2. Our Philosophy
Weatherproof
Investing
Our selection focuses on
building a core in line with risk
elements. We address how much
we want to expose ourselves to
uncertainties before how much
we want to make.
Driven by Value,
Protected by Core
We build a strong core, which
stays unaffected by
uncertainties, and ride on the
value-driven securities. We
prefer stable returns and build
our portfolio on top of the core.
Investing on
Opportunities
We believe that opportunities lie
in market inefficiencies. We
invest in opportunities and fuel it
by diversification. If a company
has the prospects to utilize an
opportunity, it will yield results.
5. Top-Down Approach: Macro Trends & Impact
Economy Growth &
Consumer Behavior
Policy Support &
Gov. Regulations
Macro-Drivers &
Concerns
International Market
& Opportunities
• What drives the market? For how long will it do
so?
• How concentrated is the market?
• Does the industry embrace technology?
• How ready is the industry for expanding capacity
if customer demands?
• Is there substantial scope for market growth?
• What is the product life cycle?
6. Top-Down Approach: Industry Dynamics & Prospects
Customer Demands
& Supplies
Competition &
Growth Rates
Industry Drivers &
Concerns
Opportunities &
Export
• How will the macro-economic and demographic
trends shape the demand and supply?
• Which sectors are receiving and utilizing policy
support?
• How much is the industry impacted by macro,
social, demographic, and cultural factors?
• Is there any seasonality?
• Are there new opportunities opening in the
exports market?
• How ready is the economy for lift off?
• Are there any immediate concerns that will
hinder growth?
• How friendly are monetary and fiscal policies?
7. Top-Down Approach: Pandemic Considerations
Vulnerability & Risk
Correlation between
Demand & Pandemic
• How resilient is the industry to pandemics or
lockdowns?
• What is the working capital condition of the
industry?
• How much does demand get affected by
pandemic?
8. Industry Overview: Banking
Very High
High
Moderate
Low
Very Low
Industry
Growth Rate
Correlation
with Economy
Use of
Technology
Impact of
Covid
Gov. Regulations
& Taxes
Very High
High
Moderate
Low
Very Low
Market Share
Stability
Change &
Disruption
Price
Competition
Capacity
Market
Concentration
9. Industry Overview: Banking
Very High
High
Moderate
Low
Very Low
Threat of
Substitutes
Threat of New
Entrants
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
Competitive
Rivalry
Key Considerations:
• Recent regulatory reforms by the
government
• Introduction of MFS services
• Rate of NPLs & corporate governance in the
industry
• High level of competition and market
holding by each firm
• Liquidity & private sector credit demand
10. Summary of Industry Analysis
Pharma Industry
• Government incentivizing production
of API through tax breaks
• CAGR of more than 15% followed by
policy supports
• Shift in demography & buying
capacity
• High barriers to entry and
competition
• Benefits of generic drugs & future
• Starting of export in the industry
• Issues relating to backward linkage
• Recent regulatory reforms by the
government
• Introduction of MFS services
• Rate of NPLs & corporate governance
in the industry
• High level of competition and market
holding by each firm
• Liquidity & private sector credit
demand
Banking Industry
• Slow growth rate in loans, advances &
deposit collection against banks
• Distrust in the sector due to scandals
• Descending trends in ROA & ROE
• Stronghold of particular firms in
particular areas
NBFI Industry
11. Summary of Industry Analysis
• Increased entry of global players like
Samsung for production in
Bangladesh
• Growing consumer electronics &
construction market
• Impact of globalization and reshaping
of demands
• High impact of Covid & the global
chips crisis questioning supply chains
• Over capacity of companies
• Renewal of contracts & number of
plants
• Discouraging of gas based
powerplants
• Inefficient systems
• Tax breaks provided
• Dominance of particular companies in
the industry
• Rising middle class and urban
population driving the market
• Increased disposable income &
propensity to buy products
• Oligopolistic markets for different
product categories
• High scope of expansion
• Falling prices of raw materials
Fuel & Power Industry Food & Allied Industry Engineering Industry
12. Summary of Industry Analysis
• Introduction of 4G and 5G in the
market
• Growing data sales, but waning
phone calls
• Strict regulatory and tax policies
• Diversification into other IT services
of existing market players
• Intense competition and price wars
• Major concerns include unfavorable
tax measures, increase of raw
materials price, intense competition,
weakening of domestic currency
• Major drivers include demand for
construction
• 10 producers control 80% of market
• Foreign companies falling short due
to aggressive marketing and
extensive distribution channel of local
ones
• Quality of raw hide in Bangladesh
• Opportunity to export leather
products
• CAGR of 12-15% supported by
government policies
• Growing demand in the local market
• Compliance issues & the use of
technology in the sector
Cement Industry Telco Industry
Tannery Industry
13. Top-Down Approach: Industries Filtered Out
Cement Industry
Automobile Industry
Why not cement?
