-10

May

-11

Oct

-11

Mar

-12

Au

g-1

2

Jan

-13

Jun

-13

No

v-1

3

Ap

r-1

4

Sep

-14

Feb

-15

Jul-

15

Dec

-15

May

-16

Oct

-16

Mar

-17

Au

g-1

7

Jan

-18

Jun

-18

Services Index BSE200 Index


Service Index : Selected Service based companies from current BSE 200 Index and weighted it on historical market cap basis.

796.0 844.2

4,650.3

493.4 510.5

1,019.5

0

1,000

2,000

3,000

4,000

5,000

Jun

-03

Jun

-04

Jun

-05

Jun

-06

Jun

-07

Jun

-08

Jun

-09

Jun

-10

Jun

-11

Jun

-12

Jun

-13

Jun

-14

Jun

-15

Jun

-16

Jun

-17

Jun

-18


India Service Index

delivered 5x returns in

10 years

India Service Index

delivered 50x returns

in 15 years

7

BAJAJ FINANCE – CASE STUDY

Profile

Key Catalysts

Plans to de-risk business model and significantly increase the proportion of

Secured Assets in its Loan Portfolio

Significant thrust on Consumption Financing via strong B2B relationship

Expanding presence in next 800 towns over 3-5 years

Robust risk management via Scorecard based underwriting using digitisation,

analytics, big data, artificial intelligence

Company is engaged primarily in the business of financing two-wheelers,

consumer durables, personal loans, small business loans, mortgages and loan

against securities

Company has a AUM of over Rs. 93,314 crores - operates through a network of

~60000 distribution/dealers & presence across 1300+ towns

Price Performance – Bajaj Finance vs BSE 200


-

500

1,000

1,500

2,000

2,500

3,000

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Bajaj Fin BSE 200 Index

Curr Price / M Cap (Rs cr) BAJAJ FINANCE LT 2,488 1,42,457

Financial Summary : FY16 FY17 FY18 FY19e FY20e

Net Interest Income 3,974 5,469 7,226 9,996 13,323

PPOP 2,507 3,636 4,878 6,968 9,319

PAT 1,279 1,837 2,496 3,607 4,769

EPS 22.2 31.9 43.4 62.7 82.9

AUM 43,831 58,239 81,943 1,10,624 1,43,811

ROA % 3.2 3.3 3.3 3.5 3.6

RoE % 20.9 22.4 20.4 21.1 23

P/E (x) 29.0 32.7 50.2 39.7 30.0

8

QUESS CORP – CASE STUDY

Profile

Key Catalysts

Diversified growth across industries – IT, general staffing, facility mgmt. services,

Industrial asset mgmt.

Shift from unorganized to organized

Market share increase across segments of operations

Ability to add newer services through further acquisitions/partnerships

Quess Corp is best described as the Amazon of managed services as it seeks to

be relevant to clients across their complete breadth of flexi-staffing & managed

services requirements. It helps the company to manage their non-core activities

by leveraging their integrated service offerings across industries and

geographies.

Price Performance – Quess Corp vs BSE 200

Company has invested Rs14.2b over last two years to built scale & capabilities

across a wide spectrum of services.


50

100

150

200

250

300

Jul-

16

Au

g-1

6

Sep

-16

Oct

-16

No

v-1

6

De

c-1

6

Jan

-17

Feb

-17

Mar

-17

Ap

r-1

7

May

-17

Jun

-17

Jul-

17

Au

g-1

7

Sep

-17

Oct

-17

No

v-1

7

De

c-1

7

Jan

-18

Feb

-18

Mar

-18

Ap

r-1

8

May

-18

Jun

-18

Jul-

18

Quess BSE 200 Index

Curr Price / M Cap (Rs cr) QUESS CORP LTD 1,073 15,546


Revenue 3,435 4,157 6,167 8,296 9,702

EBITDA 164 223 354 544 642

PAT 89 113 365 441 513

EPS 7.8 8.9 25.2 30.5 35.4

EBITDA Margin % 4.8 5.4 5.7 6.6 6.6

ROCE % 18.0 12.4 12.8 16.3 16.2

RoE % 29.1 19.0 22.4 16.7 16.4

P/E (x) 0.0 77.2 42.5 35.2 30.3

9

TRENT – CASE STUDY

Profile

Key Catalysts

Increasing penetration to aid higher volume growth and sustainable SSG to drive

industry leading revenue growth.

