Year 2019 - Equity Market

Outlooko 2019 will be a challenging and volatile year

o Global economies likely to exhibit slowdown in growth, Indian economy

poised to grow driven by consumption and recovery in private capex

o Commodity prices including crude oil likely to remain stable, inflation to also

remain contained, rate hike cycle likely to come to an end

o Run up to National Elections to see volatile and range bound markets,

Political clarity to ensure better fund flows to Emerging Markets including

India in 2HCY19

o Bottom up market, remain focused on stock specific triggers including

earnings visibility and valuations

Source- internal research

What is IDBI Healthcare

Fund ?o This is a Sectoral Scheme

o Primary focus is on the growing companies in the Healthcare and allied

sectors

o Stock selection is based on sustainable long term growth potential and

sound technical expertise

o Bottom up stock picking strategy for investment

o Portfolio will mainly consist of stocks of the companies engaged in

Healthcare, Pharmaceuticals, Hospitals, Diagnostics, Medical Insurance,

Medical supplies and equipment, Wellness etc.

o Investment across Market Capitalizations

o Upto 20% allocation to ‘other than healthcare and allied sectors’ stocks,

which offers diversification in the Scheme

o Concentrated portfolio, focused on one sector. Hence has a high risk

profile and is a long term product.

High Risk High Return

Profile

Categories as applicable for Equity Oriented Schemes are mentioned above

Arbitrage Fund

Index Fund

Large Cap Fund

Multi Cap Fund

Mid Cap Fund

Small Cap Fund

Sectoral

/Thematic Fund

0

0.5

1

1.5

2

2.5

3

3.5

4

Arbitrage Fund Index Fund Large Cap Fund Multi Cap Fund Mid Cap Fund Small Cap Fund Thematic / Sector

Fund

Pro

du

ct R

isk

(%

)

Product Returns Potential (%)

IDBI

Healthcare

Fund

Who should Invest?

o Investors looking for growth opportunities available in

Healthcare and allied sectors

o Investors with long term investment horizon i.e. 3 years and

more

o Regular Investors willing to have a tactical allocation to their

overall equity portfolio

o Investors with relatively high risk appetite and looking for

capital appreciation on their investments

Components of the

Healthcare Sector

Source : India Brand Equity Foundation (IBEF)

IDBI Healthcare Fund seeks to invest in companies engaged in Healthcare &

Allied sectors including Hospitals, Pharmaceutical, Diagnostics, Medical

equipment and supplies and Medical Insurance etc.

Indian Healthcare Sector –

Structural Growth Story

o Healthcare has become one of India's largest sectors both in terms of

revenue and employment and is hence a critical industry.

o India is one of the fastest growing economies in the world, and healthcare

spends rise as GDP and per capita income increases.

o Healthcare spends currently very low compared to other countries.

o Introduction of schemes like Ayushman Bharat, which shows the intent of

the Government to keenly focus on greater healthcare penetration.

o Increased consumer spending, rapid urbanisation, rising healthcare

insurance are key factors which should help the market grow well over the

next 5-10 years.

Indian Healthcare Sector –

Structural Growth Story o Favourable demographics in terms of growing population including large proportion of

elderly people, combined with increasing life expectancy

o Rise of New segments in the past few years – health insurance, hospitals, diagnostic

companies – all fast growing and under penetrated segments in the country today

o Investment in Research & Development (R&D) by companies paying off as topline growth

has started to accelerate

o India still remains the largest outsourcer of pharmaceutical products to developed

markets like the US, owing to better cost metrics – volume growth seen despite pricing

issues

o Due to the above factors , Demand for Healthcare to remain structurally strong

o Post FY16, the sector saw a meaningful correction, however valuations now appear to be

reasonable

India’s GDP Growth – set to

outpace peers

2019 are Forecast figures. Source- International Monetary Fund (IMF)

More importantly, per capita GDP

is growing..

