CONSISTENT

COMPOUNDERS
PORTFOLIO
AN INVESTMENT STRATEGY FOR INDIAN
STOCKS FROM MARCELLUS INVESTMENT
MANAGERS
Contact :
JANUARY 2023 [email protected]

MARCELLUS INVESTMENT MANAGERS PVT. LTD.

Private & Confidential Note: Circulation not intended for US clients 1
 INVESTMENT COMMITTEE
Saurabh Mukherjea, CFA, FRSA
Saurabh Mukherjea is the Founder and CIO of Marcellus. Saurabh was educated at the London School of Economics where he
earned a BSc in Economics (with First Class Honours) and an MSc in Economics. In London, Saurabh was the co-founder of
Clear Capital and in 2007. Prior to setting up Marcellus, Saurabh was the CEO of Ambit Capital. He was also a part of SEBI’s
Mutual Fund Advisory Committee. In 2019, Saurabh was part of the Expert Committee constituted by SEBI to upgrade the PMS
regulations. Saurabh has written four bestselling books.

Pramod Gubbi, CFA

Pramod leads the business development efforts at Marcellus. He also sits on Investment Committee that discusses and
approves investment strategies of the firm. Pramod was previously the MD & Head of Institutional Equities at Ambit Capital.
Prior to that Pramod, served as the head of Ambit’s Singapore office. Before joining Ambit, Pramod worked across sales and
research functions at Clear Capital. Besides being a technology analyst, Pramod has served in technology firms such as HCL
Technologies and Philips Semiconductors. Pramod did his B.Tech from Regional Engineering College, Surathkal and has a Post-
graduate Diploma in Management from the Indian Institute of Management – Ahmedabad.

Rakshit Ranjan, CFA

Rakshit is the Portfolio Manager of Marcellus’ Consistent Compounders strategy. Rakshit spent 6 years (2005-2011) covering UK
equities with Lloyds Bank (Director, Institutional Equities) and Execution Noble (Sector Lead). From 2011, Rakshit led Ambit
Capital’s consumer research franchise. He launched Ambit’s Coffee Can PMS in Mar’17 and managed it till Dec’18. Under his
management, Ambit’s Coffee Can PMS was one of India’s top performing equity products during 2018. Rakshit has a B.Tech
from IIT (Delhi).

Private & Confidential 2

 THE NETWORKING OF INDIA ALONGSIDE TECH CHANGES IS CREATING POLARISATION

The Indian economy has been ‘networked’ at a rapid pace over the
past decade:
• The length of India’s national highways has doubled.
• The number of broadband users has increased from 20 million in
FY11 to 687 million at the end of FY20 (CAGR of 48%).
• Airline passenger traffic has grown at a CAGR of 16%.
• 15 years ago, only 1 in 3 Indian families had a bank account; now
nearly all Indian families have a bank account.

+
The inception of a single Goods & Services Tax in 2017 has allowed
companies to consolidate their supply chains (from multiple state-
level structures to unified national supply chains)
=
+
The rise of low cost SaaS (e.g. Salesforce, SAP) alongside RFID
tracking and big data gleaned from 400mn internet connected
mobile phones is allowing companies to improve working capital
cycles, asset turns, profit margins and hence RoCE
Source: Marcellus Investment Managers,
CMIE, Ace Equity, Bloomberg, Ministry of
Private & Confidential Aviation, TRAI, Ministry of Road Transport. 3
 Portfolio construction process
The universe: Stocks in the BSE500 Process Outcome

Forensic Accounting Screen

Filter out companies with accounting 40% of the listed companies drop
and governance issues out here

Using defined thresholds for revenue

Fundamental Parameters growth and RoCE, identify cash 50% of the companies drop out
generative franchises that are scaling here
rapidly

Bottom-up Analysis of annual reports,

Remaining 10% subjected to
management interviews and other
research analysis published reports in public domain bottom-up research

Independent Independent channel checks to verify

third- party management claims and to form a view 13-15 Consistent Compounders
on capital allocation and governance
checks

Note: The fund manager maintains discretion on stock inclusion in the portfolio. In case, a stock does not clear the above filters, the fund manager must record and present to the Investment
committee for approval with the reasons for such inclusion
Private and confidential 4
Longevity analysis – Quantify qualitative aspects
Marcellus Research on a stock under coverage

Current competitive advantages - here and now Longevity / Sustainability of competitive advantages

Free cash flow growth rate Moat score Lethargy score Succession planning score
Revenue growth, ROCE and Strength of today's pricing Analysis based on efforts made Softer aspects to help build an
capital reinvestment rate power in the last 3 years 'institution'
Four aspects of succession test:
Quantify industry demand growth,
Three aspects of lethargy tests: 1) Decentralised execution
its drivers and its resilience.
1) Incremental deepening of 2) CXOs - their quality and tenure
Can a competitor offer a product
existing moats at the firm
Quantify revenue growth related which is a third cheaper and still
2) Experimentation / investments 3) Historical evidence of
to expected market share gains. have no impact on either the
towards adding new moated implementing succession in CXO
profitability or market share of our
revenue growth drivers roles
Profitability and asset turns - investee firm?
3) Attempts at radical disruption of 4) Independence of Board of
expected to improve
the industry's future Directors
meaningfully?

Growth in cash flows Longevity of cash flows

Outcome: 1) Buy and Sell decisions; 2) Position sizing of stocks relative to others
in our portfolio; and 3) Absolute valuation of stocks
Private and confidential 5
 STEP 1: USE FORENSIC ACCOUNTING TO AVOID MOST COMMON PITFALLS
Methodology A few of our forensic ratios
12 accounting ratios covering income statement (revenue/ earnings
manipulation), balance sheet (correct representation of assets/liabilities), cash Category Ratios
pilferage and audit quality checks. Income statement (1) Cashflow from operations (CFO) as % of
checks EBITDA
Six years of historical consolidated financials.
(2) Provisioning for Debtors
First rank stocks on each of the 12 ratios individually (some examples outlined
in the table on the right). These ranks then cumulated across parameters to Balance sheet checks (3) Yield on cash and cash equivalents
(4) Contingent liabilities as % of Networth (for the
give a final pecking order on accounting quality for stocks –for instance D1
latest available year)
being the best, D10 being the worst.
Cash theft checks (5) CWIP to gross block
Selection of these ratios has been inspired by Howard M. Schilit’s legendary
forensic accounting book ‘Financial Shenanigans’. Auditor checks (6) Growth in auditors' remuneration to growth in
revenues

Strong correlation between accounting quality and Quality wins and wins big over the long term
shareholders’ returns
Zone of Quality Zone of Thuggery 70% 58%
48%
12% 50%
10% 10% 31%
10% 30% 25%
8% 3% 8%
8% 7% 6% 7% 10% 1%
6% 5% -10%
-5% -4%
4% -15%
-30% -19%
2% 1%
-50% -37%
0%
CY16 CY17 CY18 CY19 CY20 CY15-20
-2% CAGR
CY16-CY20 CAGR
-4% -2% -3%
Zone of Quality Zone of Thuggery
D1 D2 D3 D4 D5 D6 D7 D8 D9 D10