• Major concerns include unfavorable tax measures,
increase of raw materials price, intense competition,
weakening of domestic currency
• 10 producers control 80% of market
• Foreign companies fall short due to aggressive marketing
and extensive distribution channel of local ones
• The possibility of more lockdowns and conservatism in
uncertainties may hinder the growth of the industry
Why not automobile?
• The possibility of more lockdowns and conservatism in
uncertainties may hinder the growth of the industry
• High level of debts of the companies
• Not planned production with unstable working capital,
clouding views on the capacity required to expand
14. Bottom-Up Process: Company Fundamentals & Analysis
Growth Rate for
Different Periods
Equity-Debt
Financing Ratio
Return on Equity &
Payout Ratio
Length of Different
Growth Periods
Assumptions General Considerations
• Risk Premium
• Net Income
• Book Value for Equity
• Earnings per Share
• Dividend per Share
• No. of Shares Outstanding
• Beta
• Debt to Equity Ratio
• CAPEX, Depreciation, Revenues, WC per Share
• Change in Working Capital
• Return on Capital
• Risk Free Rate
15. Valuation Models
Stock/Sector
Name of
Model
Justification
Financial
Service Firms
Dividend
Discount
Model
• Cash flows to a financial service firm cannot be easily estimated, since items like capital
expenditures, working capital and debt are not clearly defined
• Most financial service firms operate under a regulatory framework that governs how they
are capitalized, where they invest and how fast they can grow. Changes in the regulatory
environment can create large shifts in value.
• We valued equity valuation model, rather than enterprise valuation models, and with actual
or potential dividends, rather than free cash flow to equity.
Pharma-
ceutical
Companies
Three stage
FCFE
Discount
Model
• A three-stage growth model: a period of high growth, a transition period of declining
growth, a final period of stable growth.
• Pharmaceutical industry going through huge transformation: Over the past five years, the
pharmaceutical industry in Bangladesh has been growing at a CAGR of 15.6% every year.
• This boost will may give inflated overall financials at present. Need to adjust it in the last
stage through stable growth valuation.
• Bangladesh is looking forward to graduating from LDC by 2026, and likely to lose the
patent exemption facility from TRIPS agreement.
Telecomm
Sector
Gordon
Growth
Model
• GP has reached a steady stage, with consistent EPS in last 3 years.
• FCFE will not be a proper model because of presence of significant intangible assets,
affecting working capital.
• GP has dividend payout ratio of ~100% since 2015 (except in FY2019).
16. Valuation Models
Stock/Sector
Name of
Model
Justification
Power Sector
FCFF Stable
Growth
Model
• Growth affected by rental or quick rental basis power projects on private ownership. With
stable growth of economy, demand for power will also be increasing at a stable rate.
• Leverage (debt to equity ratio) almost consistent since 2018 for both SUMITPOWER and
UPGDCL
Food and
Allied Sector
Model
focused on
state of
company
• For UNILEVERCL, Gordon growth model has been used because the firm has a history of
giving close to ~100% dividend payout ratio since 2016. Moreover, the company has
reached a mature, stable stage.
• For Olympic, a two stage FCFE model has been used. This is because we are expecting a
significant export growth and cost reduction from Olympic in initial stage which will
become stable in the second stage.
• For BATBC also, a two stage FCFE model has been used. This is because we are expecting
significant growth in export of tobacco leaves and cigarettes in the initial stage, which
becomes stable in the next stage reinforced by the stable, matured domestic market.
