Gateway To The Sub-Continent | Fairfax India

A Long-Term Permanent Capital Vehicle With An Exceptional Portfolio In India

DISCLAIMER & DISCLOSURE: The author has a position in Fairfax India at the time of publication, but that may change. The views expressed are those of the author at the time of publication and may change without notice. The author has no duty or obligation to update this information. Some content is sourced from third parties believed to be reliable, but accuracy is not guaranteed. Forward-looking statements involve assumptions, risks, and uncertainties, meaning actual outcomes may differ from those envisaged in this analysis. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing.

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Acquisition-as-a-Business (AaaB)

This is now the ninth post in the ‘AaaB’ series. If you missed the others, here are the links:

1. The Secret of Investing in Programmatic Acquirers podcast

2. Relais Group investment analysis

3. Teqnion

4. Fairfax India (podcast/presentation)

5. Topicus - Part 1

6. Valuing Programmatic Acquirers

7. Topicus - Part 2 - How to value Topicus

8. Judges Sceintic (podcast interview)

9. This write up on Fairfax India to compliment (4) above

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Why Should I Be Interested in Fairfax India?

Fairfax India Holdings Corporation (FIH.U) represents a compelling, yet misunderstood, Canadian investment vehicle providing dedicated exposure to the secular growth story of India.

India is often described as being where China was two decades ago: a young flower just starting to open. Its vast population, expanding middle class, strong education system and culture of hard work and ambition give it the feel of an economy on the rise. At a time when many countries are already fully mature, India still seems to have its best years in front of it.

India’s Economic Progress: What a difference a decade makes

IMF World Economic Outlook, April 2025, forecast GDP growth rates (Rates for India are on a fiscal year basis where 2025 refers to 2025/26)

Fairfax India is often analogized as the “Berkshire Hathaway of India” due to its permanent capital structure and association with value investing icon Prem Watsa’s Fairfax Financial Holdings.

The corporation operates as an industrial conglomerate with a clear mandate: long-term capital appreciation through concentrated investments in public and private equity securities within the Indian market.

The core investment thesis is rooted in a fundamental valuation disconnect. As of the reporting period ending September 30, 2025, the corporation’s Book Value Per Share (BVPS) stood at $20.72, ostensibly 1.1% lower than a year earlier. But this is an optical illusion. The erosion is almost entirely attributable to the persistent weakness of the Indian Rupee, which translates Rupee-denominated gains into smaller USD-reported equity. If adjusted for the currency impact, and despite cyclical drag imposed by one of its industrial holdings, Sanmar Chemicals [update: Sanmar divested in April 2026], the underlying Net Asset Value (NAV) in local currency terms compounded at a double-digit rate, propelled by the accretive BIAL acquisition and the operational earnings of Seven Islands and CSB Bank.

Additionally, ~70% of the Fairfax India portfolio is private companies for which price discovery is not available via the open market. In respect of these holdings it adopts an exceptionally conservative approach to valuation. Essentially, the carrying value of its assets is a fraction of their true worth.

When one considers that the stock trades at ~$16.50. On the face of it this appears to be a ~21.5% discount to BVPS, but in truth, when its assets are properly valued, it trades closer to a 45% discount to BVPS.

“While the BVPS of Fairfax India is $20.96, we believe that the long term underlying intrinsic value is much higher”

Gopalakrishnan Soundarajan, CEO - Shareholder letter March 2025

The fundamental value proposition is highly asymmetric: Fairfax India’s portfolio is anchored by world-class, monopolistic infrastructure assets that are compounding intrinsic value at high rates. The current share price essentially allows investors to acquire the corporation’s largest and most valuable asset, Bangalore International Airport Limited (BIAL), at a substantial discount, while receiving the diversified portfolio of logistics and financial services for virtually free.

The investment requires patience, a tolerance for foreign currency volatility, and a long-term horizon sufficient to await the anticipated liquidity event at BIAL, which is the primary catalyst for an instantaneous and significant re-rating of the stock.

The Portfolio

Fairfax India employs a focused “barbell” capital allocation strategy. One end of the portfolio is weighted toward stable, monopolistic, high-quality infrastructure assets that generate predictable, long-tenure cash flows. The other end comprises higher-beta, cyclically exposed industrial and financial services entities designed to benefit from the financialization and industrialization of the Indian economy.

Recent capital allocation moves, including a major acquisition and a disciplined divestiture, have underscored management’s conviction in the infrastructure thesis, fundamentally reshaping the portfolio.

