360 ONE Phoenix PMS identifies companies which will see a sharp improvement in fundamentals in the future

Phoenix is a mythological bird which rises from the ashes of its predecessors. In Greek mythology the Phoenix represents cyclicality of society and even civilizations. Like the Phoenix, businesses go through cycles of upswings and downswings. 360 ONE Phoenix PMS identifies companies that are going through a short term cycle of relatively low earnings growth and are about to turnaround i.e. see a sharp improvement in fundamentals in the future. Short term downturns or disruptions can provide excellent investment opportunities for long term investors.

Stages of turnaround

Triggers of turnaround

Outcome - Improving financial

How can you benefit?

Turnaround opportunities enable you to invest in companies trading at relatively deep discount to their future fundamental valuation:-

• Improved fundamentals usually unlock value in the businesses


• Valuation re-rating & value Sustenance


• After a successful turnaround, sustenance of turnaround factors may further lead to compounding of value, creating new highs for the business and wealth creation for investors

Case study 1 – Turnaround in chemicals manufacturer

• Historically, the company was into manufacturing of technical textiles and packaging films. The ROE of these two businesses were low.


• In 2012, the company entered into the chemicals business using cash flows from its sale of carbon credits and deploying it into setting up fluoro-specialty chemicals business (Rs 1,380 crores were invested in chemicals business)


• From March 2014 to March 2023, EPS grew at a CAGR of more than 32.5%. This resulted in valuation re-rating and CAGR returns of 43.5%.
  
  

  

Case study 2 – Turnaround in Pharma Company

• Historically, the company manufactured active pharmaceutical ingredients (APIs) and formulations for export markets, primarily US.


• In 2014, the company received notice from the US drugs regulatory authority, USFDA for non compliance with FDA requirements in one of its plants. As a result, the company had to stop export of US formulations as well as API exports to other countries causing collapse of margins and revenues


• From 2014, the firm increased focus on the domestic (Indian) market and took steps to improve operating leverage on ex-US markets


• Changed market focus resulted in EPS growth of 13% CAGR from 2018 to 2023. This led to valuation re-rating and share price appreciation at CAGR of 24% from March 2018 to November 2023.
  
  

  

360 ONE Phoenix PMS - Stock selection criteria

• Upgrade in quadrant (SCDV) i.e. higher PAT or EPS growth
  
  

  

• Lower profitability versus historical trends


• Proven track record and capital efficiency (ROE > 15%), refer to chart above


• Trading at a discount to historical valuations


• Changes in management / ownership


• Strong governance


• Stocks where price correction has occurred

360 ONE Phoenix PMS – Current portfolio positioning

Source: 360 ONE, portfolio as on 30^th September 2023

Source: 360 ONE, portfolio as on 30^th November 2023

360 ONE Phoenix PMS – Performance

The scheme has been beaten BSE 500 TRI over different performance periods since inception.

Source: 360 ONE, as on 31^st December 2023

Our take

• Global equities have rallied after the Fed signalled that the current interest rate cycle is coming to its end


• India continues to be the bright spot among the emerging economies and is likely to see higher allocations from FIIs in the coming year


• The market is trading near its all time highs, but we have seen volatility and profit booking / FII selling in January


• Certain pockets of the market may be in the expensive zone. A stock specific approach to investing can be a prudent in current market conditions


• 360 ONE Phoenix PMS with its focus on turnaround opportunities / undervalued stocks can provide attractive investment opportunities for investors with long investment horizons


• 360 ONE Phoenix PMS has established track record of alpha creation and is strongly positioned to deliver alphas for investors in the long term.

Consult with your financial advisor or PMS distributor if you want to know more about 360 ONE Phoenix PMS