Quarterly Update June 2021
Investment Objective Holding Companies
RW Investment Advisors uses a proprietary framework that combines Asset Concentration Holding
fundamental and technical factors to identify businesses that can
No. of Companies 32
create long term wealth. The guiding philosophy is capital protection
Top 5 Company Holdings 26.0%
and compounding over longer periods.
Top 10 Company Holdings 45.2%
Highest Exposure BAJFINANCE (7.9%)
Chart 1: RW Strategy Performance since inception (TWRR)
Sector Allocation
Sectors Allocation (%)
22.3%
BFSI 29.6%
Consumer 14.1%
16.1%
Pharmaceutical 13.3%
14.6%
Technology/Services 11.0%
Others 9.7%
Market Capitalization
Market Capitalization Holding (%)
Large Cap 64.7%
RW Strategy NIFTY TRI NIFTY MIDCAP 100 TRI
Mid Cap 20.8%
Small Cap 14.5%
Avg. Market Cap (Rs. Bn) 1,803
Top Performers
Qualitative Analysis
Scrip Name Purchase Avg. Buy Price Price on 30- Growth (%)
Date (Rs.) 06-2021 Parameters TTM
LAURUSLABS 05-Aug-20 217 689 217% PAT Growth 56.3%
PE 64.8x
KPITTECH 22-Sep-20 111 260 134%
ROE 20.0%
ASIANPAINT 01-Sep-17 1,352 2,993 121%
SHAILY ENGG. 07-Dec-20 735 1,610 119%
BAJFINANCE 08-Jun-20 2,950 6,016 104% Holding Period
Holding Period No. Of Scrips
Less than 1 Year 25
Between 1 to 3 Years 5
More than 3 Years 2
Disclaimers and Risk Factors
RW Strategy Inception Date: 17th December, 2013, Data as on 30th June, 2021. Data Source: RW Internal Research. RW Strategy results are for an actual Client
as on 30th June, 2021. Returns of individual clients may differ depending on time of entry in the Strategy. Past performance may or may not be sustained in
future and should not be used as a basis for comparison with other investments. The stocks forming part of the existing portfolio under RW Strategy may or
may not be bought for new client. The Company names mentioned above is only for the purpose of explaining the concept and should not be construed
as recommendations from RW Advisors. Strategy returns shown above are post fees and expenses.
RW Investment Advisors LLP is registered with SEBI as an Investment Advisor (INA200004342) and is subject to its rules & regulations
Returns (TWRR) - Yearly Strategy Performance (TWRR)
72.5% 90.0%
67.5% 77.0%
80.0% 75.3%
70.0%
38.3% 35.9% 60.0% 54.6%
28.2%
20.2% 50.0%
14.0% 16.5% 16.4% 40.8%
11.8% 11.2% 7.5% 40.0%
4.2%
30.0%
20.8% 21.9% 22.3%
FY15 FY16 FY17 FY18 FY19 FY20 FY21 Q1FY22 20.0% 15.0% 15.1% 14.6%
-7.8% -2.5%
10.0%
-25.0%
0.0%
6 Months 1 year 3 years 5 years Since Inception
RW Returns NIFTY 50 TRI
RW Returns NIFTY 50 TRI
Q1FY22 ends 30th June 2021
8 years is a long time in investing, almost the time compounding starts to show its impact – I am pleased to see
5% plus alpha for RW strategy and for most clients across time frames.
FY18 and FY19 were the most gruelling years, which was also the time, when we shifted the strategy from
buying cheap stocks to buying stocks with higher growth, after considerable deliberation.
One question, that I noticed, is top of the mind for most clients – is the
market going to correct now?
It is very instinctive to worry about the next market correction for all
of us because of the short-term impact on the portfolio. In the 90
months, that we have operated, a staggering 40% of the time market
(Nifty 50 index) gave negative returns alongside a barrage of
negative news. Despite this, we managed to pull off the results
above, which should allay some of your concerns on interim market
corrections. And the reason for this is investing in “strong businesses”
- like the proverbial friend in need, they outperform in the worst of
times. Especially with the set of companies that are going to IPO, we
are likely to have an even better universe.