Let’s explore in more detail:

The Cornerstone: Bangalore International Airport Limited (BIAL)

BIAL is unequivocally the crown jewel of the Fairfax India portfolio and the primary driver of intrinsic value. It represents a multi-generational asset with an immense competitive moat.

This is not just any airport. It is arguably the most beautiful and ecologically advanced airport in the world. Terminal 2 is known as the ‘Terminal in a Garden’ and delivers an extension of Bengaluru city’s green aesthetics.

Terminal 2, Bangalore Airport

Imagine combining a botanical garden with an airport. A total of 620 endemic plants, 3,600+ plant species, 150 palm species, 7,700 transplanted trees, 100 varieties of lilies, 96 lotus species, 180 rare, endangered and threatened species and ten ecological habitats make up the lush green landscape within the airport.

‘Terminal in a Garden’ at Bangalore Airport

BIAL is the exclusive operator of the Kempegowda International Airport in Bengaluru, the “Silicon Valley of India”. The asset operates under a monopolistic concession agreement that extends through 2068, providing extraordinary cash flow visibility and defensibility.

The strategic moves in 2025 have solidified BIAL’s primacy. Fairfax India executed a definitive agreement to acquire an additional 10% equity interest in BIAL from Siemens Project Ventures GmbH for $255 million. This single transaction increased Fairfax India’s aggregate effective ownership to a controlling 74%.

The deal structure features a deferred payment schedule, with the $255 million purchase price payable in three installments, the final tranche due in July 2026, which manages immediate liquidity strain. The total implied valuation of BIAL’s equity from this transaction alone is $2.55 billion, establishing a critical hard floor for the asset’s valuation.

This consolidation serves a dual strategic purpose: it signals unwavering, high-conviction belief in the asset’s long-term compounding ability and simplifies the shareholding structure in anticipation of a potential monetization event, likely an Initial Public Offering (IPO) of the BIAL holding entity, Anchorage Infrastructure, expected later in the decade.

BIAL’s operational performance is characterized by strong post-pandemic growth, reflecting India’s surging travel demand.

• Passenger Traffic: For the fiscal year ended March 2025, the airport handled 41.88 million passengers, marking an 11.6% increase year-over-year.

• Mix Shift: Critically, international traffic grew at a faster pace, increasing by 25% to 5.83 million passengers. This shift is highly beneficial for revenue quality, as international passengers generate significantly higher Non-Aeronautical revenue (Duty-Free, F&B) and Aeronautical revenue (User Development Fees - UDF) per capita compared to domestic travelers.

• Cargo Growth: The airport’s cargo division also exhibited strength, processing over 500,000 metric tonnes, a 14.3% increase. This performance reinforces Bengaluru’s role as a major logistics hub for high-value goods like pharmaceuticals and electronics.

A critical, often-undervalued component of BIAL’s intrinsic value is the real estate development potential surrounding the terminal, known as “Airport City”. BIAL possesses development rights over a large 460-acre land bank adjacent to the airport. This land is being actively monetized through the development of hotels, integrated commercial parks, tech and logistics hubs.

Airport City, Bengaluru

This is being dubbed the “Silicon Valley of India” and its more than just rhetoric. BIAL has been working with Amazon Web Services (AWS) to deliver the Joint Innovation Centre (JIC) that will drive the development and adoption of digital solutions in aviation. As part of the launch of the JIC, BIAL will also deploy Startup Valley, a startup accelerator programme that will offer an open innovation opportunity for startups to build and accelerate digital solutions.

“With Startup Valley, our combined vision is to enable startups to transition successfully and faster in their experimentation, development, and scaling phases, helping them commercialize their solutions, and accelerate the adoption of innovative digital solutions in the country.”

Rahul Sharma, President, Amazon Internet Services, AWS India and South Asia

The valuation implications are significant. Real estate in the surrounding Devanahalli corridor has appreciated significantly: projections estimate a Compound Annual Growth Rate (CAGR) of roughly 9% through 2030 in the region. Commercial and logistics plots have even higher appreciation potential due to improved connectivity from the upcoming Satellite Town Ring Road (STRR) and metro lines.

Real estate income is unregulated and market-driven, commanding higher valuation multiples. As these assets come online, they will progressively shift BIAL’s revenue mix away from purely aeronautical tariffs, which are capped by the Airports Economic Regulatory Authority (AERA) to a fixed return on equity. This structural shift will significantly boost BIAL’s overall intrinsic valuation multiple.