Private label – key differentiating factor that could help reap operational leverage

benefits.

A complete control of inventory aiding superior return ratios

The Company is one of the key players in branded retail industry in India with a

focus on pursuing robust business models in each of its retail concepts –

Apparels (westside, Zudio), Hypermarket (Star bazaar), fast fashion (Zara,

Massimo Dutti).

Price Performance – Trent vs BSE 200

A unique play on the women’s wardrobe through private labels. Partnerships

with global majors like Zara and Tesco enables them to implement best in class

practices in sourcing and supply chain.


Affordable fast fashion, rising working women population, shift to organized players

-

50

100

150

200

250

300

350

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

Mar

-17

May

-17

Jul-

17

Sep

-17

No

v-1

7

Jan

-18

Mar

-18

May

-18

Jul-

18

Trent BSE 200 Index

Curr Price / M Cap (Rs cr) TRENT LTD 338 11,232


Revenue 1,492 1,738 2,066 2,591 3,233

EBITDA 93 123 201 329 419

PAT 86 107 117 197 262

EPS 2.6 3.2 3.5 5.9 7.9

EBITDA Margin % 6.4 7.3 9.7 12.7 13.0

Westside ROCE % 22.1 22.4 21.8 28.9 29.1

RoE % 6.0 6.9 7.2 11.3 13.7

P/E (x) 61.1 82.9 98.2 57.0 42.9

10

SERVICES SECTOR CLASSIFICATION

Source : Sundaram Asset Management

Financial Services

Retail Lenders

Wealth Management

Insurance Provider

Healthcare services &

Fitness

Hospitals

Diagnostics

Trade, Tourism & Hospitality

Retail

Hotels & Restaurant

Tourism

Transportation

Aviation

Logistics

Business Services

BPM Services

Staffing

Other Services

Media, Entertainment

& Gaming

Telecom/Data Provider

Online Services

Services Sector

11

RETAIL CREDIT: A CATALYST FOR ECONOMIC GROWTH

• Consumer finance is still significantly under penetrated in India as households continue to

remain under-leveraged

• Government and RBI has taken various measures for greater financial inclusion like Jan

Dhan Yojana. Banking penetration has improved to 80% from 53% 3 yrs back.

• Private sector making significant headway across products and geography

• Regulatory reform, rising middle class, financial technology and greater financial inclusion are

set to be drivers for the sector

Retail credit underpenetrated

Source : Bajaj Finance, CSFB, RBI, Sundaram Asset Management

0% 20% 40% 60% 80% 100% 120% 140%

India

Brazil

China

South Africa

Thailand

Malaysia

Singapore

US

South korea

Ireland

UK

Canada

Australia

Netherlands

Denmark

FY09 FY16 FY26E

Others Mortgage Auto

CV's Personal Gold

SME

INR 19.3

lk cr

INR 42.8

lk cr

INR 208.4 lk

cr

Retail credit expected to see quantum jump

MFI has seen very high growth

NBFC

INR.2.8 lk

cr

Sector to see very high growth

Pvt Banks,

INR.8.8 lk

cr

Total M Cap

INR.41.4 lk cr

Total M Cap

INR.28.9 lk cr

FY16 2018 FY26

Pvt Banks,

INR.15.5 lk

cr

NBFC

INR.10.9 lk

cr

12

WEALTH MANAGEMENT: UNDER-PENETRATION A VAST OPPORTUNITY

• Higher wealth in the hands of new generation and expectation of lower inflation in India in future is

leading shift away from traditional and physical assets to financial assets.

• India is seeing increased awareness towards professionally managed wealth. Only 20% of the

HNIs are seen to take advice from financial consultants, showing the extent of under penetration.

• India has around 137,000 Ultra High Net worth Households (UHNH) with a potential net worth of

INR 138 lakh crores but total AUM of the top 10 wealth management firms is less than INR 6.9

lakh crores

• Mutual funds have seen traction of late with AUM growing to almost 25 lakh crores. This can grow

multi fold from current 12% of GDP.

