Strictly Confidential Not for Distribution

October Quest 2016

2

Background

Evolved towards being an investor that better appreciates the power of compounding over a long period of time

2010 - present

Voyager Advisors,

Analyst

(Mumbai)

2001-2007

Lehman Brothers

Equity Research analyst

(New York)

2007 - 2009

First Voyager Advisors,

Director

(Mumbai)

1997 to 2001

BSBA in Finance

University of Richmond

(Virginia, USA)

Key Learnings on the Investment Journey

4

•Inbuilt thirst to become more knowledgeable

•What will I learn today?

•Ask the questions, seek the answers

•“Spend each day trying to be a little wiser than you were when you woke up” – Charlie Munger

“An investment in knowledge pays the best interest” – Benjamin Franklin

Curiosity

5

•In some cases rationality is part of your temperament

•Challenges come from several behavioral biases:•The fear of missing out•Availability of information•Anchoring•Loss Aversion

•Constantly review past decisions and eventual outcomes

•Be true to yourself

“It is easier to rationalize than it is to be rational” – Warren Buffett

Rational Thinking

6

•Helps you ingrain the margin of safety

•Actively list out different scenarios and assign probabilities

•Repeating the process helps in the ability to develop mental models.

•Use a reference group of past decisions to better estimate probability

“Take the probability of loss times the amount of possible loss from the probability of gain times the amount of possible gain. That is what we're trying to do.” – Warren Buffett

Probabilistic Mindset

7

•Unlearn CAPM

•Opportunities stacked in your favor come rarely, capitalizing on them is the key to outsized returns

•Caveat – need to have the right analytical skills and probabilistic mindset to identify these opportunities.

•This is not for the faint hearted. However, if you don’t back yourself, you are not even giving yourself a chance

“The wise ones bet heavily when the world offers them that opportunity…” – Charlie Munger

Portfolio Sizing

8

•Timing market is difficult; buying back compounders even more

•Patience does not equate to laziness

•Be “Actively open minded”

•Noise vs Signal - constantly look back at the reason you invested and if that still holds valid

•For high growth compounders, over long period of time, stock returns will largely equal earnings growth

“The big money is not in the buying and the selling… but in the waiting.” – Charlie Munger

Patience

9

•Drill down to the nuts and bolts of how the business operates

•Maintain a “too difficult” bucket

•“If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.” – Peter Lynch

“Know what you own and know why you own it” – Peter Lynch

Understand the Business

10

•"Warren Buffett is famous for talking about the 'intrinsic value' of stocks. But while many people parrot this phrase, few know what it really means." - Robert Kiyosaki

•Intrinsic value: It is the discounted value of the cash that can be taken out of a business during its remaining life.

•Think along the lines of magnitude and sustainability of cash flow for each business

•“Remember, cash is a fact, profit is an opinion.” – Al Rappaport

“Price is what you pay. Value is what you get” – Warren Buffett

Understand the Intrinsic Value of the Business

11

•“My life experience is, once someone puts his hand in your pocket, he will do so again.” – Chuck Akre

•Drive and passion towards building a business

•Rational thinking and probabilistic mindset to adapt to dynamic world

•History of capital allocation

“In looking for people to hire, look for three qualities: integrity, intelligence and energy. And if they don’t have the first, the other two will kill you.” – Warren Buffett

Quality of Management

12

•Investing is like running on a treadmill – you have to keep moving forward to stay where you are

•The core tenets of investing don’t change

•It is the process of gathering and analyzing data that needs constant refinement

•What can I do differently that can give me an edge in understanding the business better?

20% of your investment process gets commoditized every year

The 20% rule

13

14

•Analjit Singh – serial entrepreneur with significant value creation

•Strong execution

•‘Sevabhav’, Credibility and Excellence – cornerstone of culture across businesses

•Disciplined capital allocation

•Value unlocking for minority shareholders through demerger

Max Group: Strong management team and culture

15

• Fourth largest life insurance company with industry leading growth, margins and return ratio

Max is among the best life insurance companies across different metrics

Max Group: Strong track record in Life insurance

Increase in market share since 2010

Operating ROEV NBAP margin Persistency

Max Life 2.8% 16.9% 17.1% 79%

HDFC Standard Life 4.0% 17.6% 20.5% 79%

ICICI Pru Life 0.5% 12.2% 8.1% 82%

SBI Life -1.1% NA 14.2% 59%

Bajaj Allianz Life -5.1% 5.5% -7.5% 63%

Notes• NBAP margins are post overrun • Persistency represents 13 month persistency

Source: Companies

16

28% annualized returns over last 15 years

Max Group: Strong track record

(Rs cr)

(Rs300 cr)

(Rs13,600 cr)

28% CAGR

Market Capitalization

Source: Bloomberg

Healthcare Opportunity

18

Per capita healthcare spend in India only $85 a year compared to global average of $1,040

