Asian Equities: On The Road – India

Key Takeaways

 
India’s growth recovery is back on track, now that Covid-19 is under control. The roads are busy once more, markets are bustling again and people are out and about everywhere. Masks and safe distancing are a thing of the past.
 

Purpose of the trip

 
As investors, being on the ground on a regular basis is crucial to get a holistic view of the market, which cannot be achieved with only a virtual presence. The trip was an opportunity to meet companies face-to-face, after three years of mostly Zoom calls, and conduct our due diligence to make more informed decisions around our holdings and exposure to India. It reaffirmed the view that many of our portfolio companies remain in excellent shape, being run by competent management teams.
 

Highlights from our visit

 
We met 14 of our holdings on this trip. It was reassuring to hear that companies like the Power Grid Corporation of India and KEI Industries are seeing good capital expenditure growth. We spent a day in Mumbai with the private banks to better understand their exposure to Adani, in light of the conglomerate’s stock market rout. The perception on the ground was that it is not a systemic risk—and prudent measures from the private lenders as well as from the Reserve Bank of India have contained the potential risk well. Further, we saw several non-holding quality companies for potential idea generation. They were good cross-checks for our holdings. Lastly, we did a site visit to the Delhi Aerocity where Prestige Estates is building a hotel and convention centre—an encouraging sign of real estate and infrastructure being built in India. Overall, we observed that India’s strong bottom-up story is intact: Companies that are well run will grow strength-tostrength by gaining share in a growing market.

Prestige Estates has a healthy pipeline of ongoing and upcoming projects, a good mix of residential and commercial properties. After achieving considerable success in South India, the company is venturing out into other states including Mumbai. We were pleased to hear that higher interest rates have not stopped people from buying homes, based on Prestige’s pre-sales numbers. Construction at Prestige’s massive site in Delhi Aerocity is progressing well.
 
Prestige Estates
 

KEI Industries: A promising infrastructure play

 
We met KEI Industries in Delhi, which makes cables and stainless steel wires for various industries including housing construction, manufacturing and power transmission and distribution. Among all of the companies we saw on this trip, we enjoyed this meeting the most. The promoter took us through the ups and downs of the company’s history, which explains why the management today is exceptionally prudent at managing the balance sheet. Not only is KEI debt-free, it has enough cashflow to finance an expansion of its production capacity in order to continue growing. There is a steady stream of domestic and overseas demand for its products. KEI is globally competitive in markets like Australia, US and the Middle East whilst many of its peers outside India lack manpower scale. The highlight of the meeting was an opportunity to see up close the cables and wires they sell in the market. Often when we meet companies, the chance to see their end products is limited, unless they are in consumer-facing sectors. Seeing the cables and wires up close demonstrated well KEI’s value proposition.