Source : CSFB, IIFL quarterly presentation(Ultra High Net worth Households), Sundaram Asset Management

India’s AUM expected to grow at 18% CAGR by 2025 Equities share of financial savings very low Penetration is low compared to global peers

Scope to “Beat the market”

0%20%40%60%80%

100%120%

Un

ite

d S

tate

s

Ne

therl

and

s

Ca

nad

a

Sw

itzerl

and

Austr

alia

Sw

ede

n

Fra

nce

UK

Bra

zil

Germ

any

South

Afr

ica

De

nm

ark

Fin

land

Austr

ia

Japa

n

Ne

w Z

eala

nd

Spain

South

Kora

Ch

ina

India

Me

xic

o

MF AUM as % of GDP

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Uni

ted

Sta

tes

Sw

eden

Japa

n

UK

Can

ada

Fin

land

Fra

nce

Ger

man

y

Den

mar

k

Sw

itzer

land

Spa

in

New

Zea

land

Bra

zil

Sou

th A

fric

a

Indi

a

Sou

th K

ora

Mex

ico

Indi

a 20

13

Chi

na

Mutual fund equity AUM % of country market cap

0

10

20

30

40

50

60

70

80

FY14 FY15 FY16 FY17 FY18 FY25E

Mutual funds PMS AIF

13

INSURANCE: UNINSURED AND UNDERINSURED

India: Uninsured and underinsured

• Share of Insurance remains low with a large population being uninsured or underinsured

• With rising financialization, both life and non life insurers are expected to see good growth for

many years

• Top private players continue to gain market share and expand their competitive advantage

• Indian insurers are among the best placed globally with better growth prospects,

improving persistency rate, low interest rate risk, stable regulations and improving product mix.

Source : Morgan Stanley, Motilal Oswal, Max Financials, Sundaram Asset Management

UK Japan

France

Australia

Italy Korea

U.S Canada

Germany

Spain

Malaysia

Brazil

Thailand

China

Mexico

India

Indonesia 0.0

1.8

3.6

5.4

7.2

9.0

-200 300 800 1300 1800 2300 2800 3300 3800 4300

Lif

e In

sura

nce

Pen

etra

tio

n (

%)

Premiums Per-capita (USD)

General insurance premium have grown at 16% CAGR in last 18 years

Sum Assured to GDP 270 260

226

166 149

106 96

60

US

Japa

n

Sin

gapo

re

Kor

ea

Mal

aysi

a

Ger

man

y

Tha

iland

Indi

a

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

63 62 62 51 48 46 44

37 38 38 49 52 54 56

FY12 FY13 FY14 FY15 FY16 FY17 FY18

LIC Private

Private insurers: Increasing share of premiums

14

HEALTHCARE: QUALITY SERVICES AT AN AFFORDABLE PRICE

Source : WHO, ASTERDM DRHP, Sundaram Asset Management

17.1

4.7

0.0

5.0

10.0

15.0

20.0

USA U

K

Bra

zil

Ru

ssia

Vie

tnam

Ch

ina

Ind

ia

Mal

aya

sia

Thai

lan

d

Ind

on

esi

a

83.1

30.0

020406080

100

UK

Thai

lan

d

Ch

ina

Mal

aya

sia

Vie

tnam

Ru

ssia

Un

ite

dSt

ate

s

Bra

zil

Ind

on

esi

a

Ind

ia

Total Healthcare as a % of GDP

Govt. spend as a % of Total Healthcare spend

Per 1,000 populations

Healthcare market size (INR lakh crores) Average total medical exp. Per medical case

0

1

2

3

4

India China Bahrain KSA Kuwait UK USA

Beds Phyisician

0

4

8

12

16

20

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

F

2020

F

19.3

3.1

3400 6600

20000

35000

0

5000

10000

15000

20000

25000

30000

35000

40000

1996 2004 2014 2020E

• India has seen significant underinvestment in healthcare, mainly from the government,

with a shortage of 17 lakh hospital beds compared to global average

• Private players, both domestic and international, are recognizing the attractiveness of

industry and making significant investments here.