Private & Confidential Source: Marcellus Investment Managers; Ace Equity 6

 STEP 2: IDENTIFY COMPANIES WITH SUPERIOR CAPITAL ALLOCATION
If one creates a list of stocks using a twin-filter criteria*, of 2010-20
double-digit YoY revenue growth and return on capital 2009-19
being in excess of cost of capital, each year for 10 years in a 2008-18
row 2007-17

2006-16
Next, if a portfolio is built of such stocks each year and
2005-15
each of these annual iterations of portfolios are held for
2004-14
the subsequent 10 years (without any churn), then the bar
2003-13
chart on the right shows the performance of such
2002-12
portfolios.
2001-11

2000-10

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%

SENSEX returns (CAGR) Twin filter portfolio (CAGR)

Source: Bloomberg. Note: Only the portfolios which have finished their 10year run have been shown.
Note: These are Total Shareholder returns in INR terms. The portfolio above is not Marcellus’ model
portfolio but a sample portfolio derived out of the twin-filter criteria*

There are two conclusions from this exercise:

• This filter-based portfolio delivers returns of 20-30% p.a. (of INR returns) and 8-12% outperformance relative to the Sensex.
• The volatility of returns of such portfolios, for holding periods longer than 3 years, is similar to that of a Government of India Bond.
Returns here (both for filter-based portfolio and for the Sensex) are on a Total Shareholder Return basis i.e., all dividends are included in
the returns.
*Note: The twin filter criteria is explained in the book ‘Coffee Can Investing – Low Risk Route to Stupendous Wealth (2018)’ authored by two of Marcellus’
co-founders – Saurabh Mukherjea and Rakshit Ranjan - and Pranab Uniyal.
Private & Confidential 7
 THE RESULT: CONSISTENT COMPOUNDING OF FREE CASH FLOWS AND RETURNS
Free Cash Flow (FCFE) CAGR Share Price CAGR
Stock Name 5-years 10-years 20-years 5-years 10-years 20-years
FY01-06 FY06-11 FY11-16 FY16-21 FY01-11 FY11-21 FY01-21 FY01-06 FY06-11 FY11-16 FY16-21 FY01-11 FY11-21 FY01-21
Asian Paints Ltd. 19% 41% 18% 19% 30% 19% 24% 31% 31% 28% 24% 31% 26% 29%
Berger Paints India Ltd. 24% -1% 44% 10% 10% 26% 18% 49% 11% 41% 34% 28% 38% 33%
Nestle India Ltd. 17% 15% 10% 15% 16% 12% 14% 11% 32% 9% 24% 21% 16% 19%
Pidilite Industries Ltd. 42% 4% 83% 1%* 22% 40%* 30%* 40% 23% 32% 25% 31% 28% 30%
Titan Company Ltd. -16% 179% -21% 62% 54% 13% 32% 82% 35% 12% 36% 57% 23% 39%
Divis Laboratories Ltd. NA 54% 35% 9% 34%^ 21% 27%^ NA 29% 24% 30% NA 27% NA
Page Industries Ltd. NA 36% 33% 39% 25%** 36% 31%** NA NA 50% 20% NA 34% NA
Dr. Lal Pathlabs Ltd. NA NA 49% 22% NA 35% NA NA NA NA 24% NA NA NA
Tata Consultancy Services Ltd. NA 34% 29% 15% 34%^^ 22% 26%^^ NA 20% 16% 20% NA 18% NA
Weighted Avg. 17% 48% 31% 22% 29% 25% 26% 41% 27% 26% 26% 34% 22% 30%
Source: Marcellus Investment Managers; Ace Equity; FCFE = Operating cash flow less Capex less Investment in Subsidiaries/Strategic investments /Acquisitions less Net debt repayments less Interest
Paid less Lease liabilities; *In case of Pidilite, high capex on account of Araldite acquisition skews the CAGR % making it incomparable, hence CAGR for the period FY16-20, FY11-20 and FY01-20 is
considered; ^Divis' FCFE is for the period FY02-11 and FY02-21 since the company was not listed prior to FY01; **Page's FCFE is for FY04-11 and FY04-21 since company was not listed prior to FY04;
^^TCS's FCFE is for FY06-11 and FY06-21 since FCFE for FY04 and FY05 was negative; Free Cash Flow is not an appropriate metric for Banking & Financial stocks, hence BFSI names in our portfolio are not
part of the above table

• FCFE compounding for CCP companies has been healthy, consistent and accelerating over the last 2
decades
• Market Cap compounding for CCP companies has been broadly in line with FCFE compounding over the
last 2 decades

Private & Confidential 8

 COMPOUNDING OF EARNINGS HAS LAGGED BEHIND FREE CASHFLOWS BY 5%-7%

Stock Name Free Cash Flow (FCFE) CAGR Earnings CAGR

FY16-21 FY11-21 FY06-21 FY16-21 FY11-21 FY06-21
Asian Paints Ltd. 19% 19% 26% 12% 14% 20%
Titan Company Ltd. 62% 13% 53% 8% 8% 16%
Page Industries Ltd. 39% 36% 36% 8% 19% 25%
Tata Consultancy Services Ltd. 15% 22% 26% 6% 13% 17%
Pidilite Industries Ltd. 1% 40% 26% 7% 14% 19%
Divi's Laboratories Ltd. 9% 21% 31% 12% 17% 25%
Berger Paints India Ltd. 10% 26% 16% 15% 17% 16%
Nestle India Ltd. 15% 12% 13% 16% 8% 14%
Dr. Lal Pathlabs Ltd. 22% 35% 38% 17% 26% 38%
HDFC Bank Ltd.* 20% 23% 27% 20% 23% 27%
Bajaj Finance Ltd.* 28% 33% 43% 28% 33% 43%
Kotak Mahindra Bank Ltd.* 24% 20% 22% 24% 20% 22%
HDFC Life Insurance Co Ltd.* 11% 20% NA 11% 20% NA
ICICI Lombard General Insurance Company Ltd.* 24% 24% NA 24% 24% NA
Weighted Avg. 22% 25% 31% 15% 19% 25%

Source: Marcellus Investment Managers; Ace Equity; FCFE = Operating cash flow less Capex less Investment in Subsidiaries/Strategic investments /Acquisitions less Net
debt repayments less Interest Paid less Lease liabilities; *Free Cash Flow is not an appropriate metric for Banking & Financial stocks, hence Earnings growth used as a proxy
to FCFE growth in case of BFSI stocks
Private & Confidential 9
 CCP’S SUPERIOR EARNINGS GROWTH IS DRIVEN BY HIGH ROCE AND HIGH
REINVESTMENT RATE
ROCE and Reinvestment rate of Marcellus' CCP stocks
ROCE* Avg. ROCE* Avg. Reinvt. rate
Name
(FY21) (FY16-21) (FY16-21)**
Asian Paints Ltd. 37% 38% 35%
Bajaj Finance Ltd. 13% 20% 89%
Berger Paints India Ltd. 30% 31% 55%
Divi's Laboratories Ltd. 32% 29% 52%
HDFC Bank Ltd. 16% 18% 85%
Kotak Mahindra Bank Ltd. 13% 13% 98%
Nestle India Ltd. 148% 76% 10%
Page Industries Ltd. 56% 62% 12%
Pidilite Industries Ltd. 30% 37% 48%
Tata Consultancy Services Ltd. 53% 48% 10%
Titan Company Ltd. 15% 23% 29%
Dr. Lal Pathlabs Ltd. 36% 39% 25%
HDFC Life Insurance Co Ltd. 18% 24% 79%
ICICI Lombard 22% 20% 78%
W. Avg. 36% 34% 49%
Source: Marcellus Investment Managers; Ace Equity; *ROE considered instead of ROCE for BFSI
companies; **Reinvestment rate for financials = (1 - dividend payout ratio(%)); **Reinvestment rate for
non-financials is 'cumulative CFI divided by cumulative CFO over last six years

Private & Confidential – FOR INTENDED RECIPIENT ONLY.