Engineering
FCFE
Growth
Model
• Value based on free cash flow to equity, which are different from dividends paid. There is
potential for the engineering sector to grow, so dividends paid will be lower than net
income, due to the need for reinvestment and expansion.
Cement
Two-stage
FCFE
Discount
Model
• The cement sector went through a shock during the pandemic as all sorts of construction
works was remain halted for a considerable period.
• In the upcoming ‘recovery’ period, the cement companies may face significant growth
driven by rise in infrastructure and real estate project. This growth will become stable in
the second stage over time.
18. Top-Down Approach: Industries Filtered Out
FUNDAMENTALS
BATASHOE
EPS of BATASHOE has been decreasing over the years and they are yet to post a postive net profit figure since
the pandemic
GHAIL
No vertical integration for sourcing raw materials so production costs are set to rise due to inflation, high levels of
debt, profitability reductions
ROBI Has a history of making losses, very low EPS, might have future potential but not right now
BARKAPOWER
Negative Working Capital, High debt-to-equity compared to other power sector stocks, 38% reduction in
NOCFPS in 2021
UNILEVERCL
Net profits margin decreased by 5% for 2021 and ROE fell by 2.8%. in the maturity stage of the busines cycle and
no high levels of growth are expected. PE is 70 which also signals its overpriced.
GOVERNANCE
ISLAMIBANK Issues with corporate governance after recompositiion of board in 2017
PRIMEBANK Weak Corporate Governace, have not phased out of the 2015 crisis yet, comparatively higher NPLs
COMPARABLES
IDLC
Due to high focus on banking, lower weightage is to be provided to NBFIs, DBH is less correlated with banks, has
better fundamentals, NPL less than 0.5%, and high potential in real estate
BXPHARMA
SQUR has higher profit margins and very strong fundamentals along with better working capital scenarios and
almost no debt
RENATA Power sector allocation needs to be limited due to maturity, SUMMIT has lower correlation with the financial
sector, lower risks and higher returns, UPGDCL & RENATA valuation low too
UPGDCL
22. Satellite
Core
40% of Total Investment
Comprises of only equity investments with high
return possibilities. The satellites are diversified
within industries & outside industries to maximize
return and minimize risks. This section is mostly
driven by industry opportunities & potential.
60% of Total Investment
Focuses on both equity & alternative investments
which have lower risk and provide stable returns.
This core helps to establish the base on which the
rest of the portfolio in constructed. Stocks include
SQURPHARMA, SUMITPOWER, GP, BATBC &
MARICO
Core-Satelite Approach
Using the core-satellite
approach
Optimizing the portfolio
using Sharpe ratio
Rebalancing weightage
according to analysis
23. Optimizing Portfolio using Sharpe Ratio
1.81
Sharpe Ratio
19.2%
Expected Return
7.85%
Expected Risk
Equity% AI % Bank % Pharma % Cement %
Engineerin
g %
FI %
Food &
Allied %
Fuel &
Power %
Tannery % Telco %
80.00% 20.00% 13.58% 14.73% 0.00% 4.81% 10.00% 16.88% 10.00% 0.00% 10.00%
0% 4%
10%
10%
10%
10%
5%
7%
10%
5%
10%
Optimum Portfolio using Sharpe Ratio
BRACBANK
CITYBANK
EBL
DBH
SQURPHARMA
GP
SINGERBD
OLYMPIC
BATBC
MARICO
SUMITPOWER
Using the core-satellite
approach
Optimizing the portfolio
using Sharpe ratio
Rebalancing weightage
according to analysis
24. Rebalancing Weightage according to Analysis
Using the core-satellite
approach
Optimizing the portfolio
using Sharpe ratio
Rebalancing weightage
according to analysis
0.00%
3.58%
10.00%
10.00%
10.00%
10.00%
4.81%
6.88%
10.00%
4.73%
10.00%
5.00%
5.66%
9.00%
8.00%
10.00%
8.50%
4.50%
5.25%
8.36%
5.73%
10.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
BRACBANK CITYBANK EBL DBH SQURPHARMA GP SINGERBD OLYMPIC BATBC MARICO SUMITPOWER
Optimum Weights Adjusted Weights
Due to hitting maturity & high
competition, weightage