• Govt.’s Ayushman Bharat scheme providing Rs 5 lac medical insurance cover to almost

half the population will improve health cover

• A large population in need of healthcare, increasing penetration of health insurance and rising income levels offer significant scope for the healthcare industry in India

15

DIAGNOSTICS: INCREASING TREND OF EVIDENCE-BASED TREATMENT

Source :Dr.Lal Pathlabs DRHP, Sundaram Asset Management

2014-15 2019-20P

Diagnostic Service Industry Size

INR 37,700 cr

INR 70,000-75,000 cr CAGR

14-16%

48%

37%

15%

Standalone Centres Hospital based Diagnostic Chain

Large Chains 35%

Regional 65%

Highly fragmented Industry - Shift towards organised

5,655 17,250

32,045 57,750

0%

20%

40%

60%

80%

100%

2015 2020

Organised Unorganised

Improving market share for Organised players Growth in number of samples at a leading laboratory (crores)

1.90 2.17

2.63 2.93

3.47

4.67

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

FY14 FY15 FY16 FY17 FY18 FY20E • India’s spends as a % of GDP at 4.7%, stand much lower than global peers, with the US

the highest at 17.1%

• Metros, Tier 1 & 2 cities broadly contribute 67% of the diagnostics industry and the rest

33% come from the Rural segment

• The Indian diagnostics industry is expected to grow at a CAGR% of ~14-16%, touching

INR 75,000 crores in 2019-20

• Increase in the incidence of lifestyle diseases and evidence based treatment, rising

awareness and affordability of healthcare are the key drivers

16

RETAIL: PLAYING THE RISING CONSUMER WAVE

India’s retail industry, USD bn.

Source : India Brand Equity Foundation, Edelweiss Research, Sundaram Asset Management

Retailing jumps when GDP/ capita crosses USD 2000. Sector has just started becoming organized

• The pace of shift from unorganised to organised is accelerating due to increasing preference for the

brands/organised industry, and decreasing unit economics for unorganised players under the GST

regime.

• With GST, the organised segment share is expected to grow to 13% from single digits and the

sector is expected to reach INR 89.7 lakh crore by 2020

• India's demographics apart, increasing consumer demand, rising purchasing power, growing private

investment and favourable government investment and regulation drive growth.

• Ecommerce will be a threat to some, pose challenges to some and present an opportunity to the rest given

omni channel necessity. Online retail is expected to touch INR 4.8 lakh crore by 2020

17

TRAVEL, TOURISM AND HOSPITALITY: ENERGISED BY VIBRANT INDIAN GROWTH

Source : WTTC, Tourism India, Sundaram Asset Management; Lemon Tree DRHP

Foreign tourist arrivals are increasing in India

Tourism total cont. to GDP (INR Lakh Crore) Hotel Utilisation set to improve India has massive shortage of hotel rooms

Region

Supply of

hotel rooms

(Lakh)

Population

(crore)

Penetration

Rooms per

1000

World 162 734.9 2.2

USA 50 32.1 15.7

India 2 121.1 0.2 50%

55%

60%

65%

70%

75%

80%

85%

90%

-15

-10

-5

0

5

10

15

Dec

-12

Apr

-13

Aug

-13

Dec

-13

Apr

-14

Aug

-14

Dec

-14

Apr

-15

Aug

-15

Dec

-15

Apr

-16

Aug

-16

Dec

-16

Apr

-17

Aug

-17

Dec

-17

Apr

-18

Occupancy rate (%, RHS) Average room rate (% YoY)

134.8

188.5

6.6 9.3 17.4

34.0

0

50

100

150

200

1998 2008 2018 2028E

United States China India Thailand UK

-5.0

-

5.0

10.0

15.0

20.0

3

4

5

6

7

8

9

10

11

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

FTA YoY Gth% - (RHS)

• From INR 17.4 lakh crore contribution to GDP in 2018, Indian tourism is expected to touch

INR 33.9 lakh crore by 2028

• This sector has multiplier effects into hospitality, recreation, retail and food & beverage sectors

• Rising FDI and foreign leisure tourists are drivers, supported by Govt’s policies

• Improved connectivity through Air, Surface is an enabler

18

AVIATION: TAKING OFF AS THE FASTEST GROWING MARKET

• After the liberalisation measures taken by the government in 2003, the Indian

travel market saw rapid growth

• 2016 witnessed India overtaking Japan as the third biggest aviation market in

the world, according to the CAPA Centre for Aviation.

