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On March 9, the annual report for 2017 of Canada-based Fairfax Financial Holdings, whose corporate objective is to achieve a high rate of return on invested capital and build long-term shareholder value, was released.
Fairfax Financial Holdings, which had invested $469 million in Fairfax India three years back, saw its market value grow to $753 million by 2017 end.
With the Indian market suffering in the global meltdown and with many stocks undergoing value erosion at a faster clip investors might be worried. But a peep into the annual report of Fairfax India will provide the much-needed confidence to investors.
Exposures
Prem Watsa, Chairman and Chief Executive Officer, says in the annual report, “We think the opportunity in India is unparalleled.
“When Modi got elected in 2014, we thought, based on his outstanding track record in Gujarat, that India could be transformed by ‘an unabashedly business-friendly government’. We are even more excited about India’s prospects today than we were in 2014.”
Among the listed entities, Fairfax has a sizeable exposure in IIFL, Fairchem Speciality, Thomas Cook, Quess Corporation, Sterling Resorts and ICICI Lombard. It was forced to reduce its stake in ICICI Lombard to meet regulatory norms.
Fairfax is not too worried about lofty valuations.
The company thinks that when after-tax profits are growing at over 30 per cent, as they have at IIFL and other companies in India, a P/E ratio of 20x drops quickly to 9x in three years.
“We are optimistic about all our investments in Fairfax India and expect over the years to invest much more money in that country,” Watsa’s note to shareholders added.
But the most noteworthy part is, “You may find it interesting to know that HDFC, the premier financial services company in India and perhaps in the world, had a compound growth in stock price of 29 per cent in rupee terms over the last 27 years.
“Even though the rupee depreciated by 70 per cent during this time period, HDFC’s share price compounded at 24 per cent in US dollars.
“So over the long term, exchange rates are not that important when you invest in growth companies!”
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