Source: New Yorker
In the last one year, we have had multiple interns working at RW on several aspects of investing that we
brought forth in our quarterly updates. Their energy levels were palpable, and we hope to see some of them
take up investing full time and become successful investors.
RW Investment Advisors LLP is registered with SEBI as an Investment Advisor (INA200004342) and is subject to its rules & regulations
Recently, one of the family offices that we were in discussions with, asked our portfolio strategy and its evolution
since inception. We thought it would be appropriate to cover those details in this update in the benefit of all
our existing clients:
Dravid picks the uppercut from Sehwag – Our drift towards growth investing:
“2021 U.S. Investing Championship July 31
Trends since inception results.
https://t.co/mN2Kl28gqh
40% 30%
35% 26%
25% 25% 25% Mark Minervini, the 56-year-old trader is
30% 23% 22%
22% 21% 22% 22% 21% way ahead of the competition at 227%
20% 20%
20% return for Jan to July 2021”
25% 18%
20% 15%
"...if a business earns 18% on capital over
15%
10% 20 or 30 years, even if you pay an
10% expensive looking price, you'll end up with
5% a fine result."
5%
0% 0%
Charlie Munger
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Feb-16
Feb-17
Feb-18
Feb-19
Feb-20
Feb-21
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
TTM PAT Growth ROE
It is probably not a coincidence that portfolio returns for RW strategy are close to the return on equity that our
portfolio generates. At a fundamental level, portfolio companies are so solid that they consistently generate
20 paisa on a rupee of investment every year - 5 times the fixed deposit rates! Investing in such businesses has
been our DNA since inception. What has changed though is the growth aspect after investing in slow growers
like Jagran Prakashan, Bajaj Corp, ITC, Jyothy Labs, Kewal Kiran etc.
In the first 3.5 years, profit growth of the portfolio averaged around 16%. Starting FY18 or so, profit growth for
the portfolio has been averaging 24% - a good 800 bps shift. Strong profit growth in great businesses is like a
jet pack for stock prices.
Another aspect of learning is that the Market can give rich valuations to growth stocks – something which we
learnt the hard way in Happiest Minds, Titan. Multiple growth stories like these over the last 8 years have taught
us to decrease our focus on initial valuations. DMart is another stand-out example of this theory in our portfolio.
Valuations for great businesses can look very expensive as the Total Addressable Market (‘TAM’) expands in
unexpected ways – Like D-Mart Ready, the online business in case of D-Mart. It is in these situations that
durability of growth aspect needs to be tested time to time.
Another example of new unforeseen segments that emerged for a company is Gland Pharma. Starting out,
the thesis on the company was 1) strong presence in the US injectables space 2) Bio similar entry in Chinese
market and 3) strong regulatory track record. TAM suddenly expanded due to vaccine fill and finish
opportunity and now the company is talking about contract manufacturing in the Biologics space through
parent’s (Fosun) relationships in the global markets. Multiples rerated 50% in six months’ time.
Ideally, we would like to see both growth and RoE of our portfolio stocks trend up over the next 3 years.
RW Investment Advisors LLP is registered with SEBI as an Investment Advisor (INA200004342) and is subject to its rules & regulations
Finish First than First Finish approach – Large Cap strategy with flexibility
31-Q Avg. Size Weight Average market capitalization of the portfolio since inception
is INR 1.3 tn
Large Cap 63%
Large cap polarization was highest in FY20 at 82% vs FY15-19
average of 60%; FY21 average was 67%.
Mid Cap 23%
For a period of 20 Qs - Q3FY16 to Q2FY21 – average Small Cap
Small Cap 14% exposure has been 5%.