• As the fastest growing aviation market, total passengers handled grew by 17%

p.a. of which 75% were domestic passengers growing by 21% p.a

• The expanding middle class, Rail travel substitution, strong tourism growth,

population growth and economic prosperity are the key drivers

• Total aircraft movements in India are expected to grow to 4.3mn by 2023

Source : World Bank data, CMIE, Sundaram Asset Management

Total Aircraft movements in India in millions

Air transport, passengers carried in millions

140 124

0

100

200

300

400

500

600

700

800

900

1977 1987 1997 2007 2017

India China United States Japan

- 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

FY0

2

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3

FY1

4

FY1

5

FY1

6

FY1

7

FY1

8

FY1

9e

FY2

0e

FY2

1e

FY2

2e

FY2

3e

19

TRANSPORTATION AND LOGISTICS: FACILITATING AND BENEFITTING FROM GROWTH

Source : Alvarez Marsal, Sundaram Asset Management

Size of Logistics Industry (INR Lakh crore)

World bank Logistics performance Index:

E-tail market in India (INR thousand crores) E-tail logistics Market Size (INR thousand crores)

6.9

34.5

379.5

0

50

100

150

200

250

300

350

400

FY11 FY15 FY21E

+47 +51

+57%

0

5

10

15

20

25

30

FY15 FY2050

70

90

110

130

150

170

190

210

230

250

2015 2017 2020 2023

Global India

INR 9 lk cr

INR 559 lk cr

INR 20 lk cr

INR 1070 lk cr

• Govt. policies on E-way bill and GST, push towards faster deliveries (same day, just in time

deliveries), multiplicity of Stock Keeping Units (SKUs), supply chain redesign is shifting

industry towards Organised players

• The sector sees strong demand from E-tail, Retail, Auto FMCG and pharma sectors of the

economy

• Logistics industry has invested significantly in improving the infrastructure as evident from

sharp improvement in World Bank’s Logistics Performance Improvement ranking from 54 to

35.

• Expected to touch INR 20 lakh crore by 2023, translating to a CAGR% growth of 10.5%

LPI Ranking 2010 2012 2014 2016

India 47 46 54 35

China 27 26 28 27

USA 15 9 9 10

Rebased to 100

20

TEMPORARY AND GENERAL STAFFING: CLOSELY WEDDED TO THE INDIAN GROWTH STORY

Source : KPMG, Motilal Oswal, Quess Corp DRHP, Sundaram Asset Management

2.1

6.5 6.8 7.6

11.3 12.1

India Russia Brazil China UK USA

Share of staffing services as a % of GDP

Revenue of temporary staffing market (INR ‘000 crores)

38.5 45.7

54.3

64.6

76.9

91.8

2014 2015 2016 2017 2018 2019

• India's Temporary and General staffing services is a nascent industry which has grown at

20% CAGR over last 10 years

• India’s share of staffing services at 2% of GDP versus BRIC nations, such as Russia, Brazil

and China, business services stands at more than 6% of GDP

• These companies offer security services, facility management services, cash management

services, industrial asset maintenance services in addition to flexi staffing.

• Increasing competition, margin pressure for companies and the need for flexi-staffing are

the key forces helping this industry

• Growth in sectors like Telecom, Retail, BFSI, Healthcare and BPO segments drive the

demand for this sector

• Industry is dominated by large number of unorganized players who are losing market share

to the organized segment post GST implementation and other labor reforms.

21

BPM AND IT-NICHE SERVICES: SET TO TAP INTO ABUNDANT OPPORTUNITIES

India most attractive for services globally

Source : India Brand Equity Foundation, Statista, CIMB, Sundaram Asset Management

India BPM revenues (INR lakh crore)

3.0

3.2

2.5

2.8

2.3

3.3

1.5

1.6

2.0

1.4

2.8

2.5

1.4

1.2

1.5

1.9

1.3

1.2

0 1 2 3 4 5 6 7 8

Thailand

Indonesia

Brazil

Malaysia

China

India

Financial Attractiveness People skills and availability

Business environment

0.68 0.81

0.97 1.10

1.23 1.38

1.59 1.68

1.79 1.93

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

ER&D spend (US$bn) CY 2015 CY 2016 CY 2017 CY 2018e Global 1000 companies' R&D spend

680 680 702 730

%change 5.10% 0.00% 3.20% 4.02%

India total ER&D revenues 22 24 27 31

%change 11.90% 10.60% 12.10% 13.80%

India exports - IT & BPM 85 91 97 104

%change 8.80% 7.10% 6.60% 7.50%

India exports - ER&D 20 23 25 28

%change 11.10% 12.50% 11.10% 12.80%

Third party India exports -ER&D 8 9 10 11

%change 14.70% 12.70% 12.40% 13.20%

ER&D India is a preferred destination for global ER&D Spending :