reduced for BATBC & GP
respectively
Increased weightage in banking
sector for the diversity of
markets the selected banks
cater to
High growth of EBIT caters to
MARICO’s increased weightage,
Olympic’s is reduced for its
product portfolio
26. Takeaways
5%
6%
9%
8%
10%
9%
5%
5%
8%
6%
10%
8%
10%
2%
Medallion Value Fund Portfolio
BRACBANK
CITYBANK
EBL
DBH
SQURPHARMA
GP
SINGERBD
OLYMPIC
BATBC
MARICO
SUMITPOWER
1.68
Sharpe Ratio
18.74%
Expected Return
8.17%
Expected Risk
Equity% AI % Bank % Pharma % Cement %
Engineerin
g %
FI %
Food &
Allied %
Fuel &
Power %
Tannery % Telco %
80.00% 20.00% 19.66% 15.73% 0.00% 4.50% 8.00% 13.61% 10.00% 0.00% 8.50%
BRACBANK 5%
CITYBANK 5.66%
EBL 9%
DBH 8%
SQURPHARMA 10%
GP 8.5%
SINGERBD 4.5%
OLYMPIC 5.25%
BATBC 8.36%
MARICO 5.73%
SUMITPOWER 10%
Fixed Deposit 8%
Govt. T-Bill 10%
CASA 2%
27. Medallion Value Fund
Objective: To generate capital appreciation with
controlled risk by investing in value-driven
opportunities in equity and debt.
Risk Scale: Moderate
1000mil BDT
Fund Size
18.74%
Expected Return
8.17%
Expected Risk
29. Industry Overview: Banking
Very High
High
Moderate
Low
Very Low
Industry
Growth Rate
Correlation
with Economy
Use of
Technology
Impact of
Covid
Gov. Regulations
& Taxes
Very High
High
Moderate
Low
Very Low
Market Share
Stability
Change &
Disruption
Price
Competition
Capacity
Market
Concentration
30. Industry Overview: Banking
Very High
High
Moderate
Low
Very Low
Threat of
Substitutes
Threat of New
Entrants
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
Competitive
Rivalry
Key Considerations:
• Recent regulatory reforms by the
government
• Introduction of MFS services
• Rate of NPLs & corporate governance in the
industry
• High level of competition and market
holding by each firm
• Liquidity & private sector credit demand
31. Industry Overview: Non-Banking Financial Institutions
Very High
High
Moderate
Low
Very Low
Industry
Growth Rate
Correlation
with Economy
Use of
Technology
Impact of
Covid
Gov. Regulations
& Taxes
Very High
High
Moderate
Low
Very Low
Market Share
Stability
Change &
Disruption
Price
Competition
Capacity
Market
Concentration
32. Industry Overview: Non-Banking Financial Institutions
Very High
High
Moderate
Low
Very Low
Threat of
Substitutes
Threat of New
Entrants
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
Competitive
Rivalry
Key Considerations:
• Slow growth rate in loans, advances &
deposit collection against banks
• Distrust in the sector due to scandals
• Descending trends in ROA & ROE
• Stronghold of particular firms in particular
areas
33. Industry Overview: Pharmaceuticals
Very High
High
Moderate
Low
Very Low
Industry
Growth Rate
Correlation
with Economy
Use of
Technology
Impact of
Covid
Gov. Regulations
& Taxes
Very High
High
Moderate
Low
Very Low
Market Share
Stability
Change &
Disruption
Price
Competition
Capacity
Market
Concentration
34. Industry Overview: Pharmaceuticals
Very High
High
Moderate
Low
Very Low
Threat of
Substitutes
Threat of New
Entrants
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
Competitive
Rivalry
Key Considerations:
• Government incentivizing production of
API through tax breaks
• CAGR of more than 15% followed by policy
supports
• Shift in demography & buying capacity
• High barriers to entry and competition
• Benefits of generic drugs & future
• Starting of export in the industry
• Issues relating to backward linkage
35. Industry Overview: Fuel & Power
Very High
High
Moderate
Low
Very Low
Industry
Growth Rate
Correlation
with Economy
Use of
Technology
Impact of
Covid
Gov. Regulations
& Taxes
Very High
High
Moderate
Low
Very Low
Market Share
Stability
Change &
Disruption
Price
Competition
Capacity
Market
Concentration
36. Industry Overview: Fuel & Power
Very High
High
Moderate
Low
Very Low
Threat of
Substitutes
Threat of New
Entrants
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
Competitive
Rivalry
Key Considerations:
• Over capacity of companies
• Renewal of contracts & number of plants