Per capita GDP at current prices for 2018 was US$ 2,134.75

2019 to 2023 are Forecast figures. Source- International Monetary Fund (IMF)

Indian Healthcare industry spends

among the lowest in the world but

growing fast

Per capital spending on Healthcare in India remains among the

lowest in the world

Source : India Brand Equity Foundation (IBEF)- December 2018

Government spending via Ayushman

Bharat Yojana

o Ayushman Bharat Yojana or Pradhan Mantri Jan Arogya Yojana (PMJAY) or National

Health Protection Scheme is a centrally sponsored scheme launched in 2018, under

the Ayushman Bharat Mission of Ministry of Health and Family Welfare (MoHFW)

o It is an umbrella of two major health initiatives namely

– National Health Protection Scheme(NHPS):

It will cover over 10 crores poor and vulnerable families (approximately 50 crores

beneficiaries) providing coverage up to 5 lakhs rupees per family per year for

secondary and tertiary care hospitalization.

– Health and Wellness centers

Rs 1200 crore allocated for 1.5 lakhs health and wellness centers

Under this 1.5 lakhs centers will be setup to provide comprehensive health care,

including for non-communicable diseases and maternal and child health

services, apart from free essential drugs and diagnostic services.

o The scheme is set to benefit hospitals and diagnostic centers as more patients obtain

medical treatment

Increase in lifestyle diseases and

growing awareness

o The purported rise of lifestyle diseases in

India is expected to boost industry sales

figures

o Increased incidences such as heart disease,

obesity and diabetes have contributed to

rising healthcare spending by individuals

o Growing health awareness and

precautionary treatments coupled with

improved diagnostics are resulting in an

increase in hospitalization

o CAGR of hospitalized cases from 2008 –

2018:

– Cardiac – 18%

– Oncology - 16%

– Diabetes - 19%

Source- Apollo Hospitals- September 2018 Presentation, IBEF

Domestic Pharma Market

o Underpenetrated segment, with significant investments being made, should grow by a 12-14%

CAGR over the foreseeable future

o Chronic is the fastest growing segment and comprises of lifestyle diseases including Diabetes,

Cardiovascular, problems of the Central Nervous System, Hypertension, Cancer, Brain Disease etc.

o Companies with significant presence in the chronic segment showing revenue and profitability

growth

Year Market size Rs. Cr. Growth Rate %

FY09 35,367 10.1

FY10 41,700 17.7

FY11 48,239 15.3

FY12 55,507 15

FY13 61,189 10.1

FY14 72,820 6.2

FY15 76,412 13

FY16 87,875 13.5

FY17 1,11,135 10.3

FY18 1,19,386 5.7

Source: IMS, AIOCD AWACS data. Disclaimer: The information herein is used for comparison and illustration

purpose. Past performance may or may not be sustained in future .

US – Remains a Key Market

o India is one of the world’s largest provider of generic medicines (formulations and APIs)

accounting for 20% of global exports, with the US being the biggest export destination.

o Nearly 40% of India’s formulations exports were to the US, with India accounting for 22%

of global U S Food and Drug Administration (USFDA) approved plants

o Indian companies benefitted from the rush of large products going off patent in the US,

which allowed them to manufacture generic products at about 1/3rd the US price.

o India continues to have cost advantages and skilled manpower

o Strong growth seen in such traditional products till FY16. Thereafter, increased

competition and lower pricing in these products impacted sales and profits

o US however remains one of the largest markets for Indian companies and we are

positive on a robust recovery in US sales, led by new opportunities in more complex and

limited competition products Source-India Brand Equity Foundation (IBEF)

Complexity drives US

Market Opportunity

o The US market offers a large $105 bn opportunity in highly complex products and

new segments like Biosimilars

o Several Indian Pharmaceutical companies have invested significantly in R&D over

the past few years (approx. 8%-13% of sales), with a focus on complex and limited

competition products and they will benefit from this opportunity

Source : Edelweiss Securities Ltd

Figures In billion (bn)

