INDIA is structurally INFLECTING… be

INVESTED!

July 14, 2017

Prem ManjooranCIO & Portfolio Manager

Tantallon India Fund

Why India?

2

India is on the cusp of a multi-year,

sustained economic revival thanks to

Prime Minister Modi’s electoral

mandate.

Modi is confronting corruption, a

stifling bureaucracy, and wasteful

subsidies in order to reduce the cost

of doing business in India.

Modi is committed to a deliberate,

rational policy framework, to

incentivize and reward risk capital.

Modi’s explicit focus is on

infrastructure, industrialization, job-

creation, and urbanization.

The Reserve Bank of India’s explicit

adoption of inflation-targets to set

monetary policy is transformational:

True game changer in that it allows

for structurally moderating inflation

expectations, a stable current

account and currency, and for

significant monetary and fiscal policy

flexibility, encouraging investments

and consumption.

Sectors Current 2025e CAGR

Internet

- Ecommerce US$ 13bn US$ 150bn 25% +

- Internet Penetration 21% 46%

Healthcare US$ 100bn US$ 350 - 380bn 15% +

- Diagnostics US$ 3.6bn US$ 13.2bn 27%

- Domestic Pharma US$ 15bn US$ 55 - 65bn 15%

- Health Insurance US$ 3bn US$ 7.3bn 15%

Telecom Services

- Data Services 495MB/user 2.5GB/user 18%

Consumer US$ 37bn US$ 160 - 220bn 15% +

- Organized Retai l (Penetration) 6% 20%

Financial Services

- Credit Growth 15%

- Credit Penetration 55% 71% - 76% + 1.5% /yr

- Retai l Mortgage Penetration 7.5% 12% - 15% 20%

- Corporate Lending Penetration 43% 51% 15%

Autos 12% - 14%

- Cars 2.5m 11.3m 15%

- Two-wheelers 14m 40m 10%

Infrastructure

- Road Passenger Traffic 7,000BPkm 20,000BPkm 10%

- Road Freight Traffic 1,400BTkm 3,400BTkm 8.50%

- Solar Infrastructure 2.8 GW 20 GW 20% +

- Electrici ty Infrastructure 267 GW 375 GW* 7%

Oil & Gas

- Oi l Demand 3.7mbd 5.4mbd 3% - 4%

- Natura l Gas Demand 51bcm 107bcm 7% - 8%

Materials

- Cement 220mt 465mt 7%

- Steel 82mt 175mt 6.50%

*2020 estimate Source: Tantallon Capital, Barclays, M organ Stanley, IIFL Research, RBI

Why India?

3

India’s demographic dividend will provide a sustainable, long-term tail-wind for

investments:

Currently, 55% of the Indian population is under the age of 30; by 2030, 48% of the

population will still be under the age of 30.

An educated / low-cost work force allowing for global competitiveness in IT services,

generic pharmaceuticals, light engineering manufacturing and exports.

Rising disposable incomes and aspirations to sustain domestic growth, consumption

and investments…the Indian millennial represents a significant investment

opportunity.

Economic Indicators Base Case Optimistic Case

GDP Growth 7.6% 7.0% 8% +

- Agriculture 3.6% 5.0% 5% - 6%

- Industry 7.2% 8.0% 8% - 10%

- Services 9.0% 10.0% 10% +

Savings (%GDP) 32.7% 34.0% 37.0%

Investments (%GDP) 34.1% 36.0% 40.0%

Fiscal Balance (%GDP) -4.6% -3.0% -2.5%

Current Account Balance (%GDP) -2.2% -2.5% -1.0%

Source: Tantallon Capital, Barclays, Morgan Stanley, IIFL Research, RBI

2015e - 2025e2004 - 2014

Why India?

INVEST on a 5 year+ view, across the capital structure, in Indian financials, industrials and

light engineering companies, infrastructure, e-commerce, supply chain management,

exporters, urbanization, and beneficiaries of public sector corporate reforms.

4

MSCI INDIA MSCI CHINA MSCI EM MSCI WORLD S&P 500

Compound Annual Growth Return

12.7% 8.3% 4.8% 4.1% 6.0%

Standard Deviation (Annualized)

24.0% 27.6% 20.4% 16.5% 19.5%

What are we most excited about?