10
 STRONG 10 YEAR EARNINGS GROWTH MAKES P/E REDUNDANT
P P/E E
NON-COMPOUNDING + OSCILLATING CAN COMPOUND OVER TIME

P% P/E % E%

A for Airlines (e.g. P/E doubles +7% +7% 0%

Telcos)
P/E halves -7% -7% 0%

B for Buffett (e.g.

P/E doubles +19% +7% 12%
Maruti, HUL)
P/E halves +5% -7% 12%

C for CCP (e.g. P/E doubles +32% +7% 25%

Asian Paints,
HDFC Bank) P/E halves +18% -7% 25%
Private & Confidential 11
 CASE STUDY: ASIAN PAINTS [MKT CAP $37 BN]

• “We have been lucky to have new jewels in the form of 50% Sales Growth, PBT Margin and ROCE from 1952 25%
professional managers who attempted to do things that haven’t 45%
been done before, and lucky to have a management that allowed 40% 20%
them to do so’ — K.B.S. Anand, Former MD & CEO, Asian Paints 35%
30% 15%
25%
• Growth drivers: 20% 10%
a. Moats built predominantly around supply chain efficiencies: 15%
No room for competition to disrupt through better product 10% 5%
quality or high trade margins as the market dynamics force 5%
dealers to make money on volumes. 0% 0%
b. Strong HR: Attracts top quality talent from the most prestigious 1952-62 1962-72 1972-82 1982-92 1992-2002 2002-12 2012-21
institutions and then grooms and empowers them. Result – Revenue CAGR over 10 years (LHS) PBT/Cap Employed (LHS) PBT Margin (RHS)
talented & independent professional management team.
Source: Marcellus Investment Managers; Ace Equity
c. Tech investments: Makes use of technology to improve
operating efficiencies, which helps in three ways – a) shape up
moats around systems and processes (e.g., demand Volume growth, Sales growth and Earnings growth (FY01-21)
forecasting); b) suffocates competition through fewer price
hikes; and c) disrupts itself once every 2-3 decades FY01-06 FY06-11 FY11-16 FY16-21
d. Addition of new revenue growth drivers: Foray into
adjacencies such as waterproofing (1/10th of paints market), Volume CAGR 11% 16% 10% 11%
Launch of service offerings (SAFE Painting service), Launch of
Home Decor service (interior design & execution), Scaling up of Sales CAGR 19% 21% 14% 9%
new retail formats – Beautiful Homes stores (all in one stores),
Colour Ideas PAT CAGR 15% 33% 15% 12%

NOTE: Asian Paints forms a part of most of Marcellus’ portfolios FCFE CAGR 19% 42% 17% 21%
Source: Marcellus Investment Managers; Ace Equity; FCFE = Operating cash flow less Capex less Net
Debt Repayments less Interest Paid
Private & Confidential 12
 MARCELLUS’ INVESTMENT HYPOTHESIS ON ASIAN PAINTS (APNT)
Current competitive advantages Longevity / Sustainability of competitive advantages

Growth in fundamentals Moat score Lethargy score Succession planning score

18% Revenue CAGR, 40% Strength of today's pricing Incremental deepening of ‘Institution’ building soft
ROCE, 50% capital power moats / new rev growth aspects
reinvestment rate, ~20% FCFE drivers / radical disruption
3-hour direct delivery to paint
CAGR 1) Decentralised execution &
dealers with wafer thin 1) Automated manufacturing – strategy: systems / processes,
margins in a voluminous ABB’s MES, DCS solutions; IOT
Unorg. to org to shift PLUS professional empowerment
product: 3-5x faster vs peers and sensor based tech for real
shortened repainting cycles 2) ALL (except one) employees
time integration of shop earning more than Rs 10 mn
Superior demand forecasting + floors; direct cash transfer to
Market share gains due to have spent 20 yrs or more at
operating efficiencies to painters during Covid-19
irreplicable supply chain APNT; CXO succession driven
minimise price hikes 2) Waterproofing pdts; labour
efficiencies by board (not by CEO)
oriented services; Omni 3) Truly independent and high
Price wars are ineffective channel retail for home décor
Tech investments to reduce quality board; No group-think
without supply chain 3) Tilting market share drivers
working capital cycles and 4) Ample historical evidence of
efficiencies; Product quality towards labour and execution
improve asset turns smooth succession of CXOs
has been commoditised

20% CAGR in FCFE More than 20 years of longevity of free cash flows

Outcome: 1) Higher weight of APNT relative to other stocks in

our portfolio; and 2) Length of our holding period unaffected by
“noise” around oil prices, GDP growth, Covid, etc.
Private & Confidential 13
 CASE STUDY: BAJAJ FINANCE [MKT CAP $47 BN]
Key Performance Matrices: Bajaj Finance (FY 2008-21)
• “We had been showing ALM data for the past five years. Two
13- year
years ago, nobody paid much attention to it, so we pushed it back Indicators FY08 FY20 FY21
CAGR
as an annexure in our presentations. Now when investors ask for
it, I tell myself, ‘Thank God, I did not treat ALM as an annexure to AUM (Rs. in bn ) 25 1,471 1,529 37%
my business model” — Rajeev Jain, MD, Bajaj Finance PBT (Rs. in bn) 0.3 73 60 50%
RoA 0.9% 4.1% 3.1%
• Company has built its strengths around: RoE 3.2% 20.2% 12.8%
NNPA 7.05% 0.65% 0.75%
a. Found a niche, differentiated business opportunity in consumer
Source: Marcellus Investment Managers; Ace Equity
durable financing 10 years ago. Today, more than 70% of all
consumer durables financing in India is done by Bajaj Finance.
b. Focus on high velocity, small ticket size lending with turnaround 7.05% 13 Year Financial snapshot
1,800 80
times and customer convenience as the differentiation rather 5.50%
73
1,600 1,529
than interest rates. 62 1,471
70
1,400 59
c. Ability to switch gears across products based on data driven risk 60

and underwriting models. Completely stopped construction 1,200 1,159

2.20% 50
equipment financing in 2014 due to muted RoE and profitability 1,000 38
40
prospects. 800 0.80%
0.45% 0.28% 28 824 0.65% 0.75%
0.12% 0.19% 0.28% 0.44% 30
d. Data science backed credit algorithms to capture data points 600 20
14 602 0.43% 0.63% 20
400
over & above those captured by credit agencies 0 1 1 4 9 11
442
6 10
200 324
25 25 40 76 241
131 175
- 1 -
NOTE: Bajaj Finance forms a part of most of Marcellus’ portfolios
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