0

20

40

60

80

100

120

CY1

1

CY1

2

CY1

3

CY1

4

CY1

5

CY1

6

CY1

7

CY1

8e

CY1

9e

CY2

0e

CY2

1e

CY2

2e

CY2

3e

CY2

4e

CY2

5e

CY2

6e

CY2

7e

Market volume in billion (US dollars)

Big data market size revenue forecast worldwide

• Increasing spends by companies on BPM Services to establish themselves in the market

place and sharpen their competitive edge over their peers and has seen tremendous growth

and has matured in its value chain

• From a simple outsourcing model on labour cost arbitrage to a complex one with myriad

offerings including high end niche services like research, analytics, big data, digital

transformation, Cloud, mobility etc.

• India’s large talent pool ensures sufficient supply for IT/ BPM services

• India is market leader commanding 38% of total outsourcing market of BPM services

22

SERVICES SECTOR CONTRIBUTES SIGNIFICANTLY TO EXPORTS

Source : CEIC, Sundaram Asset Management

• India's services sector has grown manifold in product offerings and value creation

• India's technology related services tend to nearly 75% of all fortune 500 companies

• Government has started SEIS (Services Export Incentive Scheme) to encourage services exports

Services exports as a % of total exports

30

32

34

36

38

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY1

7

FY18

23

MEDIA AND ENTERTAINMENT: RIDING ON THE DEMOGRAPHIC WAVE

Media spend as a % of GDP

Source : KPMG, Sundaram Asset Management

Indian M&E industry Size in lakh crores

0.4%

0.9% 1.0%

0.8% 0.9%

0.8%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

India UK US China Japan World

Internet users(in crores) - Adoption of high speed 4G

8%

11%

9%

20%

14%

8%

12%

6%

12% Auto

BFSI

Consumer durables

E-Commerce

FMCG

Media & Entertinment

Others

Retail

Telecom

E-Commerce leads digital ad spends :

0

20

40

60

80

100

2016 2017 2018 2019E 2020E 2021E

Wired Wireless

Segment 2016 2017 2018E 2019E 2020E 2021E

Television 0.6 0.7 0.8 0.9 1.0 1.2 14.7

Print 0.3 0.3 0.4 0.4 0.4 0.4 7.3

Filmed Entertainment0.1 0.2 0.2 0.2 0.2 0.2 7.7

Digital Media 0.1 0.1 0.1 0.2 0.2 0.3 30.8

Animation 0.1 0.1 0.1 0.1 0.1 0.1 17.2

Online Gaming 0.03 0.04 0.04 0.05 0.06 0.07 18.2

Others 0.1 0.1 0.1 0.1 0.1 0.1 14.3

Total - Industry 1.3 1.4 1.6 1.8 2.1 2.4 13.9

CAGR

- 2016-21 %

• The Indian digital media expected to grow at a rapid pace with a CAGR of 30.8% until 2021.

• Urbanisation, youth penetration, rising literacy, education, digitization and regionalization,

spending power and need for entertainment options are the growth drivers

• Over The Top (OTT) streaming media players have disrupted the broadcasting space

globally. In India, both broadcasters and content providers are launching their own OTT

offering to benefit from this transition.

• Indian M&E sector reached INR 1.4 lakh crore in 2017, a growth of almost 11.6% over

2016.With its current trajectory, expected it to cross INR 2.5 lakh crore by 2021,at CAGR of

13.9%

24

ONLINE SERVICES: INVESTING IN UNICORNS

Growth in GMV of online food delivery companies Graduate entry level job search has completely moved

online Etail will continue its 40% CAGR for a long time (USD billion)

E-tailing, travel and fintech has dominated fund

raise in 2017

2017-20

CAGR

Online Sector gth 2012 2017 2020 (%)

Unorganised retail 370 632 822

9.2

Organised B&M retail/E-tail 28 67 119

21.1

E-tail 1 16 50

46.2

Total 399 715 991

11.5

42%

26%

18%

8% 5%

1%

E-tailing

Travel

Fin-tech

Services

Others

Classified

0

1000

2000

3000

4000

5000

0

5000

10000

15000

20000

25000

2017 2018 2019 2020 2021Orders per month in Cr - (LHS)Annual online food delivery GMV (Rs cr) - (LHS)Implied revenue of food delivery companies (Rs cr)