Investing in an unconstrained portfolio, in an under-researched pool of companieswith good financial disclosure and audit standards, which are attractively pricedrelative to the long term structural opportunity.

Sustainable demographic tailwinds - Millennials will drive consumption decisions

Education / job creation => rising disposable incomes and aspirations

Digitization of the real economy => technology enabled connectivity andconsumption

Financial Intermediation

Urbanization and infrastructure

Enhanced agricultural productivity

5

Modi's Objectives: Manufacturing to form 25% of GDP by 2025Generate additional 100 million jobs in

manufacturingDevelop capacity in basic sectors

Increase value addition and global

competitiveness:

Defense, aerospace, ship-building and capital

goods

Textiles, leather, food, paper, gems and jewellery Steel, cement, coal, iron ore and fertilizers Auto, electronics system, pharma, petrochemicals

and paperSector-specific recommendationsDefense: increase domestic procurement from 30%

to 75%

Textile: Consolidate existing integrated Textile Parks,

modernize Ginning & Pressing factories

Steel: Acquire overseas coking coal assets,

facilitate port and steel capacity expansion

Auto: Improve logistics and infra at auto-hubs,

reforms in labor laws, make India a “Free Trade Area”

Ship-building: Grant infrastructure status and

specific tax incentives

Food-Processing: Greater involvement of states in

expanding cold chain, abattoirs and testing labs

Cement: Improve availability of cheap coal and

power, improve transportation infrastructure

Electronics: Set-up semiconductor labs, develop R&D,

reduce duty advantages for imports

Capital Goods: Acquire advanced technology

through FDI, create subsector clusters

Jewellery: Secure raw materials, set up bourses/clusters,

promote brand, ensure adequate credit

Fertilizers: Monitor end-use of fertilizers,

encourage alternative feed stocks like CBM and

coal

Pharma: Ramp capacity to meet WHO-GMP

standards, PPP in R&D, manufacture of medical

devicesCross-sectoral recommendationsLabor: Update labor laws on retrenchment and

strengthen safety nets

Skills: Adopt PPP model in skill development Roads: Restore construction awards momentum

for roads and highways

Power: Ensure adequate coal linkage and lower T&D

losses

Railways: Accelerate contract awards for the

Dedicated Freight Corridor

Taxes: Reduce import incentives that discourage domestic

value-add

Clustering: Development of NIMZ, FDI/JVs R&D: Provide tax credits for R&D expenditure

Targeted Sectors:

What is different this time: the implementation of a Goods & Services Tax is Transformational.

GST is arguably the most significant structural reform envisaged in India inthe last three decades, with the potential to boost annual GDP by 100bpannually.

GST creates a uniform national market, significantly reducing the cost of doingbusiness, increasing operational efficiency, and boosting overall productivity.

GST broadens the tax base, and further boosts tax revenues through increasedcompliance and reduced tax evasion.

GST accelerates the formalization of the Indian economy i.e. a move fromunorganized sectors to the organized.

The prescribed rates of taxation adopted under GST, are largely non-inflationary,and along expected lines with 80% of the goods taxed at 18% or lower.

That said, expect some ‘teething‘ issues given the scale of GST implementationnationally, and some short-term dislocations to reported earnings from inventorydestocking, working capital adjustments, and the investments required in terms oftechnology, systems and processes.

6

What is different this time: domestic investors will determine market direction and valuations.

Historically, foreign institutional investors and ETFs have set the tone forIndian equity performance, establishing both direction and market multiples, andrelatively high correlation with global investor sentiment and risk appetite.

However, since Modi’s election three years ago, retail flows into domesticequity funds (with an AUM of ~US$100bn) have substantially surpassedforeign fund inflows - the fiscal year ended March 2017 alone saw domestic equitymutual funds grow AUM by 50%!

Demonetization and the subsequent digitization of cash savings

Structurally lower inflation and bank savings deposit rates

Government crack-down on nominee holdings of bullion and real estate

Systematic Investment Plans averaging US$560mn/month in equity inflows

7

Key Risks to remain aware of:

India cannot completely decouple from global capital flows: geo-political risks,and in particular, the potential drag on global growth and global equity risk appetite,will, from time to time, impact flows and market sentiment.

A strong revival in private sector Capex remains the key for a sustainedinvestment cycle; however, we are encouraged by the visible green shoots ininfrastructure, housing, and renewable energy, reflecting both government incentivesas well rising utilization levels.