AUM (in BN) PBT (in BN) Net NPA

Source: Marcellus Investment Managers; Ace Equity

Private & Confidential 14
 CASE STUDY: DR. LAL PATHLABS [MKT CAP $3.2 BN]
• Dr. Lal provides pathology diagnostics in North and East India ~3700+ collection centres, ~20mn patients annually,
with a network of 200+ labs, 3000+ collection centres (CCs) and ~50mn tests annually
6000+ pick-up-points (PUPs).
4000 60
• Over the past five years, it has strengthened its moats through: 3000
40
a. Optimising its hub and spoke retail network – Using tech 2000
investments in store level data collection, Dr. Lal Pathlabs is 20
leveraging on its 15 years learning curve to optimise the 1000
location, size and supply chain infrastructure of its CCs and labs. 0 0
b. Timely report generation – With complete ownership or FY15 FY16 FY17 FY18 FY19 FY20 FY21
control on lab technicians, sample handling toolkits, CCs, PUPs
and labs, Dr. Lal differentiates against its competitors in the PSCs (LHS) No. of patients (mn.) (RHS) No. of tests (mn.) (RHS)
timeliness of its report generation. Source: Marcellus Investment Managers; Ace Equity
c. Extending home collections to smaller cities – During the
COVID-19 crisis, Dr. Lal has significantly invested in home 6-year
collections infrastructure in smaller cities, which is helping it Rs mn FY15 FY16 FY17 FY18 FY19 FY20 FY21
CAGR
gain substantial market share from both org as well as unorg.
competitors. Revenues 6,596 7,913 9,124 10.569 12,034 13,304 15,813 16%
d. Disciplined capital allocation – Diagnostic labs industry is ripe
for consolidation as pan-India firms gain share from mom-and- EBITDA 1,551 2,077 2,375 2,640 2,936 3,436 4,363 19%
pop labs. Dr. Lal currently has more than 750 crores worth of
surplus capital on its balance sheet. Over the past 5 years, PAT 964 1332 1556 1718 2004 2276 2965 21%
capital allocation towards acquisitions has been prudently done
in a bolt on manner. RoCE
49% 47% 43% 38% 35% 32% 35%
(pre tax)
NOTE: Dr. Lal Pathlabs forms a part of most of Marcellus’ portfolios Net
-0.55 -0.54 -0.58 -0.58 -0.71 -0.71 -0.79
debt/Equity

Source: Marcellus Investment Managers; Ace Equity

Private & Confidential 15
 WHEN AND WHY DO WE SELL?
Case study 1: Gruh Finance was sold in Jan 2019 on the day after HDFC Ltd sold its controlling
stake to Bandhan Bank:
Factors driving SELL decision at Marcellus
• Change in board composition and senior management – it was clear that HDFC Ltd’s board
• Complete exit from a stock due to deterioration in will not be involved at Gruh after the stake sale;

Marcellus research analysts’ view of the said • Potential disruption of moats – Gruh had built its moats around decentralised and localised
understanding of their borrowers’ credit profile through gradual geographical expansion.
company’s strength and sustainability (longevity) of Bandhan Bank announced that pan-India expansion of Gruh’s footprint will be a key targeted
competitive advantages synergy.
• Marcellus’ lack of conviction on Bandhan Bank’s fundamentals – since the bank does not
• Optimising portfolio concentration through an exit clear our accounting quality and historical fundamental consistency filters
when a new stock is being included in the portfolio Case study 2: Marico was sold in January 2020 and was replaced with Divis Laboratories:
- due to an increase in conviction levels on strength • Structural deterioration in growth prospects of premium edible oils due to health orientation
and longevity of competitive advantages of the new of its customer base
company (which was hitherto not in the portfolio) • Elements of lethargy in the ground level execution of value-added-hair-oils of Marico in the
face of intense competition
• Partial selling of a stock as part of portfolio • Increased in Marcellus’ conviction on Divi’s competitive advantages
rebalancing to bring it in sync with relative Case study 3: Abbott was sold in February 2022 and was replaced with ICICI Lombard:
conviction on fundamentals of the stock vs other
• Market share loss in key products like Duphaston and Thyronorm. Duphaston has seen loss of
stocks in the portfolio 30 percentage points market share in value terms in last two years after launch of a
competing product by Mankind. Thyronorm’s market share has stagnated in last two years (at
around 48%) and it has lost some market share in the last four years.
• Low visibility on new product pipeline in the foreseeable future to offset the weakness in
some of its existing products like Duphaston, Thyronorm.
• High churn in top management layer.
• Increased in Marcellus’ conviction on ICICI Lombard’s competitive advantages

Private & Confidential

16
 CASE STUDY: MARICO [MKT CAP $9 BN] – EXITED FROM CCP IN JAN’2020
Competitive advantages built around: Sales Growth, Volume growth and EBITDA growth over FY10-20
a. Supply chain efficiencies: Dis-intermediation of copra supply FY10-15 FY15-20
chain (key main raw material for Parachute) to procure
directly from farmers/individual traders and setting up of Consolidated Sales CAGR 17% 5%

copra crushing plant in Kerala to reduce procurement costs. Domestic Sales CAGR 17% 5%
Difficult to replicate.
Domestic Volume CAGR 11% 4%
b. Brands: Both Parachute and Saffola enjoy clear brand
leadership build over the years through consistent EBITDA CAGR 19% 11%
advertisement, innovative brand positioning, innovation in Source: Marcellus Investment Managers; Ace Equity
packaging and quality. Saffola brand extended to Foods.
c. Strong HR: Attracts top quality talent from the most Moderation in segmental volume growth over FY15-20
prestigious institutions due to superior work culture
FY10-15 FY15-20
Reasons for exit from Marcellus’ CCP PMS in Jan’20: Domestic Volume CAGR 10.5% 4.2%
a. Sluggishness in volume growth of Parachute & Value Added
Hair Oils (VAHO): Challenges in ground level execution in the Parachute Volume CAGR 8.4% 4.2%

face of intensifying competition e.g., players like Dabur Value Added Hair Oil Volume CAGR 18.4% 5.3%
b. Structural slowdown in super premium edible oils category:
Saffola Volume CAGR 9.8% 6.5%
Installed base of customers in super premium edible oils
Source: Marcellus Investment Managers; Ace Equity
reducing consumption due to health orientation. Saffola
volume growth only ~6.5% over FY15-20 despite increase in
market share from ~55% to ~75% over the same period
Private & Confidential – FOR INTENDED RECIPIENT ONLY.
17
 MARCELLUS’ EXIT HYPOTHESIS ON MARICO
Current competitive advantages Longevity / Sustainability of competitive advantages

Growth in fundamentals Moat score Lethargy score Succession planning score

(Downgraded) (Downgraded) (Downgraded) (Retained)
Deceleration in volume Strength of today's pricing Incremental deepening of ‘Institution’ building soft
growth rates and reduction in power moats / new rev growth aspects
our confidence in Marico’s drivers / radical disruption
ability to gain market share Negatives: No visible initiative 1) Decentralised execution &
Coconut Hair Oil market likely 1) Reactive price cuts in the to overcome the challenge of strategy. Systems / processes
to grow at 3-5%. Hence, face of intense competition slowdown in super premium at ground level. Professional
market share gains & double rather than proactive edible oil category; No visible empowerment.
digit growth in VAHO & suffocation of competition deepening of moats to 2) Promoters emphasis to
Saffola is necessary. (organised/ unorganised) accelerate mkt. share gains build a truly independent and
Intensifying competition in through operating efficiencies
high quality board. No group-
VAHO & Premium Hair Care + Positives: Saffola Foods think
Structural challenges in 2) Macro issues disrupted (300crs in FY21), Acquisition of
channel partners & 3) Low churn in CXOs;
growth of super premium Beardo. But not enough to
distribution Evidence of smooth e.g., new
edible oils = Concern on offset slowdown in core
CFO was promoted internally
growth brands.