Source : Kotak Securities, Axis Capital, Jefferies, Nomura, Sundaram Asset Management

• With increasing penetration of smartphones and cheap data rates, India has seen explosion

in online services and emergence of many home grown unicorns

• These players have led to disintermediation of system by providing services such as

retailing, food, travel, recruitment, education etc to consumers anytime, anywhere through

their phone

• These companies have raised $24bn from large private equity players in last 5 years but

after attaining a certain scale and profitability they will list in equity market

• Given “winner takes all” attribute of online services, only 2-3 players will survive in each

segment and they will make the most moolah in long term.

25

ONLINE SERVICES: INVESTING IN UNICORNS

Source : Kotak, Sundaram Asset Management

Credit Services

Investment Services

Marriage Services

Hiring Services

Transport Services

Food Supplier

Convenience Services

Retail Services

Marketplace Services

Zomato & Swiggy

Book my Show

Grofers, Big Basket

Flipkart & Amazon

Flipkart – Walmart & Amazon – Catamaran

Venture

Grofers - Sequoia Capital,

SoftBank Corp & Big Basket – Abraaj Capital,

IFC

Book my Show - Stripes Group, SAIF, Accel India

Zomato - Temasek,

Vy Capital & Swiggy - Naspers,

Coatue Mgmt.

Policy Bazaar &

Value Research

Matrimony &

Jeevansathi .com

Naukri & Shine

Lynk, Delhivery,

OLA

Policy Bazaar - Temasek,

Tiger Global etc…

Matrimony- Mayfield, Canaan

Partners etc…

Naukri - Sherpalo

Venture, ICICI Venture

Delhivery – Carlyle, Nexus

Venture, OLA - Falcun

Edge Capital,Tekne Capital etc…

Bank Bazaar Experian

26

SERVICES SECTOR OVER THE YEARS HAS ATTRACTED THE HIGHEST AMOUNT OF FDI

Source : CMIE, PE-deals – Jefferies, Sundaram Asset Management

• The Services sector has consistently attracted steady FDI flows with record flows in FY18

• Services contributed 51% of total FDI flows

• Financial services accounted for 15% of total FDI

FDI inflows into Services (USD Bn.)

S.No Date Company

Fund

Raised in

CY18 (US

$ mn)

Category Investor (s)

1 May-18 Flipkart 2000 E-tailing Walmart

2 Feb/Jun-18 Swiggy 310 Services Naspers, DST Global, Meituan-Dianping

3 Feb-18 Bigbasket 300 E-tailing Alibaba, Abraaj, Bessemer Venture

4 Jun-18 Policy Bazaar 200 Fin-Tech Softbank, Info Edge

5 Feb-18 Zomato 150

Services/

Classified Ant Financial

6 Feb-18 Gaana 115 Services Tencent Holding

7 Feb-18 LendingKart 87 Fin-Tech Fullerton Financial Holdings

8 Mar-18 Grofers 62 E-tailing Tiger Global, Softbank

9 Feb-18 Udaan 50 E-tailing Lightspeed VP, Lightspeed India

Online Services Companies which raised US$ 50 Mn or more in CY18 YTD

0

5

10

15

20

25

30

35

40

45

50

FY09 F10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Services Non Services

27

SUNDARAM SERVICES FUND – FUND DETAILS

1

• An open-ended Equity Scheme

• The Fund will invest in companies that are part of the Services sector of the economy. Services sector includes Healthcare,

Fitness, Tourism & Hospitality, Transportation & Logistics, Staffing, Wealth management, Insurance, Retail credit, Media, Retail,

Internet & Online services, Aviation, Legal, Architecture, Design services, etc.

