Unifi Alternative Investment Fund Pre refac face Investor - PowerPoint PPT Presentation

Unifi Alternative Investment Fund

Pre refac face Investor Predicament Unifi AIF Proposition Conventional Equity Conventional Debt Event Arbitrage • High • Low • Consistent above average / above average / below average return potential volatility returns (~15%) • Accompanied by extreme • Hardly • Minimal / below average any real returns volatility post tax and inflation volatility (~12%) Cyclicality of asset values combined with misconstructed Risk adjusted arbitrage risk-return expectations push investors to either opportunities arising from • settle for sub-par returns (or) • corporate events • systemic changes • bear volatility beyond one’s temperament leading to • macro-economic cycles capital loss

Overview Inves estme ment nt Object ctive Unifi High Yield AIF is a discretionary fund focusing on event arbitrage and structured investment opportunities across multiple asset classes with an objective to generate absolute returns of 15% p.a with a standard deviation of 12% or less. The endeavor is to consistently generate superior compounded annual returns than conventional fixed income instruments with uncompromising emphasis on capital preservation. Event Arbitrage opportunities emerging Investment Investment Unifi Capital Pvt. Ltd. from corporate events, systemic changes Manager Strategy and macro-economic cycles Minimum Open ended; Monthly subscription and INR 1 crore Tenure Commitment redemption Performance Monthly NAV & Quarterly 1% fixed and 20% performance above Fees Reporting Review the hurdle rate of 10% per annum Independent IL&FS Securities Services Custodian & Valuation S&P CRISIL Ltd Accountant

Investment Allocation Approach Unifi AIF’s core investment strategy is Change in I Inflati tion to exploit corporate event arbitrage Expectatio tations opportunities that inherently have Rise Fall limited correlation to economic cycles and market volatility. In the debt segment, the focus is on high yield Event Arbitrage Event Arbitrage Nominal Bonds opportunities with an accrual mindset Rise High Yield Bonds Change in High Yield Bonds besides tax efficiency. Select Equities Economi mic c Select Equities Growth th Rate Expectatio tations GDP VS INFLATION Real GDP WPI Inflation Event Arbitrage Event Arbitrage - Fall 100% 15.0% Floating rate acceptance notes 10.0% Nominal Bonds 5.0% Gold ETFs 0.0% FY1995 FY1996 FY1997 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015

Investment Allocation Strategies Instruments Min – Max Allocation Debt like arbitrage opportunities in Listed Equities arising from open offers, Event Arbitrage 0 – 100% delisting, mergers & de-mergers, IPOs, Cash-Futures Commercial Papers, short term bonds and tax efficient Preference Shares of Alternative NBFCs focusing on High Yield Bonds 0 – 80% Affordable Housing, Mortgage backed SME Financing, CV and Micro Finance. Conventional AAA & AA bonds of various Nominal Bonds 0 – 50% Indian Companies Equity, G-Secs and AAA debt (duration Selective Directional Calls 0 – 10% calls)

Investment Strategy Event nt Arbitr itrag age opport rtuni nities ies • Emerge from corporate events like acquisition, buyback regulation triggered / voluntary open offers made to the public by controlling shareholders, company delisting etc. • The risk- return pay-off in most of such deals is deal-specific and has limited correlation to market cycles. • Emerge in such cases due to the perceived discount in the pre-event market price in relation to the open offer / post-event price, occurring largely due to asymmetric information distribution, difference in investment objectives and expectation amongst investors Debt Arbitra itrage ge opport rtun unities ities • Also emerge across asset classes including • Conventional Debt (Wholesale-Retail Arbitrage; Subsidiary-Holding Company Arbitrage) • Structured High Yield Debt issuances collateralized with home loan, auto loan, micro finance receivables etc (Asset Liability Management Arbitrage in Alternative NBFCs )

Unifi Event Arbitrage - Track Record 10+ Years 10 100 100+ investments (Out of 200+ opportunities reviewed) 1000+ crores deployed successfully ~ 15 15% CAGR returns with a standard deviation of ~ 7% (Adjusted for Cash) 60% Synopsis of past performance 40% Total no. of deals till 20% 150 Jan 2015 % Returns 0% 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 Profitable deals 132 -20% Average returns per -40% 5% deal -60% Average tenure of 3 - 4 deals months -80% Sequential Event Arbitrage Deals