The key feature of the portfolio is not the returns in absolute but the strong defensive nature relative to the
market. The portfolio has outperformed NIFTY TRI significantly in February 2016 and March 2020 sell-offs – 14.3%
and 22.1% out-performance respectively. The defensibility of the strategy is due primarily to large cap nature
of the portfolio and key cash calls taken at critical junctures.
The average stock count from Q4FY15 to Q4FY20 (Pandemic Event) is 21. While this has certainly gone up –
Average of 28 from Q1FY21 to Q1FY22 – the key factor has been broad based growth. In hindsight, the pre-
pandemic years were a phase of reform for the Indian economy with policy changes directed towards its
formalization & digitization. If the growth remains broad-based, we are comfortable with 30 stocks on average
and looking for growth businesses in mid and small caps as well.
On average, ~70% of portfolio is invested in secular stories
(BFSI + Consumer)
Auto weight peaked in Q2FY19 at 17%
Others include Contract manufacturers, Building Materials,
Healthcare providers & other niche companies.
The focus has always been to keep the portfolio defensive and quality high. We prefer sectors with secular
stories and buy the strongest names (market leaders) within those sectors. This should not be construed as
being opposed to investing in cyclicals.
Since inception, Banking, Financial Service, and Insurance (BFSI) has been 35% of the portfolio on average.
Post-pandemic – Q1FY21 to Q1FY22 – BFSI has been 32% of portfolio on average. We consider BFSI and
Consumer to be the key secular sectors in Indian economy. As such, both has been ~70% of the portfolio on
average. As new-age businesses like Nykaa get listed, portfolio weight in IT/ecom may take precedence over
BFSI/Consumer.
RW Investment Advisors LLP is registered with SEBI as an Investment Advisor (INA200004342) and is subject to its rules & regulations
Why have we Invested in Apollo Hospitals?
o Company is the market leader in core healthcare business and is past the massive capex phase
o Newer hospitals have turned around – margins can expand from the current 8% (4Q21)
o Capex was consistently above 100% of cash flow from operations for a decade until FY18 and
has now reduced to 40%
o Diversified away from the healthcare business (53% of the rev) and has been successful in building a
phyigital eco system
• Apollo 24/7 i.e., digital + pharmacy creates a strong option value (detailed below)
• Diagnostics + primary care (AHLL) has turned around and is scaling well too
o Apollo 24/7 – strong option value either as a retail or a digital proxy – Could be valued as high as the
current hospital biz
• Recently carved out (slump sale) for higher focus and getting an external investor
• Engagement metrics are top notch - ~ 13 mn customers, 7000 doctors, 10K pin codes, 2-hour
delivery
• About 4000 pharmacies linked at the back end – likely to grow 18% over the next 3 years
• At this scale it is the largest, profitably retail + digital pharma play in India
o Easily deserves Nykaa multiple; Pharmeasy took out Thyrocare at EV/Rev of 12.5; itself
valued at $ 4 bn and potential IPO at $ 9 bn!
o Could be very valuable after an external fund raise – INR 30 to 35 K crores (now) moving
to INR 50 K crores in the next couple of years
o Can potentially contribute 50% of the current market cap
o Even if we assume the above assumptions are wrong – Core business of Healthcare provides downside
protection in an adverse scenario and can be easily valued at INR 35 to INR 40 K crores given industry
leading standards and metrics plus it’s a defensive
o If Digital unlocking happens through fund raise, then stock could double in 4 years.
o Key Risks: Promoter Pledge (28%)/Complex Corporate Structure RPTs/Govt. regulation
Key Assumptions:
• EV/Sales (FY22) for global Digital
health players are 10 x for Teladoc and 7 x
for Ping an Good doctor
• EV/Sales (FY22) for Nykaa likely to
be around 12 x
• Pharmeasy acquired Thyrocare at
12.5 x (FY22)
• We assumed EV/Sales of 7 x – since
digital engagement metrics of
Apollo247 are half that of Pharmeasy
RW Investment Advisors LLP is registered with SEBI as an Investment Advisor (INA200004342) and is subject to its rules & regulations