<15% FCFE CAGR Uncertainty around longevity score due to slowdown in growth, weakness in moat and lethargy

Outcome: 1) Downgrade in Expected Growth rate; and 2)

Downgrade in Moat & Lethargy scores = EXIT from the Portfolio
Private & Confidential 18
 FUND PERFORMANCE (AS ON 31ST DEC’2022)
Exhibit 1a: Marcellus’ Consistent Compounders PMS performance as on 31st Exhibit 1b: Marcellus’ Consistent Compounders PMS performance as on
December'22 (INR denominated returns) 31st December'22 (USD denominated returns)

Marcellus' Consistent Compounders PMS (INR) Nifty Total Returns Index (INR) Marcellus' Consistent Compounders PMS (USD) Nifty Total Returns Index (USD)
45%
45%
35%
35%
25%
25% 17.13%
15.32% 13.73% 9.97% 12.28%
12.46% 15.52% 14.64% 15% 8.19% 9.90% 9.90%
15%
5.69% 7.23%
5% 5%
-5%
-3.71% -3.48% -5%
-8.82% -5.09% -4.87% -5.14%
-15%
-15%
-25%
1 month 6 months 1 year 3 years Since inception -25% -18.17%
(Dec 01, '18) 1 month 6 months 1 year 3 years Since inception
(Dec 01, '18)

Source: Marcellus; Performance data shown is net of fixed fees and expenses charged till Source: Marcellus; Performance data shown is net of fixed fees and expenses charged
31st December, 2022 and is net of annual performance fees charged for client accounts till 31st December, 2022 and is net of annual performance fees charged for client
whose account anniversary/performance calculation date falls upto the last date of this accounts whose account anniversary/performance calculation date falls upto the last
performance period; Since inception & 3 years returns are annualised; Other time period date of this performance period; Since inception & 3 years returns are annualised; Other
returns are absolute time period returns are absolute; CCP PMS INR returns are converted into USD returns
using USD-INR exchange rate from NSE

Private & Confidential 19

 FUND STRUCTURE
Marcellus offers Consistent Compounders Portfolio with a zero fixed fees option

The Consistent Compounders PMS comes with ZERO entry load/exit load and with no lock-in. Our clients can choose any of the following fee structures:

1. a fixed fees model (2% p.a. fixed fees + zero performance fees) or
2. a variable fees model (zero fixed fees + performance fees of 20% profit share above a hurdle of 8%, no catch-up)
3. a hybrid model (1% p.a. fixed fees + performance fees of 15% profit share above a hurdle of 12%, no catch-up).

Clients also have the option to be onboarded directly (without intermediaries/distributors). Such clients can choose from any of the following fee
structures:

1. A fixed fees model (1.5% p.a. fixed fees + zero performance fees) or
2. A variable fees model (zero fixed fees + performance fees of 20% profit share above a hurdle of 8%, no catch-up)
3. A hybrid model (0.75% p.a. fixed fees + performance fees of 15% profit share above a hurdle of 12%, no catch-up).

High water mark applies for performance fees

Minimum investment: INR 50 lacs

We also have an STP (Systematic Transfer Plan) plan using which clients can stagger their investment in tranches spread over 5 months :-
https://marcellus.helpscoutdocs.com/article/96-stp

Existing Investors have the option to save and invest regularly in Marcellus Funds through Systematic Investment Plan (SIP) :-
https://marcellus.helpscoutdocs.com/article/100-systematic-investment-plansipfaqs

Private & Confidential 20

 CCP FACTSHEET (1/2)
Fund Details Sector Wise Allocation
Strategy Name Consistent Compounders
7% 1%
Fund Manager Rakshit Ranjan, CFA 20%
Consumer Discretionary
AUM In INR Crs 6,980 17% Consumer Staples

3% Financial Services
Category Large Cap
Home-Building Materials
Benchmark Nifty50 Total Return Index Pharma & Health-Care
17% Information Technology
Top 5 Holdings (accounts for ~50% of allocation)
Cash
Page Industries Consumer Discretionary 36%

Bajaj Finance Financials

Dr. Lal Pathlabs Healthcare Portfolio Metrics
HDFC Bank Financials Wtd. Avg. Market Cap (INR Cr.) 3,12,910
Titan Consumer Discretionary Portfolio P/E (TTM) 64x
Market-Cap Wise Allocation Dividend Yield 0.6%
Large-Cap 89.5% Churn Ratio (TTM) 21.0%
Mid-Cap 10% Std Deviation (12 month rolling) 19.9%

Cash 0.5% Sharpe Ratio (12 month rolling) 0.77

Private & Confidential 21

 100
120
140
160
180
200
220
240

80
60
30-Nov-18
31-Dec-18
31-Jan-19

Private & Confidential

28-Feb-19
31-Mar-19
30-Apr-19
31-May-19
30-Jun-19
31-Jul-19
31-Aug-19
30-Sep-19
31-Oct-19
30-Nov-19
31-Dec-19
31-Jan-20
29-Feb-20
31-Mar-20
30-Apr-20
31-May-20
30-Jun-20
31-Jul-20
31-Aug-20
CCP PMS 30-Sep-20

account anniversary/performance calculation date falls upto the last date of this performance period
31-Oct-20
30-Nov-20
31-Dec-20
31-Jan-21
28-Feb-21
31-Mar-21
NIFTY 50 TR
CCP FACTSHEET (2/2)

30-Apr-21
CCP v/s NIFTY50 performance

31-May-21
30-Jun-21
31-Jul-21
31-Aug-21
30-Sep-21
31-Oct-21
30-Nov-21
31-Dec-21
31-Jan-22
28-Feb-22
31-Mar-22
30-Apr-22
31-May-22
30-Jun-22
31-Jul-22
31-Aug-22
30-Sep-22
31-Oct-22
30-Nov-22
31-Dec-22
Source: Marcellus Investment Managers; Note: Performance data shown is net of fixed fees and expenses charged till 31st Dec, 2022 and is net of annual performance fees charged for client accounts whose

22
 BESTSELLING BOOKS WHICH WILL GIVE YOU MORE INFORMATION

Private & Confidential 23

 WE PROACTIVELY SEEK TO INFLUENCE CHANGE
Area of engagement Desired outcome
• Our analysts use forensic accounting to keep • If we spot diversion on a meaningful scale, we exit
Corporate on eye on the diversion of cash by the • If we spot the beginnings of what look like small scale
governance ‘promoters’ of our investee companies diversion, we speak to the ‘Promoter’ and explain to her
why her wealth creation can be compromised

