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ACATIS manager on India's golden equity opportunities

ACATIS manager on India's golden equity opportunities

Citywire + rated manager Siddhart Mehta-Thomas, who runs the ACATIS India Value Equity fund, sees opportunities in the gold refinancing space in India.

The top performing stock in the fund, which launched at the end of November 2015, is gold finance company Manappuram finance, an investment that has tripled in value in under a year.

Speaking about the firm’s background, he said: ‘Often from the poorest to the wealthiest, Indians will have some gold, so they go out and mortgage the gold for a loan, much like your house or a piece of land. This company has been doing that for the past 50-60 years.’

The company went through an upheaval when the Reserve bank increased the amount required to be reserved, which forced write-offs and caused the stock to crash.

‘That's when we started looking at it and found the balance sheet was still very strong, gold prices were at multi-year lows and so at this point where the collateral was low, management was decent and valuation was cheap, we thought it was a good time to buy.

‘As luck would have it, nearly as soon as we bought it, gold prices started to rise.’

The prices began to rise nine months ago, he said, and with them came loans.

‘I think that's when the market woke up and realised the stock was really cheap.’

Upping tech

The manager is increasing the 10 million-large fund’s exposure to tech company Infosys, because he reports slumps in the IT sector.

As a lot of Infosys’ revenue comes from Europe and particularly the UK, the currency headwinds and upcoming protectionism that is being generated off the back of the Brexit vote has threatened the company’s track record.

Even so, Mehta-Thomas said: ‘They do have plenty of time to diversify their customer base though, so we don't expect as many problems as the market does.’

As it stood on 19 October 2016, the valuation is at 16.88 times earnings – the cheapest it has been for 10 years, according to Mehta-Thomas.

The manager views the stock as a high-quality business that the fund holds at a reasonable price, which falls in one of the two categories of holdings within the fund.

In terms of the investment process, he said: ‘There are two buckets we put most of our ideas into: we look for a decent business that is available at a very cheap price or we look for high-quality businesses trading at reasonable to cheap prices.’

Even so, the price of a stock does not always determine the exposure, he said. ‘Although valuation is very important, I would say it is the last weight we give to our ideas.’

Many stocks in the consumer market remain overvalued. He said: ‘I don't like paying 16-17 times earnings for a business, but I will do it if I find the quality is there.’ 

Tyre tailwinds

Another top pick for the fund has been tyre manufacturer, TVS Srichakra, which is the biggest position in the fund at 6.5%.

The firm, which produces tyres for motorcycles, is based in a second-tier city and is still very much undiscovered, despite having a good management team and growing at 15% a year, according to Mehta-Thomas.

Low oil prices were just one of the positive tailwinds, the manager says, as the investment is up 70% since being bought.

‘They were grabbing a larger share of the after-market sales, the market wasn't paying attention and the margins were expanding.’

Thomas runs the ACATIS India Value Equities fund alongside Hendrik Leber and Krishnaraj Venkataraman. The fund has returned 23.06% over the past six months compared with the MSCI India NR USD benchmark's 11.22% over the same period of time. 

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