GST Implementation will be disruptive to reported earnings over the next 2quarters given the inevitable inventory and working capital adjustments.

The Reserve Bank of India is committed to enforcing the recognition of, and theadequate provisioning against legacy non performing loans, potentially limiting, in theshort-term, the banking system’s ability to support rapid credit expansion anda capex-led recovery.

The Indian rupee has appreciated against the US$ and most other EM currencies(on the back of the RBI’s commitment to deliver on its inflation targets, a sharplynarrowing current account deficit, and sustained capital inflows into the fixed incomeand equity markets), creating a headwind for IT/Pharma/Export sectors.

The vagaries of the monsoons can play spoilsport, negatively impacting ruralincomes and consumption.

8

Who We Are: The Tantallon India Fund

Tantallon Capital is a Singapore-based investment firm, regulated by the Monetary

Authority of Singapore, set up in November 2003.

The Tantallon India Fund, managed by Prem Manjooran, is a fundamental,

long-biased, India-focused, total return opportunity fund.

Experienced investor (25 years+), across multiple cycles, with a deep

knowledge of, and a unique network of relationships across corporate India.

Investing with a 3-5 year horizon, in a concentrated portfolio (25-30

unlevered positions), market cap/sector/capital structure agnostic, but with

strong conviction on the structural opportunity, scalable business models, and

in managements’ ability to execute.

Being prepared to be opportunistic across the capital structure, with the

ability to engage actively with management.

We are not an asset gatherer.

We want to try and identify a well-defined pool of committed, long-term

capital, and to be able to translate that into a concentrated high conviction

portfolio invested for the long-term.

We will avoid proliferation and complexity of mandates.

9

10

The Tantallon India Fund: A bottom-up, research driven, Concentrated, High Conviction Portfolio

25-30 unlevered positions in the

portfolio.

Leverage significant time-in-the-

markets to identify and invest in

high quality businesses with long

runways.

We spend disproportionate time

calibrating management,

competitive dynamics, supply

chains and distribution channels.

We rigorously review audited

financial statements, and build our

own models incorporating a cash

flow driven valuation framework.

The Tantallon India Fund: Key Statistics

11

Sector Weights TIF MSCI India

Financials 25.4% 23.8%

Consumer Discretionary 16.9% 13.0%

Materials 14.2% 9.7%

Industrials 13.7% 6.1%

Health Care 11.7% 6.9%

Energy 3.7% 11.2%

Retail 3.7% 0.00%

Consumer Staples 3.4% 9.5%

Utilities 2.2% 2.1%

Information Technology 0.0% 14.9%

Telcos 0.0% 2.9%

# of Positions 27

Turnover 22.2%

% Portfolio < US$ 3bn 50.2%

% Portfolio < US$1bn 22.4%

Fund Statistics

Natco Pharma Ltd 7.0% HDFC 8.8%

Bajaj Finance Ltd 6.4% Infosys Ltd 6.7%

Kotak Mahindra Bank 5.7% Reliance Industries 6.5%

Hdfc Bank Ltd-Adr 5.6% TCS 4.5%

Asian Paints Ltd 4.5% ITC 4.0%

Zee Entertainment 4.2% Axis Bank 3.2%

Pvr Ltd 4.0% Tata Motors 3.2%

Eicher Motors Ltd 3.9% Maruti Suzuki India 2.8%

Vakrangee Ltd 3.7% ICICI Bank 2.6%

Aegis Logistics Ltd 3.7% Hindustan Unilever 2.6%

Total 48.6% 44.9%

Top 10 Positions

TIF MSCI India

Data as of May 31, 2017

12

Conclusion: India is structurally Inflecting; look for Idiosyncratic opportunities to be Invested...

India is on the cusp of a multi-year economic revival; Intentionally Invest inIndia’s substantial runway for growth, under-pinned by the infrastructure build-outnationally, the digitization of the real economy, growing financial intermediation,rising rural income, the focus on mass housing, and strong consumption growth.

Intentionally Invest in Modi’s pro-reform/anti-corruption agenda, hisunambiguously pro-growth stance, and his focus on job creation.

Intentionally Invest in Indian equities, and in particular, in financial services, incapex linked, and in discretionary consumer stocks.

Contact: Prem@tantalloncapital.com; 1-310-729-5835