US FDA Issues Likely to

Reduce

o Over the past five years, there has been enhanced scrutiny of

the US FDA (Food and Drug Administration) on Indian

Pharmaceutical companies’ factories/plants

o Several plants had received warning letters or import alerts

o Indian companies have invested in improving manufacturing

processes to align with global standards

o Incremental negative news on plant related observations

could reduce

Disruptions are Temporary,

Expect Rebound

o The Indian healthcare sector witnessed two years of negative returns driven by

several factors, both in the domestic market as well as in the US market

o In the Domestic market, drug price controls had severely impacted the pricing

power of companies and caused margins to contract meaningfully

o A similar story was seen in the US, where after years of slow pace of approvals,

the US FDA more than doubled the number of generics allowed into the market

and this caused a sharp erosion in US prices, thereby impacting profitability of

one of the most lucrative markets for Indian Pharma companies

o The industry has however now bottomed out, with much of the pricing impact

already done.

o Given the structural demand for generic products in India as well as the US, the

Indian Pharma companies are expected to perform well

Sector profitability appears to

have bottomed out

The sector has seen a sharp decline in margins driven by poor domestic and US

pricing environment and higher competition.

We believe the worst is done in terms of margin and profitability declines, and

financial metrics should improve from here. Source : Edelweiss Securities Ltd

21.0

22.0

23.0

24.0

25.0

26.0

27.0

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

EBITDA Margins %

The information herein is used for comparison and illustration purpose. Past performance may or may not be sustained

in future .

….And set to Rebound

o Indian Healthcare sector has historically traded at a meaningful premium to the Nifty

50 Index

o FY15 was the peak year in terms of earnings growth and PE multiple, after which the

sector witnessed 3 years of lower earnings growth due to both domestic as well as US

factors

o Structural story remains intact, will see an improvement in earnings in FY19 and FY20

and potentially increase the premium of the sector to the Nifty 50 Index

Date

S&P BSE

Healthcare Index Nifty 50 Index PE (x) Discount/Premium

S&P BSE Healthcare

Index Earnings

FY09 18.9 23.5 0.8 -33.5%

FY10 23.0 23.5 1.0 68.7%

FY11 34.1 20.0 1.7 -26.0%

FY12 22.0 13.8 1.6 66.9%

FY13 22.6 16.1 1.4 18.1%

FY14 27.6 16.2 1.7 3.5%

FY15 35.9 19.4 1.9 30.7%

FY16 30.6 20.7 1.5 6.2%

FY17 29.7 20.4 1.5 3.7%

FY18 27.5 22.7 1.2 -2.5%

Source- Bloomberg

Healthcare Index has traditionally

outperformed the Nifty 50

Disclaimer - The information herein is used for comparison and illustrative purpose.

Past Performance may or may not sustain in future. Source- Bloomberg

Healthcare Index has traditionally

outperformed the Nifty 50 Index

o The S&P BSE Healthcare Index has traditionally outperformed the broad

market index due to the sector’s growth profile

o 2016 and 2018 were years of underperformance due to pricing issues in

domestic and US markets

o This underperformance is expected to reverse with rebound in growth to the

sector

Year

S&P BSE

Healthcare Index

Return % Nifty 50 Index Return %

2008 -35.3% -51.8%

2009 75.9% 75.8%

2010 33.5% 17.9%

2011 -14.2% -24.6%

2012 37.2% 27.7%

2013 21.1% 6.8%

2014 48.4% 31.4%

2015 15.3% -4.1%

2016 -12.9% 3.0%

2017 48.8% 28.6%

2018 -5.9% 3.2%

Source- Bloomberg

Insurance opportunity is

significant

In India, almost 78% of the Healthcare spend is borne Out of the Pocket of the

individuals.