BIAL has demonstrated sophisticated capital structure management to fund its expansion, including the continued development of Terminal 2 and the Airport City. The debt is strategically non-recourse to Fairfax India, ensuring a ring-fenced structure that enhances equity returns. The entity successfully completed a private placement of non-convertible debentures earlier in the cycle and more recently, in 2025, BIAL was engaged in advanced negotiations to raise approximately 90 billion INR ($1.1 billion) in domestic currency bonds, targeting a coupon rate of roughly 8.15% for a tenure of up to 15 years, a rate that reflects the high credit quality of the asset.

Logistics and Industrial Assets

• Seven Islands Shipping: The Logistics Cash Cow

Seven Islands Shipping is a high-performing standout in the portfolio, operating as the second-largest private tanker fleet owner in India, primarily focused on the transport of crude oil and liquid products.

The company maintains operating margins above 55%, driven by efficient fleet management and high utilization from long-standing contracts with Indian state-owned oil marketing companies.

Reflecting its operational excellence, the company received a credit rating upgrade to ‘AA/Stable’ in April 2025. However, Fairfax India values its investment at approximately $146 million, implying an extraordinarily conservative Price-to-Earnings (P/E) ratio of 4.6x and a Price-to-Free-Cash-Flow ratio of 3.8x. This conservative private market valuation, compared to global shipping peers, represents another layer of hidden value within the holding company.

• Saurashtra Freight: Validation of Book Value

The divestment of the 51% stake in Saurashtra Freight Private Limited to Japanese logistics giant Kamigumi Co., Ltd. for approximately $75 million (INR 6,622 million) in November 2025 is a crucial strategic event. This successful, full-cycle exit validates management’s capital recycling capability and, most importantly, provides tangible proof that the company’s internal valuation methodologies are robust. The proceeds provide critical liquidity, which can be deployed into share buybacks or debt reduction, directly enhancing BVPS.

The strategy of selling Saurashtra (mature asset) and doubling down on BIAL (compounding asset) is considered textbook value investing and reflects strong capital allocation expertise.

• The Problem Child: Sanmar Chemicals and the TA’ZIZ Solution

Sanmar Chemicals, one of India’s largest PVC manufacturers, currently acts as a significant drag on consolidated performance and is the primary source of operational and credit risk. The company is facing a “perfect storm” of global PVC oversupply, weak demand, and “dumping” from Chinese manufacturers who are offloading cheap supply into international markets.

This pressure has compressed margins, resulting in a net profit margin of -2.5% for Chemplast Sanmar (the listed Indian entity). TCI Sanmar, the Egyptian subsidiary, has suffered continued losses, leading to a credit rating downgrade to ‘BB+/Stable’, signaling heightened default risk. High USD-denominated debt at TCI Sanmar further exacerbates leverage and forex exposure.

A significant structural change occurred in late 2025 with Sanmar signing a landmark long-term supply agreement with TA’ZIZ in the UAE. TA’ZIZ will supply over 350,000 tonnes per annum of essential feedstocks (Ethylene Dichloride/EDC and Vinyl Chloride Monomer/VCM) for up to 10 years. This is a transformative deal because it provides a long-term, stable supply from the UAE, which has a structural energy cost advantage. By securing low-cost feedstock, Sanmar is provided with the primary lever to significantly reduce its production costs, restore profitability in its Egyptian operations, and defend margins against Chinese competition, potentially setting the stage for a major turnaround in 2026.

[Update: Sanmar was divested in April 2026 for INR 2,480 million (approximately US$27 million at prevailing exchange rates). Following the sale, Fairfax India has no economic interest in SCEL.]

• Financial Services: IIFL Finance and CSB Bank

The financial services exposure captures the secular theme of the “financialization of savings” and credit uptake by the Indian middle class.

Under Fairfax’s oversight, CSB Bank has become a profitable franchise. In Q2 of the 2025-2026 fiscal year, the bank reported strong growth, with revenue up 37% year-over-year Net Profit (PAT) increasing by nearly 16% . While competitive intensity compressed Net Interest Margins (NIM) to 3.4% (from 4.6%), the bank maintains a healthy Capital Adequacy Ratio (CAR) of 22.5% and focuses on high-yield gold loans and SME lending.

By late 2025, IIFL Finance reported a 52% increase in Profit After Tax (PAT) as the business normalized following some regulatory turbulence. The core thesis relies on the company’s extensive branch network and digital capabilities to capture market share in the under-served retail credit market.

Valuation Disconnect and Catalysts

The financial analysis of Fairfax India must distinguish between volatile reported IFRS earnings and the steady growth of intrinsic Book Value per Share (BVPS).

