ICICI Prudential PMS Infrastructure Portfolio

(Infrastructure Theme)
Portfolio Strategy Note – April 2018
The information contained herein is solely for private circulation for reading/understanding of registered
distributors and referral agents of ICICI Prudential PMS and should not be circulated to investors/prospective
investors.

Portfolio Manager Commentary Investment Style

• Long-term investment having potential for capital appreciation derived from the
growth and development of the infrastructure. Style
Value Blend Growth Size
• A concentrated, absolute return strategy which aims to generate returns by
investing in companies across market capitalization. Large

The portfolio follows the below themes: Mid

Cement & Construction:
Small
We believe that the demand may increase in the next 5 years, owing to
Government spending on infrastructure, irrigation and schemes such as Housing
for All. Further, the upliftment of the sand mining ban and acceptance of M-sand Portfolio Statistics
in various regions is aiding construction activities. NHAI awarded 150 projects
spanning ~7,400km, costing ~INR1.2tn in FY18, providing earnings visibility for
Construction companies. Improvement in utilization levels of newly acquired Earnings
capacities and capacity addition by few players may lead to higher volumes. PE ROE
Growth
Capital Goods:
Reduction in Customs duty for Solar Tempered Glass for manufacturing of solar FY19E 20.4 42.1% 10.7%
equipment and the Government’s initiatives to promote solar power generation is
expected to benefit manufacturers of Capital Goods.
FY20E 22.9 30.9% 12.6%
Banks & Finance:
The FY19 Budget extended the path of consolidation with key triggers as follows:
Estimates: Edelweiss Securities
(i) Increased financing for MSME sector (under MUDRA Yojana) and new
measures to tackle stress; (ii) Significant increase in outlay (INR 645 Bn) for
Overweight Sectors
affordable housing under PMAY (Pradhan Mantri Awas Yojana); (iii) Introduction
of National Health Protection Scheme to cover ~500mn beneficiaries; (iv) SEBI to
encourage large corporates to meet 25% of financing requirement through bond Over weight %
market. Sector as compared
to benchmark
Banks & Finance 35

Cement 9

Construction 5
Consumer Non
Durables & 4
Retailing

Market Cap Allocation

Market Cap (%)

Large Cap 42

Mid Cap 32

Small Cap 26
ICICI Prudential PMS Infrastructure Portfolio
(Infrastructure Theme)
Portfolio Strategy Note – April 2018
The information contained herein is solely for private circulation for reading/understanding of registered
distributors and referral agents of ICICI Prudential PMS and should not be circulated to investors/prospective
investors.

Top 10 Stocks in the Portfolio

Company Exposure (%)

Larsen & Toubro Ltd. 8.2

• Larsen & Toubro (L&T), one of India’s largest engineering and construction company, has a consolidated order book
worth ~INR 2.7 Tn as on 31st December, 2017.
• L&Ts Net Profit for the December quarter 2018 rose 53% to INR 1,490 Cr, as revenues increased due to higher order
inflow from infrastructure and hydrocarbons businesses.
• The company reported a 38% YoY increase in fresh orders for Q3FY18 worth INR 48,130 Cr and reiterated its revenue
growth guidance of 12% for the current fiscal (FY18).
• Larsen and Toubro Ltd (L&T) is getting rid of its electrical and automation (E&A) business, as part of its strategy to exit
non-core businesses. Management has agreed to sell the business to Schneider Electric at an enterprise valuation of INR
14,000 Cr.
• L&T’s exit from non-core businesses and the potential for scaling up in defence, factories & building, etc., over next two-
three years without major capex may improve profitability together with generating FCF (Free Cash Flow) growth.

State Bank of India 8.1

• State Bank of India (SBI) is one of India’s largest commercial banks. SBI, in line with RBI’s goals, is keen to lower lending
rates further to accelerate credit growth and private investment in the Indian markets.
• Over the past two years, the bank has increased its focus on retail credit to provide itself the necessary growth
momentum and improve spreads.
• Given SBI’s efforts towards quality growth and aggressive stance on recovery of NPAs, we believe the Balance Sheet
may improve and the cost-income ratio is expected to move downwards which can support profitability.
• NIM (Net Interest Margin) could improve from current levels, with lower opex and higher fee income growth.

JMC Projects India Ltd 7.8

• Over the last 3 decades, JMC Projects (India) Ltd (JMC) has been instrumental in bringing efficiency in infrastructure
through building and integrating terrains and cityscapes. It is also one of the leading EPC (Engineering, Procurement,
and Construction) players in power transmission and oil & gas infrastructure sector.
• Bids for new EPC contracts for Mumbai Metro’s two elevated corridors — Metro Line 2B and Metro Line 4 — were
recently opened, and JMC was one of the 7 players to be able to bag a contract.
• Management announced that order inflows for FY18 have crossed ~INR 3,300 Cr, which is as per the guidance for order
inflow of 2017-18, giving good visibility for a profitable growth in 2018-19.