• Thirty years from the reforms which opened • Through our discussions with suppliers, customers and
up the Indian economy in 1991, many of competitors of a company, we keep a close eye on
Succession India’s leading ‘promoters’ are aged 70 or whether the ‘promoter’ is on top of his game.
planning over. Hence, they are handing charge to the • If his successors either do not exist or have not been
next generation. groomed adequately, we discuss the matter and its
consequences with him.
• Our investment strategy – of investing in • If we see a company either hoarding cash or moving into
dominant franchises with ROCE of around an unrelated, we engage with the ‘promoter’ to
40% - naturally leads us towards companies understand her thinking on capital allocation.
Capital allocation which generates heavy Free Cashflow. • If we are not convinced about the fitness of what she’s
• If this Free Cashflow is not reinvested doing, we present our point of view (arguing in favour of
wisely, the compounding of the franchise a different capital allocation strategy)
suffers • If six months later we see that our engagement has
made no difference, we consider exiting
• Regulation – both in corporate law and in • By being a part of multiple regulatory committees, by
Regulatory securities market law – is still evolving in writing in the press and by being vocal on social and
constructs India. This creates risks for the unwary. broadcast media about regulatory reform, we have
sought to improve transparency in the fund management
industry in India

Private & Confidential 24

 OUR TEAM - PORTFOLIO COUNSELLORS
Ashvin Shetty, CA, CFA
Ashvin has more than 10 years of experience in equity research. He led the coverage on automobile sector at Ambit Capital from 2010 to
2017. He thereafter worked as a senior analyst for Ambit’s Mid and Small cap PMS funds till November 2018. Prior to joining Ambit, he
worked with Execution Noble as an analyst covering consumer and media space. He has also worked with KPMG’s and Deloitte’s statutory
audit departments from 2004 to 2007 gaining extensive experience across Indian accounting standards and financial statement analysis.
Ashvin is a BCom graduate from Narsee Monjee College (Mumbai). He is a qualified Chartered Accountant (ICAI India) and Chartered
Financial Analyst (CFA Institute, USA).

Sudhanshu Nahta, CA
Prior to joining Marcellus, Sudhanshu was Executive Assistant to the CEO at Ambit Capital and worked in the Institutional Equities’ Strategy
team. He has also worked with KPMG in the statutory audit team from 2013 to 2016 gaining extensive experience across Indian accounting
standards, financial control systems and financial statement analysis & reviews. Sudhanshu is a qualified Chartered Accountant and a CFA
Level 3 candidate. He has completed his graduation in Commerce from Mumbai University.

Salil Desai, CA, MBA

Salil joined Marcellus from Premji Invest, India’s largest family office by assets under management, where he spent 6 years as a senior
member of the team that managed ~US$2bn in listed equities. Prior to that, Salil worked for IDFC Securities, a prominent equity brokerage in
Mumbai, where he came to be known as one of India’s leading analysts for core economy sectors. Over a career spanning 12 years in
equities, he has tracked multiple sectors, including industrials, infrastructure, utilities, insurance, cement, metals and logistics. Salil is a
Chartered Accountant and a Post Graduate Diploma in Business Management from NMIMS, Mumbai. He completed his graduation in
Commerce from Mumbai University

Tej Shah, CA, CFA

Prior to joining Marcellus, Tej worked at Mayfield, a Silicon Valley headquartered venture capital fund which manages $3Bn globally and
$220Mn in India. Tej spent 2 years as a part of Mayfield India’s investment team covering multiple sectors and being at the centre of India’s
evolving venture ecosystem. Prior to Mayfield, Tej was a part of the equity and capital markets team of Ambit Capital where he worked on
executing IPOs, QIPs and buybacks. Tej is a Chartered Accountant and has cleared all levels of the CFA exam. He holds a B. Com degree from
Ahmedabad University.

Private & Confidential 25

 OUR TEAM - OPERATIONS, HR, COMPLIANCE & LEGAL, IT
Manish Hemnani, MBA
Operations
Manish is one of the Founders of Marcellus. Manish comes from quantitative data analytics and research background, and has more than 12
years of experience working with banks and financial institutions across east-Asia, India and Europe. Prior to founding Marcellus, he founded
Crosstab Limited (2011), a London based quantitative data analytics outfit. Prior to that he worked with a Mumbai based boutique analytics
consulting firm. Manish holds an MBA from University of Warwick – Warwick Business School (UK).

Sapana Bhavsar
Human Resources
Sapana has 15 years of experience in Human Resources. In her prior stint with CRISIL, Sapana was leading the India HR Shared Services and was
the Business HR for CRISIL’s Research division. Before CRISIL, Sapana was associated with Bank of America Merrill Lynch and has donned varied
hats across the BAML entities. Sapana is a University Gold Medallist and has a Master’s degree in Labour Studies from Mumbai University.

Parimal Deuskar, Company Secretary

Compliance and Legal
Parimal heads Compliance & Legal function at Marcellus. In his last assignment, Parimal set up the Group Compliance Function at Avendus
Capital, an investee company of KKR US. He is experienced in dealing with securities market regulators in US, Europe and Asia. Over his career
spanning 15+ years he has set up fund structures in jurisdictions like India, Singapore, Ireland and Mauritius. His previous employers include
Ambit, and Prudential UK’s India KPO. Parimal holds Bachelor of Commerce and Bachelor of Law degrees from Mumbai University. He is also a
qualified Company Secretary.

Siddharth Joshi
Information Technology
Siddharth has more than 15 years of experience in Technology. During these 15 years, he has provided technology consultation to a variety of
functions within investment banks and financial institutions. Before joining Marcellus, Siddharth was working with Nomura where he was head
of multiple teams, responsible for providing IT solutions to front office, operations and risk. He has expertise in Middleware, Automation,
DevOps, Cloud and Messaging for low-latency trading. Prior to working with Nomura, he has been associated with Wells Fargo and TCS.
Siddharth has a Bachelor of Engineering from Rajiv Gandhi University, Indore.

Private & Confidential 26

 OUR 110+ EMPLOYEES COME FROM A VARIETY OF BACKGROUNDS
Our PURPOSE - To make wealth creation simple and accessible, by being trustworthy and transparent capital allocators.
• Diverse opinions and ideas encouraged and
• Overall Gender diversity - 31%; At
invited during the ‘All Marcellus’ weekly
mid-management level - 41%; thus
meeting.
creating a pool of potential women
leaders
• The team follows a no-designation policy. Use of
hierarchical “job titles” not allowed in the firm.
• Average Age – 31 years; age range -
20 to 50 years; 55% of the team
• Research team meets twice a week for 3-hour
below 31 years; thus constituting a
Diversity long deliberations on existing portfolios; this also
fair mix of new age and experienced
includes cross team discussions and ideations
generations.
Inclusive across all levels.
• Educational background ranges from Culture
• An integral part of performance assessment is
Finance, Management, Economics,
feedback on behaviours (30% weightage) that is
Statistics, Engineering, Law and
sought via 360 degree feedback and is published
Company Secretarial; 25% of the
to the whole firm on a monthly basis.
team has dual post-graduation
degrees; average total experience of
• The team’s inputs on the firm’s policies and
8 years; thus creating domain experts
practices are captured by an anonymous third
across functions
party engagement survey; these inputs drive the
firm’s People priorities
Private & Confidential 27
 ANNEXURE
PORTFOLIO FUNDAMENTALS