Healthcare Opportunity: Huge latent demand

($)

(X)

Source: WHO

19

Private hospital business to grow from $60 billion in 2015 to $120 billion by 2020, at a CAGR of 15%

Healthcare Opportunity: Several catalysts to drive demand

(Rs '000)

11% CAGR

Rising per capita income

Increase in MBBS seats and medical collegesSignificant PE investment in the healthcare in last few years

Increase in insurance penetration

(US$ mn)

(Rs cr)21% CAGR

Source: IMF, Medical Council of India, VCCEdge

20

Max India: Network effect in NCR region

Service

Quality doctorsPatients

21

Apollo has delivered 20% CAGR in hospital EBITDA in the last 12 years

Longevity: Apollo has created significant wealth in last 15 years

(#)

(Rs mn)

Source: Company

22

Apollo has delivered 25% annualized return over last 15 years

Longevity: Apollo has created significant wealth in last 15 years

(Rs cr)

25% CAGR

(Rs700 cr)

(Rs20,400 cr)

Market Capitalization

Source: Bloomberg

23

• High quality doctors• High end tertiary care• High paying capacity

Max focused on developing medical hub in Delhi vs expanding into smaller towns

Centralized hub vs expansion in smaller towns

• Inability to attract quality doctors• Poor paying capacity• Delay in approvals for greenfield expansion• Patients prefer to travel to large cities for high

end tertiary care

24

Concerns

Low ROCEs in hospital business

Reputation risk

Long gestation period

Is it similar to hotel industry?

25

Max has 40% of beds less than 3 years old, compared to 20% for Apollo and Fortis.

Consolidation phase: Pace of bed additions to slow down

No of beds (#)

0.21

0.20 0.43New beds to total beds/

Source: Companies

26

As the hospital matures, utilization, ARPOB and margin increases, resulting in improved ROCEs

Consolidation phase: Deliver mid teen ROCE in 5 years

Source: Company

27

• Standalone hospitals like Bumrungrad Hospital (in Thailand) and Raffles (in Singapore) growing operating profits in mid-teens and consistently delivering high ROCEs, as compared to large hospital chains

Expect Max Saket to report superior performance, similar to other standalone hospitals

Low ROCEs: Standalone hospitals have strong profitability

EBITDA margin (%) ROE (%) ROCE (%)

Standalone hospitals

Bumrungrad Hospital 29.9% 29.1% 19.1%

Raffles Medical 22.4% 12.1% 11.2%

Multi-geography Hospitals

IHH 25.1% 4.5% 4.4%

Fortis 5.2% -0.6% 0.01%

Notes• Estimates as of 2016, from Bloomberg

Source: Bloomberg

28

Concerns

Low ROCEs in hospital business

Reputation risk

Long gestation period

Is it similar to hotel industry?

29

Culture that puts high value on excellence and credibility

Max India: Reputational risk

“We felt we were in safe hands in Max. The other hospitals had used us as ATM machines, extracting money for little care”

- Patient undergoing IVF surgery in Max

“Doctors are trained to strictly adhere to procedures and not cut corners, as it is key to brand and reputation of the hospital”

- Administration head at Max Saket

“Working with Max gives the opportunity to work with the latest technology and procedures ahead of peers”- Doctor working in the cardiac division

30

Concerns

Low ROCEs in hospital business

Reputation risk

Long gestation period

Is it similar to hotel industry?

31

Efficient capital models will drive better profitability

Max India: Long gestation period

Acquisition of standalone hospitals

Joint venture with a real estate developer

Divestment of land and building into REIT

32

Concerns

Low ROCEs in hospital business

Reputation risk

Long gestation period

Is it similar to hotel industry?

33

Healthcare is defensive, while hotel industry is more cyclical in nature

(Rs)

(Rs)

Source: Companies

Hospitals: Is it similar to hotel industry?

34

Valuations in line with other hospitals, but higher operating leverage expected for Max

Valuation: Trading in line with peers

Mcap

(US$ mn)EBITDA margin (%)

ROE

(%)EV/EBITDA

2017 (X)EV/EBITDA

2018 (X)

Max healthcare 566 10.2% 1.1% 24.0 19.0

Apollo Hospitals 2,820 12.9% 10.0% 22.5 18.9

Bumrungrad Hospital 3,855 29.9% 28.1% 22.9 20.4

Raffles Medical 2,037 22.4% 12.1% 26.3 22.8

IHH Healthcare 12,935 25.1% 4.4% 22.0 19.2

Source: Bloomberg, Companies

35

• Large addressable market

• Strong management team with proven track record

• Culture of integrity and excellence

• Network effect in NCR Region

• Operating leverage from consolidation phase

• More capex efficient going forward, driving FCF generation

• Compound in line with EBITDA growth at 25%

Key Takeaways

36

Thank You