Event Arbitrage Particulars FY15 FY14 FY13 FY12 FY11 Historical No Of Open Offers Total no. of 60 60 74 71 101 offers 120 100 No. of offers 9 12 16 11 17 80 participated 60 Average offer 287 3941 523 288 184 40 size (in crs) 20 Largest Offer 0 11449 29200 5222 931 4366 invested (in crs) Smallest Offer invested (in 251 30 40 27 78 crs) Payment Date 12 th Jul 13 HUL Open Offer PA on 30 th April 13 Acceptance : 100% Purchase Date: 30 th April 13 In a typical open offer, the Return: 84.12% Purchase Price: 582 /- 25000 Similar to “Debt” Returns 620 price movement during the Annualized Return: 20.62 % Offer Price: 600 /- Vol. (In Thousands) 610 period between public 20000 600 Stock Price announcement and the offer 15000 590 closure is largely insulated 580 10000 from market volatility and 570 5000 delivers a debt like absolute 560 return. 0 550 30-Apr-13 15-May-13 30-May-13 14-Jun-13 29-Jun-13 Volume(In thousands) Stock Price

AIF Arbitrage Deals - Track record Offer Size Date Company (Rs.Crs) Flat Return Days Jul-13 Igarashi Motors India Ltd. 58 16.33% 93 Nov-13 Think Soft Global Services 79 14.94% 105 Feb-14 Sterling Holiday Resorts 230 7.22% 80 Jan-15 NTPC Bonus debentures Arbitrage 10306 7.18% 52 May-14 Mangalore Chemicals Ltd. 211 6.29% 100 Apr-13 Orient Refractories Ltd 134 5.83% 19 Mar-14 Anjani Portland 30 5.66% 124 Aug-13 Hexaware Technologies Ltd. 1057 5.41% 84 Jun-13 CRISIL 1896 5.19% 70 Apr-13 Orient Green Power 221 4.78% 49 Feb-14 Shree Renuka Sugars 532 4.60% 85 Apr-13 HUL 29200 3.79% 73 Jul-14 Prime Focus Ltd. 404 2.88% 191 Dec-13 GSK Pharma 6389 2.52% 85 Feb-14 ICRA 636 2.50% 14 Jun-13 Mahindra Forgings Ltd 198 2.49% 125 Dec-13 Accel Frontline Ltd 35 2.43% 74 Mar-15 Sun- Ranbaxy Merger 36000 1.01% 38 Apr-13 Liberty Phosphate Ltd. 90 -1.88% 97 Apr-14 United Spirits 11448 -2.37% 85 20 Offers Average 4.84% 82 Days

Debt Investments – Approach and Strategy In Inve vestmen stment Str Strat ategy egy - The focus would be on opportunities in the AA to Investment Grade segment to optimize after tax yields while balancing risks. Typically, all debt investments are made with Hold to Maturity (HTM) mindset but some of it could be traded opportunistically to maximize capital appreciation or minimize risk. Arbitrage opportunities emerging from the following possibilities will be actively pursued to enhance the overall portfolio yields. Ta Tactic tical al Cal Calls ls - Consider macro-economy Sub Subsid idiary iary – Hold lding ng Co Compa pany ny – Focus on 100% driven opportunities like softening of Yield Subsidiaries whose papers are rated lower than their Curve (duration play) due to fall in Interest highly rated Parent companies but offer an higher Rates and conducive Rating Upgrades cycle yield. resulting in capital gains. Wholesale lesale to to Retail ail – Bulk Buying from Bank Aggregat Aggr egator of of Ret etail ail Lo Lots ts – Provide the much Treasuries / Primary Issuances at finer rates and needed liquidity channel for retail bond selling in smaller lots with a mark-up to HNIs / holders at market yields plus spread. Private Provident Fund Treasuries.

Debt Investments – Approach and Strategy Stru Structure ctured Pap apers ers from from Em Emerg erging Financ ncia ial Se Sectors ctors- Consider high yield opportunities arising from well-capitalized and professionally managed Alternative NBFCs focusing on SME Financing Commercial Vehicles Affordable Housing backed by Micro Financing Financing Mortgages The following criteria is firmly applied for selection of investment opportunities in this segment -  Fundamentally sound and profitable business model  Management with proven track record  Robust process for credit evaluation, security creation, operations control and collections  Presence of seasoned Private Equity investors in the board  Recent round of promoter / private equity infusion strengthening the capital adequacy  Short Term Maturity and being in the top quadrant of the Company’s Liability Repayment profile thereby placing our exposure in a positive Asset Liability bucket.