Private & Confidential 28

 COMPOUNDING OF EARNINGS HAS LAGGED BEHIND FREE CASHFLOWS BY 5%-7%

Stock Name Free Cash Flow (FCFE) CAGR Earnings CAGR

FY16-21 FY11-21 FY06-21 FY16-21 FY11-21 FY06-21
Asian Paints Ltd. 19% 19% 26% 12% 14% 20%
Titan Company Ltd. 62% 13% 53% 8% 8% 16%
Page Industries Ltd. 39% 36% 36% 8% 19% 25%
Tata Consultancy Services Ltd. 15% 22% 26% 6% 13% 17%
Pidilite Industries Ltd. 1% 40% 26% 7% 14% 19%
Divi's Laboratories Ltd. 9% 21% 31% 12% 17% 25%
Berger Paints India Ltd. 10% 26% 16% 15% 17% 16%
Nestle India Ltd. 15% 12% 13% 16% 8% 14%
Dr. Lal Pathlabs Ltd. 22% 35% 38% 17% 26% 38%
HDFC Bank Ltd.* 20% 23% 27% 20% 23% 27%
Bajaj Finance Ltd.* 28% 33% 43% 28% 33% 43%
Kotak Mahindra Bank Ltd.* 24% 20% 22% 24% 20% 22%
HDFC Life Insurance Co Ltd.* 11% 20% NA 11% 20% NA
ICICI Lombard General Insurance Company Ltd.* 24% 24% NA 24% 24% NA
Weighted Avg. 22% 25% 31% 15% 19% 25%

Source: Marcellus Investment Managers; Ace Equity; FCFE = Operating cash flow less Capex less Investment in Subsidiaries/Strategic investments /Acquisitions less Net
debt repayments less Interest Paid less Lease liabilities; *Free Cash Flow is not an appropriate metric for Banking & Financial stocks, hence Earnings growth used as a proxy
to FCFE growth in case of BFSI stocks
Private & Confidential 29
 Q2FY23 RESULT UPDATE
Q2FY23 Q2FY23
Sales/
Stock Name PAT Remarks
Advances
(YoY growth)
(YoY growth)
• Strong customer addition of 2.7mn. AUM growth (30%+) is healthy across all lines
Bajaj Finance Ltd. 31% 88% • New growth drivers = Housing finance, Gold loans, Open source auto financing.
• Digital investments on track. Expect massive benefit in customer acquisition
• Market share gains on asset as well as liability side
• NII growth of 19% YoY; NIMs improved to 4.1% QoQ
HDFC Bank Ltd. 24% 20% • Asset quality continues to remain pristine as ever; GNPA/NNPA = 1.23%/0.33%
• Benefits of low credit costs ploughed back in accelerated branch expansion & hiring
• Acceleration in loan book growth has continued
• Q2 NIMs at 5.17% - highest levels in last decade led by rising rates and lag effect of deposits pricing
Kotak Bank Ltd. 25% 27%
• Asset quality improved - GNPA ratio = 2.08%; NNPA = 0.55%
• High investments in tech & talent (Kotak 811)
• APE growth 3 CAGR is 14.6%. Industry growth is weak; Market share = 9.4% in H1FY23 vs 9.3% in FY22
HDFC Life 4% 10% • VnB margins continue to see steady upward move, resulting into ~18% operating RoEV in Q2.
• Exide Life merger is now fully consummated. Exide life margins up from low single digits to 9%
• Market share improved from 9.3% to 9.5%
ICICI Lombard Ltd. 21% 32% • Investments in health insurance giving benefit as expected
• Adjusted for one-offs, RoE for Q2 was at 19.3%.

Source: Company, Marcellus Investment Managers; Other portfolio companies have not yet reported their pre-result updates or quarterly results; VnB growth for HDFC Life instead of PAT growth

30
Private & Confidential.
 HDFC LIFE CONTINUES TO OUTSHINE PEERS

Companies Individual APE Market Share (%) FY10 FY15 FY20 FY22 1HFY23
growth YoY (%) in
Q2FY23 HDFC Standard Life 4.6 7.3 8.1 9.3 9.4
HDFC Standard Life 5.0
ICICI Prudential Life 9.3 11.3 9.0 7.2 6.5
ICICI Prudential Life (8.1)
Max Life 2.9 4.8 5.5 6.2 5.2
Max Life (7.6)
SBI Life 7.2 7.7 13.3 14.7 15.0
SBI Life (3.7)
LIC 47.6 51.0 42.8 37.1 36.7
LIC 2.8

Industry total 5.5

Source: Company, Marcellus Investment Managers

Private and confidential
31
 Q2FY23 RESULT UPDATE
Q2FY23 Q2FY23

Stock Name Sales/ Remarks

PAT
Advances
(YoY growth)
(YoY growth)

• Over 3-years, volume / value has grown at ~17%/ 20% indicative of continued market share gains
• Major capital allocation decisions to strength the core business: (a) ~3,400crs in capacity expansion; (b)
Asian Paints 19% 31%
~2,550crs in backward integration
• Management expects Gross Margin to be at ~40% levels byQ4FY23

• Healthy topline growth of 8% yoy in USD terms.

TCS 18% 8% • Strong demand visibility going forward led by cloud & operating model transformation projects
• Attrition has peaked at expected to improve going forward

• Healthy 27% CAGR over 3-years; In Q3FY22 sales growth was 15% yoy with strong LTL growth of 9%
• Caratlane continues to grow at 50%+ yoy CAGR with improving profitability (~7% EBIT)
Titan 22% 30%
• Early signs of turnaround seen in Eyewear & Watches segment
• Launched a new initiative: IRTH handbags; Targeting 1000cr top line in next 5yrs

• Market share has increased from 18% in FY22 to 18.8% in H1FY23

• Added 6,233 dealers in H1FY23 of which 3,200 are tinting machines - there is a 2x increase in new dealer
Berger 20% 0% addition (both machine and non-machine)
• New plant at Lucknow to start by December. Benefit = 33% increase in capacity and improvement in
service levels

Source: Company, Marcellus Investment Managers; Other portfolio companies have not yet reported their pre-result updates or quarterly results;
32
Private & Confidential.
 ASIAN PAINTS 3-YEAR VOLUME CAGR FOR THE PREVIOUS 5 QUARTERS

Recent capital allocation decision for

deepening the moat:

(a) Investment of ~2,100crs in backward

integration to make VAE & VAM to provide
sustainable cost advantage of ~4-5% in terms
of gross margins. Likely to pass on the entire
benefit

(b) Investment of ~550crs in White Cement to

make White Putty. To provide incremental ~5-
7% gross margin as well as improvement in
product quality

(c) Small acquisition in chemical company

Source: Company
possessing nanotechnology for paints to help
drive premiumisation by offering better
product quality

33
Private & Confidential.
 Q2FY23 RESULT UPDATE
Q2FY23 Q2FY23
Sales/
Stock Name PAT Remarks
Advances
(YoY growth)
(YoY growth)
• Non-covid sales growth over 3 years ex Suburban = 9-10%; Including Suburban = 12%. Sales growth lower
than expectations due to moderation of growth in metros / postponement of demand due to rains.
• Competition intensity from online aggregators is reducing; Some of the players have taken price hikes
Dr Lal Pathlabs 15% * -25%
recently
• Suburban growth during the quarter was subdued due to some temporary challenges around integration;
No change in guidance of doubling sales in next 2-3 years

