How do we decide composition of small,mid and large caps in the portfolio
We have put together a brief note explaining how we decide the composition of small, mid, and large caps in the portfolio.
Read MoreRationale for trimming position size in Life Insurance to 15%
We had an overweight position in Life Insurance (upto ~20% allocations in some accounts). We find this to be a very attractive industry and found valuations strongly in favor when it was hard to find value elsewhere. However, the industry has seen two regulatory actions in the last 24 months on tax saving products.
Read MoreInvestment thesis on Restaurant Brands Asia
We published our investment hypothesis on RBA which operates Burger King India (BK India) and Burger King and Popeyes franchises in Indonesia on Pg 7 of our Q1FY23 Letter.
Over the last few months, we received some relevant questions on Quick Service Restaurants (QSRs) as well as RBA from partners and other colleagues in the Investment industry. This note attempts to answer these questions. Please read the thesis above before reading further.
Read MoreThe shadow of Private Equity ownership on our buying decisions
The purpose of our letters and occasional blogs is to provide transparency in how we are thinking with the goal of creating stronger alignment with partners who want to think and act long-term.
Two companies in our portfolio – STAR Health Insurance and Restaurants Brands Asia – have existing Private Equity (PE) shareholders looking to exit. Everstone is looking for a buyer for its stake in RBA. Similarly, there are a few PE investors in STAR who are looking to sell their stake.
PE funds have a finite life and need to return capital. The shadow of these exits often results in a weakness in stock prices till the exit is complete. For example, one of the PE investors in STAR sold a large stake via a block deal last Friday at a discount to the prevailing market price which resulted in a 8% drop in price.
Read MorePMS vs Mutual Funds vs Alternate Investment Fund
Enclosed note contains our perspectives on suitability of PMS structure versus other investment vehicles.
Read MoreImplications of global repricing of risk
We have put together a brief note explaining implications of global repricing of risk.
Read MoreWhy not sell if we are concerned that Small and Microcaps are overvalued
We have put together a brief note explaining why we are not selling despite our concerns around over valuation in Small and Microcaps.
Read MoreOur approach to building Solidarity
Enclosed note discusses our approach to building the firm.
Read MoreA perspective on churn
We have put together a brief note to explain our perspective on portfolio churn.
Read MoreWhy have we continued to buy Star Health
The price of Star Health corrected significantly from our first purchase price. We have continued to buy on the way down and are now at an 8% position weight.
Original investment thesis
The industry provides a rare combination of “win-win-win” business with growth longevity, a strong moat and healthy ROEs.
- Consumers: It’s a must have product for consumers as Health issues can bankrupt families and should have priority in the Consumer wallet.
- Regulator: Wants more insurance coverage and hence should not grudge the industry a ~15% accounting ROE. There isn’t enough history in India for companies to model claim ratios over time (unlike Life Insurance where LIC has mortality tables). So the regulator permits price increases when product claim ratios becomes adverse. Star just announced an average 25% price increase in its flagship product.
- Company: Can grow premium at 15-18% CAGR for a decade (1.5%% natural increase in population growth, enhanced retail health insurance penetration (currently 4%), 6-7% medical inflation and 5-10% increase in covers with rise in Incomes) at 16-18% accounting ROEs.