Reported IFRS earnings are highly volatile due to mark-to-market accounting rules for investments. Net earnings for Q3 2025 contracted sharply to just $3.2 million ($0.02 per diluted share), a major decline from $34.0 million in the prior year. The variance is almost entirely non-operational, attributable to unrealized foreign exchange losses and fluctuations in the market prices of publicly traded investments (e.g., IIFL, CSB Bank), which do not reflect the long-term, compounding earnings power of the private, core infrastructure assets.

The stock’s current trading price of ~$16.50 (Nov 2025) offers a significant arbitrage opportunity against the reported BVPS of $20.72. More importantly, as noted earlier, the reported BVPS is likely a conservative underestimate of the intrinsic value, especially BIAL.

Publicly traded comparable airport assets in India, such as GMR Airports or Adani Enterprises, trade at high multiples, often exceeding 25-30x EV/EBITDA. This benchmarking suggests that Fairfax India’s internal valuation for BIAL is conservative, implying that a re-rating on the asset is overdue.

The primary catalyst for value crystallization is the anticipated IPO of Anchorage Infrastructure (the BIAL holding entity). This event, expected later in the decade, would convert the asset’s private, conservative valuation into a public, peer-aligned valuation. If BIAL lists at multiples comparable to its peers, the BVPS of Fairfax India would experience an instantaneous and substantial re-rating, closing the discount to NAV and driving significant returns.

Risk Analysis and Mitigation Strategies

While the upside is compelling, the thesis is subject to distinct risks that must be acknowledged and managed.

• FX Risk

The most persistent headwind is the risk of INR currency depreciation. The short-to-medium-term mark-to-market impact of the INR weakening toward the 88.6 level against the USD is unavoidable, leading to reduced reported equity and volatility in Other Comprehensive Income (OCI).

The company’s focus on assets that grow faster than the rate of currency depreciation is the core strategy. Furthermore, diversification provides structural insulation: Seven Islands Shipping earns largely in USD-linked contracts, and BIAL’s duty-free and international travel revenue streams are pegged to, or correlated with, global currencies.

• Concentration and Illiquidity Risk

Fairfax India has effectively morphed from a diversified fund into a highly concentrated proxy for Bangalore Airport.

With 74% ownership, BIAL now constitutes a disproportionate share of the portfolio’s Gross Asset Value (GAV). Consequently, any adverse regulatory action against BIAL, such as a major reduction in User Development Fees (UDF) by the AERA regulatory body, would have a magnified, outsized impact on the company. However, the remaining 26% is held by state entities, ensuring government alignment with operational control firmly in Fairfax’s hands.

BIAL remains a private, illiquid asset. Until the eventual IPO, Fairfax India cannot easily monetize this concentration to pay down holding company debt or execute large-scale buybacks, making it dependent on dividends from subsidiaries which can be lumpy.

The Fee Thing

Fairfax Financial, the Canadian investment company run by Prem Watsa out of which Fairfax India was spun-off, still retains a significant holding. Under the terms of the spin-off, Fairfax Financial charges a management fee (1.5% on deployed capital) and a high performance fee (20% of returns above a 5% hurdle, calculated triennially).

A $110.2 million performance fee was crystallized for the period ending 2023, which Fairfax Financial elected to receive in cash rather than in shares, thereby avoiding share dilution but representing a cash outflow.

Shareholders need to be aware of this.

Is Fairfax India a Good Investment?

This post only scratches the surface on Fairfax India. For a deeper dive, see this presentation or listen to the podcast:

Fairfax India, The Programmatic Acquirer

An investment in Fairfax India should be treated as a proxy for private infrastructure equity with the added benefit of daily public market liquidity.

Fairfax India Holdings Corporation stands at a defining inflection point in late 2025. The investment narrative has transitioned from a general “India ETF” to a concentrated, high-conviction bet on the essential infrastructure underpinning the urbanization and economic boom of Southern India, fundamentally anchored by the world-class Bangalore International Airport.

Investors today gain access to a BIAL, a monopolistic asset at a discount to intrinsic value, that is compounding at a strong double digit rate and with a “crystallization event” on the horizon in the medium term which ought to provide outsized returns.

The investment includes the conservatively-valued assets such as Seven Islands Shipping, together with the high-upside option of the Sanmar Chemicals turnaround, which is now structurally supported by the long-term, low-cost feedstock deal with TA’ZIZ.

The downside is protected by a substantial discount to book value and ownership of an irreplaceable, monopolistic asset. The upside is immense, fueled by the accelerating growth of its prime infrastructure assets and the anticipated BIAL monetization event.

This creates an asymmetric risk-reward profile: a “coiled spring” dynamic, well suited to patient capital. Those willing to accept delayed gratification will almost certainly be well rewarded before the end of the decade.

Author: James Emanuel