Prem Watsa's Fairfax India sits on unrealised gains with 28% RoE in 2017

Prem Watsa's firm has invested in eight companies since January 2015
Canadian billionaire Prem Watsa's Fairfax India Holdings Corp (FIHL) is sitting on good returns on its investments in India. According to a recent disclosure, the Toronto-listed investment firm reported a return on equity (RoE) of 28.2 per cent in 2017, on the back of just three listed companies in India. 

Fairfax has invested in eight companies since January 2015, and only three of them are listed — IIFL Holdings, Fairchem Speciality (formerly Adi Finechem & Privi Organics), and National Stock Exchange. 

The performance was led by IIFL Holdings, which made a return of 93.3 per cent in 2017 - internal rate of return (IRR) based on mark-to-market gains. IIFL’s share price appreciated 207 per cent to Rs 670 (as on December 31, 2017) from Fairfax's blended cost of Rs 218, between December 2015 and October 2017.
Similarly, Fairchem's share price has appreciated 90 per cent to Rs 500 (on December 31, 2017) from the adjusted cost base of Rs 263, resulting in mark-to-market gains, since inception, including foreign currency gains of $632 million and $75 million respectively, Fairfax said in its 2017 annual report.

Fairfax India, which turned three on January 30, 2018, earned a 14.2 per cent ROE since its inception on January 30, 2015, Watsa said in its annual report. The company had raised $1.03 billion in 2015 through an IPO on a par value of $10 per share. Since then, its loan book value has grown 13.5 per cent.

"Book value per share, our key performance measure, increased by 41.1 per cent in 2017, from $10.25 at the end of 2016 to $14.46. During the same period the USD S&P BSE Sensex 30 (Sensex) appreciated by 37.9%," Watsa said. The potential for all the companies Fairfax has invested in India is significant.

Fairfax India's book value is based on publicly traded market value for three of its eight investments, which are publicly traded (the rest are based on appraised values, not too different from their cost), whereas the Sensex is obviously based entirely on publicly traded market value.

Fairfax India's net earnings rose by 320 per cent to $453 million in 2017 from $108 million in 2016, as a result of net unrealised gains on investments of $592 million, compared to $105 million in 2016. 

In 2017, Fairfax acquired 48 per cent in Bangalore International Airport Limited in two stages, for an aggregate investment of $586 million, which included acquisition of its 43 per cent promoter stake in the airport, from the GVK Group. 

Again in 2017, Fairfax made an additional investment in IIFL Holdings (IIFL) and an investment in Saurashtra Freight. The merger of Fairchem Speciality and Privi Organics (Fairfax India had invested separately in each of them) was completed under the Fairchem name, resulting in Fairfax India owning 48.8 per cent in it. 

Since its inspection, Fairfax India has completed investments in eight companies. This does not include Catholic Syrian Bank, in which Fairfax India has agreed to pay Rs 12 billion for a 51 per cent.

"All of Fairfax India's investments are in outstanding companies with a history of strong financial performance, led by founders and management, who are not only excellent but also adhere to the highest ethical standards," Watsa added.