• The Fund will invest in a well diversified portfolio of large cap, mid cap and small cap stocks – Multi cap portfolio offering

investment opportunity across the cap curve

• Scheme opens for subscription on 29/08/2018 and will close on 12/09/2018

• Scheme reopens for ongoing subscription/redemption - 26/09/2018

• Benchmark – S&P BSE 200 Index

• Fund Managers - S Krishnakumar, Rahul Baijal & Rohit Seksaria

28

INVESTIBLE UNIVERSE

• 31 companies

• Aggregate Market Cap : INR 30.6 lakh crores

Large Cap

• 40 companies

• Aggregate Market Cap : INR 6.6 lakh crores

Mid Cap • 122+ companies

• Market Cap: INR 4.0 lakh crores +

Small Cap

Source : Sundaram Asset Management, Excluded IT-Services which has a Market cap of 16 lakh crore

The above numbers indicate that 193+ companies are engaged in Services with a

total market capitalization of Rs.41.2 lakh crore +

29

MULTI CAPS OFFER THE BEST RISK RETURN TRADE OFF

Rolling return analysis – 5 years

Source : Sundaram Asset Management; A common start date (April 1, 2003) has been chosen which is from commencement of the most recent index: BSE Small Cap Index

BSE 200 has the highest average return among the 4 indices and the joint highest number of positive

return periods and the second lowest minimum return.

Sensex BSE Mid Cap BSE Small Cap BSE 200 Rank

Periods 3,775 3,775 3,775 3,775

Average Return (% p.a) 12.4 12.0 11.1 12.5 1

Minimum Return (% p.a) -1.5 -6.5 -11.7 -2.0 2

Maximum Return (% p.a) 42.7 49.7 58.2 43.7 3

% of Positive Return Periods 98 87 83 98 1

30

MULTI CAPS OFFER THE BEST RISK RETURN TRADE OFF

VIRTUOUS CYCLE VICIOUS CYCLE VIRTUOUS CYCLE

Source : Bloomberg, Sundaram Asset Management . Data as of June 30, 2018

Apr-03 Jan-08 CAGR (%) Jan-08 Oct-13 CAGR (%) Oct-13 Jun-18 CAGR (%)

S&P BSE Sensex 3,168 20,873 49% 20,873 21,165 0% 21,165 35,423 12%

S&P BSE 200 375 2,725 52% 2,725 2,490 -2% 2,490 4,608 14%

S&P BSE Midcap Index 950 9,817 63% 9,817 6,107 -8% 6,107 15,451 22%

S&P BSE Small Cap Index 885 13,516 77% 13,516 5,896 -13% 5,896 16,032 24%

31

INDIA SERVICE SECTOR INDEX – OUTPERFORMED ACROSS CYCLES

Source : Sundaram Asset Management Service Index : Selected Service based companies from current BSE 200 Index and weighted it on historical market cap basis.

796.0 844.2

4,650.3

493.4 510.5

1,019.5

0

1,000

2,000

3,000

4,000

5,000Ju

n-0

3

Jun

-04

Jun

-05

Jun

-06

Jun

-07

Jun

-08

Jun

-09

Jun

-10

Jun

-11

Jun

-12

Jun

-13

Jun

-14

Jun

-15

Jun

-16

Jun

-17

Jun

-18


Virtuous Cycle Vicious Cycle Virtuous Cycle

Begin End Returns Begin End Returns Begin End Returns

Apr-03 Jan-08 CAGR Jan-08 Oct-13 CAGR Oct-13 Jun-18 CAGR

Services Index 100 796 55% 796 959 4% 959 4650 39%

BSE 200 Index 375 2,725 52% 2,725 2,490 -2% 2,490 4,608 14%

VIRTUOUS CYCLE VICIOUS CYCLE VIRTUOUS CYCLE

32

DISCLAIMER

Past performance may or may not be sustained in the future

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, scheme information document, offer document, offer and solicitation, to name

a few, 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 in formation 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. Copies of the Statement of Additional Information, Scheme

Information Document and application form with key information memorandum may be obtained from the offices of Sundaram Mutual offices and its authorized

distributors or downloaded from www.sundarammutual.com For scheme specific risk factors, asset allocation, load structure, fund facts and taxation aspects

please refer scheme information documents available online and at branches/Investor Service Centres; also at www.sundarammutual.com.

Statutory: Mutual Fund: Sundaram Mutual Fund is a trust under Indian Trusts Act, 1882 Sponsors. Liability for sponsors is limited to ₹ 1 lakh. Sponsors:

Sundaram Finance.

Investment Manager: Sundaram Asset Management Company. Trustee: Sundaram Trustee Company.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully

sundaram services fund · 2018. 9. 5. · services plays a leading role in the economy source :...

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