Old Bridge AIF – Long Term Equity Fund

Fund Snapshot

Investment Philosophy

Focus on locating companies at the beginning of a cycle. The underlying businesses in the portfolio would exhibit sound financial management and leadership qualities. The goal would be to find businesses in sectors that are consolidating.

Investment Objective

The investing goal is to find businesses that exhibit strong leadership and financial discipline. The goal would be to find businesses in sectors that are consolidating.

Pay Attention To Supply-Side Economics Supply Is Consistent

• Capacity utilization
• Balance Sheet Growth

Demand Is An Extrapolation Of Past Growth Rates 

Industry Capital Cycles: It is important to capture these cycles

• Anticipate v/s participate

Focused Industries

Monopolistic/Consolidators of the Industry

• Preference for consolidating businesses
• Companies gaining market share with no change in capital employed
• Companies with the lowest cost in their industry
• Leaders at the end of consolidating cycle usually end up with higher market share and pricing power

Capital efficient business

• Companies that migrate upwards from a low RoE
• Look for capital employed to be controlled
• Cash flow positive nature of the business with low gearing

Low Financial Leverage

• Companies with negligible debt
• Businesses leveraging into an economic upcycle & deleveraging at the top of the cycle

Low valuations

• “Out of favour” businesses where the current value of the stock reflects its depressed earnings
• EV / Sales
• Market Cap / Cash Profit (Flows)

Investment Strategy

• In a sector that is consolidating, align with effective capital and avoid market fragmentation.
• Concentrate your portfolio around the industry’s most lucrative value chain.
• The need for balance sheet discipline

Leaders amongst the laggards

• Consolidators with experience across cycles
• Dominant market share in their segment
• Unleveraged balanced sheets
• It should be the first off the block in the next cycle

Compounding the effect of Valuation & Growth

• Low growth and low valuation, if the former reverses, PEx will expand
• Visibility of growth, order books in place
• Have stayed away from crowded segments where valuations already discount expected growth

Focus On “What We Can Control” & Not The “Macros”

• Lowest cost operators in the Industry
• Survivors of the last capital creation cycle
• Lead market share growth
• Corporate Governance quantified through financial parameters

Current Strategy Themes

Manufacturing/External Bus. & Commodities

• Due to several challenges, the world’s largest manufacturer needs to contribute to the global supply chain.
• Utilize India’s specialized manufacturing sectors, which have become world leaders in cost.
• Because traditionally, they have been underperformers, valuations and business models in this sector have been disregarded.

Energy-Related

• As mentioned above, businesses that use a backward value chain will continue to use a lot of energy.
• Utilities will migrate due to the changes and incremental investment in alternative energy.

Urban Consumption

• Businesses in the financial services and technology sectors are linked with pay growth.
• Due to the development of new business models and the recovery of the economy, the cash flow of the survivors will increase.
• Lowest borrowing rates ever

Agri

• Agri-products price increases
• The profitability of corporations is at an all-time high, yet valuations are still fair.

Digitization

• The main force behind these firms, which plays into both of the aforementioned market categories, is social alienation
• Profitable industry, costly values, yet almost all of these businesses are seeing rapid expansion.

Investment Philosophy

We concentrate on identifying businesses early into the cycle. The underlying companies in the portfolio would demonstrate leadership skills and have financial discipline. The endeavor would be to look for companies in industries that are consolidating.