• Healthy sales growth over 3 years of 19% overall and 20% in consumer bazaar division
Pidilite Industries 15% -10% • Gross margins expected to improve as VAM prices have declined from peak of USD 2200 to 1200-1400
• On track to launch new products in all divisions every 1-2 months in next 12-18 months

• Over 3-years, sales & operating profits have grown at ~17% CAGR
Page Industries 16% 1% • Investing in new plant @ Orissa. Plans to double capacity in next 2-3 years.
• After massive distribution expansion, focus is now on cross-selling & up-selling to improve throughput

• Global BOD has decided to accelerate investment focus and the pace of business in India
Nestle 18% 8% • Encouraging new product launches = GERBER baby food, Purina Pet Care
• Distribution expansion in rural India continues

Source: Company, Marcellus Investment Managers; *non-covid sales growth

34
Private & Confidential.
 MARKET SHARE GAINS FOR DR LAL PATHLABS CONTINUE

Non-covid sales (3-year sales

Q2FY22 Q3FY22 Q4FY22 Q1FY23 Q2FY23
CAGR) - Core business
Dr Lal Pathlabs 12.2% 12.2% 9.0% 10.0% 9.2%
Metropolis 8.8% 4.3% 4.5% 6.2% 5.6%
Thyrocare 1.4% 1.2% -2.2% -1.4% -1.6%
Source: Marcellus Investment Managers

Dr. Lal’s incremental capital deployment to deepen moats in existing core:

- Investing in technology/ talent to strengthen D2C online presence

- Strengthening the B2B business – e.g., tech solutions for internal systems of Hospitals

- Tech investments for scalability – Control Tower, Automation of Quality Checks

Private & Confidential. 35

 Q2FY23 RESULT UPDATE
Q2FY23 Q2FY23
Sales/
Stock Name PAT Remarks
Advances
(YoY growth)
(YoY growth)
• Divi’s Generic API business is now back at pre-covid levels and growing steadily now (YoY growth of ~ 27%
for Q2FY23). Growth in the Generic Segment is volume driven and price erosion for some of the key APIs
has stabilized now.
• Custom Synthesis business has seen some slowdown partly on account of reduced covid related sales
(Molnupiravir – a covid antiviral drug) and partly on account of lower sales for other CSM molecules in
the current quarter. CSM is a lumpy business and hence quarterly numbers cannot be compared to
gauge the performance of this division
Divis -6.7% -18.6%
New opportunities:
• On the generic side, company is adding certain new category products like some of the APIs which are
going off patent in next few years (US$20bn dollar expiry of patents), contrast media molecules,
nutraceuticals, etc., will aid growth for this business
• On CSM company has been getting new queries for certain phase-2 and phase-3 molecules which will
further strengthen the CSM business of the company in terms of more stable demand and higher
volumes. Divi’s has received 2 phase-3 molecules in CS business in last quarter and the commercialization
is expected in 4-6 quarters

Source: Company, Marcellus Investment Managers; Other portfolio companies have not yet reported their pre-result updates or quarterly results
36
 DIVIS LABS’ HISTORICAL QUARTERLY REVENUE PROGRESSION VS. SHARE PRICE

Private & Confidential. 37

CAPITAL ALLOCATION & BUSINESS TRANSFORMATION DECISIONS ACROSS SOME OF THE CCP
COMPANIES OVER THE LAST 2 YEARS
ICICI Dr. Lal Pathlabs:
Asian Paints: -Suburban acquisition
-Home décor foray
Lombard:
-Bharti AXA -Tier 2/3 expansion
-150k+ dealers -B2B and D2C tech
(FY20=90k) investments
-Backward integration Pidilite:
-Araldite acquisition
-Roff (tile adhesives/
stone care solutions)
Titan: -Tech investments
-Going ‘phygital’ with (ARS) & Automation
Caratlane Bajaj Finance:
-Eyewear turnaround Super app to help to:
-Wedding jewellery -Hire new customer
-Taneira for sarees -More wallet share
Page Industries: -Cost efficiency
HDFC Life: -Blue Yonder, ARS -More data = better
-Exide Life -Sales Force Automation underwriting
-Kidswear, Womenswear

Note: This is not an exhaustive list of all initiatives taken by our investee companies
38
Private & Confidential.
 DISCLAIMER
Marketing PPT Disclaimer for India & US

Note: The above material is neither investment research, nor investment advice. Marcellus Investment Managers Private Limited (“Marcellus”) is regulated by the Securities and
Exchange Board of India (“SEBI”) as a provider of Portfolio Management Services and an Alternative Investments Manager. Marcellus is also registered with US Securities and
Exchange Commission (“US SEC”) as an Investment Advisor. No content of this publication including the performance related information is verified by SEBI or US SEC. If any recipient
or reader of this material is based outside India or US, please note that Marcellus may not be regulated in such jurisdiction and this material is not a solicitation to use Marcellus’s
services. This communication is confidential and privileged and is directed to and for the use of the addressee only. The recipient, if not the addressee, should not use this material if
erroneously received, and access and use of this material in any manner by anyone other than the addressee is unauthorized. If you are not the intended recipient, please notify the
sender by return email and immediately destroy all copies of this message and any attachments and delete it from your computer system, permanently. No liability whatsoever is
assumed by Marcellus as a result of the recipient or any other person relying upon the opinion unless otherwise agreed in writing. The recipient acknowledges that Marcellus may be
unable to exercise control or ensure or guarantee the integrity of the text of the material/email message and the text is not warranted as to its completeness and accuracy. The
material, names and branding of the investment style do not provide any impression or a claim that these products/strategies achieve the respective objectives. Marcellus and/or its
associates, employees, the authors of this material (including their relatives) may have financial interest by way of investments in the companies covered in this material.

This material may contain confidential or proprietary information and user shall take prior written consent from Marcellus before any reproduction in any form.

Data/information used in the preparation of this material is dated and may or may not be relevant any time after the issuance of this material. Marcellus takes no responsibility of
updating any data/information in this material from time to time. The recipient of this material is solely responsible for any action taken based on this material. The recipient of this
material is urged to read the Private Placement Memorandum/Disclosure Document/Form ADV, Form CRS and any other documents or disclosures provided to them by Marcellus, as
applicable, and is advised to consult their own legal and tax consultants/advisors before making any investment in the Alternative Investment Fund.

All recipients of this material must before dealing and or transacting in any of the products referred to in this material must make their own investigation, seek appropriate
professional advice and carefully read the Private Placement Memorandum/Disclosure Document, Form ADV, Form CRS and any other documents or disclosures provided to them by
Marcellus, as applicable. Actual results may differ materially from those suggested in this note due to risk or uncertainties associated with our expectations with respect to, but not
limited to, exposure to market risks, general economic and political conditions in India and other countries globally, inflation, etc. There is no assurance or guarantee that the
objectives of the investment strategy/approach will be achieved.
This material may include “forward looking statements”. All forward-looking statements involve risk and uncertainty. Any forward-looking statements contained in this document
speak only as of the date on which they are made. Further, past performance is not indicative of future results. Marcellus and any of its directors, officers, employees and any other
persons associated with this shall not be liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any
loss of profit in any way arising from the use of this material in any manner whatsoever and shall not be liable for updating the document.

Private & Confidential 39