• Discouraging of gas based powerplants
• Inefficient systems
• Tax breaks provided
• Dominance of particular companies in the
industry
37. Industry Overview: Food & Allied
Very High
High
Moderate
Low
Very Low
Industry
Growth Rate
Correlation
with Economy
Use of
Technology
Impact of
Covid
Gov. Regulations
& Taxes
Very High
High
Moderate
Low
Very Low
Market Share
Stability
Change &
Disruption
Price
Competition
Capacity
Market
Concentration
38. Industry Overview: Food & Allied
Very High
High
Moderate
Low
Very Low
Threat of
Substitutes
Threat of New
Entrants
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
Competitive
Rivalry
Key Considerations:
• Rising middle class and urban population
driving the market
• Increased disposable income & propensity
to buy products
• Oligopolistic markets for different product
categories
• High scope of expansion
• Falling prices of raw materials
39. Industry Overview: Engineering
Very High
High
Moderate
Low
Very Low
Industry
Growth Rate
Correlation
with Economy
Use of
Technology
Impact of
Covid
Gov. Regulations
& Taxes
Very High
High
Moderate
Low
Very Low
Market Share
Stability
Change &
Disruption
Price
Competition
Capacity
Market
Concentration
40. Industry Overview: Engineering
Very High
High
Moderate
Low
Very Low
Threat of
Substitutes
Threat of New
Entrants
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
Competitive
Rivalry
Key Considerations:
• Increased entry of global players like
Samsung for production in Bangladesh
• Growing consumer electronics &
construction market
• Impact of globalization and reshaping of
demands
• High impact of Covid & the global chips
crisis questioning supply chains
41. Industry Overview: Cement
Very High
High
Moderate
Low
Very Low
Industry
Growth Rate
Correlation
with Economy
Use of
Technology
Impact of
Covid
Gov. Regulations
& Taxes
Very High
High
Moderate
Low
Very Low
Market Share
Stability
Change &
Disruption
Price
Competition
Capacity
Market
Concentration
42. Industry Overview: Cement
Very High
High
Moderate
Low
Very Low
Threat of
Substitutes
Threat of New
Entrants
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
Competitive
Rivalry
Key Considerations:
• Major concerns include unfavorable tax
measures, increase of raw materials price,
intense competition, weakening of
domestic currency
• Major drivers include demand for
construction
• 10 producers control 80% of market
• Foreign companies falling short due to
aggressive marketing and extensive
distribution channel of local ones
43. Industry Overview: Tannery
Very High
High
Moderate
Low
Very Low
Industry
Growth Rate
Correlation
with Economy
Use of
Technology
Impact of
Covid
Gov. Regulations
& Taxes
Very High
High
Moderate
Low
Very Low
Market Share
Stability
Change &
Disruption
Price
Competition
Capacity
Market
Concentration
44. Industry Overview: Tannery
Very High
High
Moderate
Low
Very Low
Threat of
Substitutes
Threat of New
Entrants
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
Competitive
Rivalry
Key Considerations:
• Quality of raw hide in Bangladesh
• Opportunity to export leather products
• CAGR of 12-15% supported by government
policies
• Growing demand in the local market
• Compliance issues & the use of technology
in the sector
45. Industry Overview: Telco
Very High
High
Moderate
Low
Very Low
Industry
Growth Rate
Correlation
with Economy
Use of
Technology
Impact of
Covid
Gov. Regulations
& Taxes
Very High
High
Moderate
Low
Very Low
Market Share
Stability
Change &
Disruption
Price
Competition
Capacity
Market
Concentration
46. Industry Overview: Telco
Very High
High
Moderate
Low
Very Low
Threat of
Substitutes
Threat of New
Entrants
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
Competitive
Rivalry
Key Considerations:
• Introduction of 4G and 5G in the market
• Growing data sales, but waning phone calls
• Strict regulatory and tax policies
• Diversification into other IT services of
existing market players
• Intense competition and price wars