This presents a large opportunity for Health Insurers

Source- http://www.eindiainsurance.com/india-health-insurance/

Increasing Health Insurance

penetration bodes well

o The health insurance industry has shown a good growth over the past few

years but still remains vastly under penetrated

o Several companies have increased focus on this segment, thereby

providing us with visibility of future growthSource: Apollo Hospitals Annual Report FY18

Hospitals- An

Underpenetrated Opportunity

o India is among the most under-penetrated markets for healthcare

infrastructure with only 9 beds per 10,000 population

o Meaningful increase in infrastructure by private players to address this gap

Source: Apollo Hospitals Annual Report FY18

Medical Tourism – Rapidly

Growingo Presence of world class hospitals and skilled medical professionals- Helps to strengthen

India’s position as a preferred destination for medical tourism

o Superior quality healthcare, coupled with low treatment costs in comparison with other

countries- Benefit Indian medical tourism, and enhance the prospects of the Indian

healthcare market

o Major surgeries treatment cost in India is approximately 20% of that in developed countries

o India also attracts medical tourists from developing nations due to lack of advanced medical

facilities in many of these countries

o The medical tourism market in India is estimated to be around $3.9 bn and is expected to

grow by a CAGR of 20%-25% over the next few years

o Yoga, meditation, Ayurveda and other traditional methods of treatment are major service

offerings that attract medical tourists from developed nations to India

Source: India Brand Equity Foundation (IBEF)

Diagnostics – a Sunrise

Industry

o Low penetration of Diagnostics centres despite high population, compared to other

countries

o Diagnostics market expected to grow , at a CAR of 15% over the next five years, after a 16%

CAGR over 2012-15

o The diagnostic market has been dominated by small unorganized players, however the shift

towards organized players is happening gradually due to rising preference for brands and

quality Source: Equirus Securities/August 2018

Diagnostic Market size is shown in US Billion Dollars

Diagnostics – a Sunrise

Industry

Source: Equirus Securities

Examples of Healthcare

Universe

Pharma Stocks

+

Wellness

Consumer Stocks

=

Healthcare

The Stocks mentioned above are used to explain the concept and is for illustration purpose only. The stocks may or

may not be part of our schemes.

In Summary, Why Healthcare

Fund and Why Now?

Sound growth prospects across health care segments

Government focus on healthcare penetration throughschemes like Ayushman Bharat and increased spending inthe economy

FDA related issues expected to be minimal on account ofstrengthening manufacturing processes by companies

Reasonable Valuations post significant market correction

Scheme Asset Allocation

Other Scheme Features

Riskometer

This product is suitable for investors who are seeking*:

• Long term capital appreciation

• Investment predominantly in

equity and equity related

instruments of companies

engaged in Healthcare & Allied

Sectors

*Investors should consult their financial advisors if in doubt about whether the product is

suitable for them.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully

Investors understand that their principal will be at

High risk

Disclaimers

This presentation has been prepared and issued on the basis of internal data, publicly

available information and other sources believed to be reliable. All opinions, figures,

charts/graphs, estimates and data included in this presentation are as on date and are subject

to change without notice. While utmost care has been exercised while preparing this

document, IDBI Asset Management Limited does not warrant the completeness or accuracy of

the information and disclaims all liabilities, losses and damages arising out of the use of this

information. The statements contained herein may include statements of future expectations

and other forward-looking statements that are based on our current views and assumptions

and involve known and unknown risks and uncertainties that could cause actual results,

performance or events to differ materially from those expressed or implied in such

statements. Readers shall be fully responsible/liable for any decision taken on the basis of this

presentation. No part of this document may be duplicated in whole or in part in any form

and/or redistributed without prior written consent of the IDBI Mutual Fund/IDBI Asset

Management Company Limited. Past performance of the Sponsor / AMC / Mutual Fund and

its affiliates does not indicate the future performance of the schemes and may not provide a

basis of comparison with other investments.

Statutory Details: IDBI Mutual Fund has been set up as a trust sponsored by IDBI Bank Ltd.

with IDBI MF Trustee Company Ltd. as the Trustee (Trustee under the Indian Trusts Act, 1882)

and with IDBI Asset Management Ltd. as the Investment Manager

THANK YOU

IDBI Asset Management Limited

(Investment Manager to IDBI Mutual Fund) CIN: U65100MH2010PLC199319

Registered Office: IDBI Tower, WTC Complex, Cuffe Parade, Colaba, Mumbai -400005 Corporate Office: 4th Floor, IDBI Tower, WTC Complex, Cuffe Parade, Colaba, Mumbai - 400005