KNR Constructions Ltd. 5.1

• KNR Constructions Ltd. (KNR) provides EPC (Engineering, Procurement, and Construction) services across infrastructure
sectors such as roads and highways, irrigation and urban water management.
• For the quarter ended 31st December, 2018, KNR’s operating revenue grew by 13.3% YoY to Rs 433 cr. The EBITDA
grew by 70.5% YoY to Rs 98 cr, with adjusted PAT growing by 58.1% YoY to Rs 65 cr.
• KNR has been consistently reporting healthy margins and earnings growth is likely to remain strong with benefits
emanating from increased scale of operations and high-margin order book.
• KNR, in March 2018, won its first Hybrid Annuity Mode (HAM) project with bid project cost of Rs1,020.6cr from NHAI.
• KNR’s order book stood at ~Rs 31.5 Bn at the end of Q3FY18, providing earnings visibility till at least FY19. Various
infrastructure initiatives by the Government such as the Bharatmala Project may also benefit the Company.

ICICI Bank Ltd. 5.0

• Incorporated in 1994, ICICI Bank is one of India’s largest private banks with a focus on retail lending with retail financing
representing ~52% of total loans and advances.
• For the quarter ended 31st March, 2018, Net Revenue grew 30.3% to INR 11,700 Cr. Gross Non Performing Assets
(GNPA) was reported at 8.8%, as compared with 7.8% in Q3FY18. Net Interest Margin came in at 3.2%.
• The Bank has de-risked its balance sheet substantially over the last few years, reducing exposure to stressed sectors
such as power and mining.
• The bank expects that domestic loan segment may grow due to increase in the retail segment as domestic savings have
been increasing in India.
ICICI Prudential PMS Infrastructure Portfolio
(Infrastructure Theme)
Portfolio Strategy Note – April 2018
The information contained herein is solely for private circulation for reading/understanding of registered
distributors and referral agents of ICICI Prudential PMS and should not be circulated to investors/prospective
investors.

Equitas Holdings Ltd. 4.9

• Equitas Holdings Ltd (EHL) invests into subsidiary companies and provides loans to them. It has two wholly owned
subsidiaries – Equitas Small Finance Bank and Equitas Technologies Pvt Ltd.
• Net Revenue for Q4FY18 came in at INR 290.9 Cr, registering a growth of 20.3% YoY. Net Profit grew a substantial 405%
YoY to INR 34.9 Cr.
• Momentum in non-MFI businesses was robust (AUM up >50% YoY) led by business loans, housing, and agriculture.
• The Company was successful in executing its strategy of reducing its Micro Financing (MFI) business and enhancing its
non-MFI business.
• With a large part of stress recognition over, the returns profile may stabilise from FY19 with significant funding cost
advantages and lower cyclicality risks.

Prism Johnson Ltd. 4.8

• Prism Cement Limited is one of India’s leading integrated Building Materials Company, with a wide range of products
from cement, ready-mixed concrete, tiles, bath products to kitchens. The company has three Divisions, viz. Prism
Cement, H & R Johnson (India), and RMC Readymix. It also has a network of dealers and stocking points.
• The revenue for Q3FY18 increased by 14.5% YoY to INR 1,304 cr. EBITDA jumped sharply by 198.2% YoY to INR 90.7
cr. The company reported a net profit of INR 14.8 cr.
• In December 2017, the Supreme Court eased norms on usage of Pet Coke as a raw material in the manufacturing of
cement, which could help lower costs of production.
• For the medium term, the company has planned Greenfield expansion in Kurnool in Andhra Pradesh, land acquisition of
3000 acres, limestone reserves are secured with necessary environment clearances.

Gujarat Pipavav Port Ltd. 4.8

• Gujarat Pipavav Port Limited (GPPL) was initially incorporated to maintain the port at Pipavav in Gujarat, and is one of
the principal gateways to the Western Coast of India. It caters to imports and exports to Europe, Middle East and other
international destinations.
• GPPL reported a drop in revenue for Q3FY18 of 3.8% yoy to Rs 162 cr. EBITDA stood at Rs 94.6 cr, down 9.3% yoy, with
the margin falling by 350bps yoy to 58.2%. Net Profit stood at Rs50cr, and may be attributed to loss of business due to
closure of Hanjin operations.
• The parent group firm Maersk Line shifted a shipping line service to Pipavav port in November 2017. The new shipping
line service may help increase volumes at the port.
• Given the bright outlook for cargo growth at the port and uptick in utilisation level, GPPL is planning to be ready for the
next leg of growth by enhancing capacity and improving operational efficiency.

Axis Bank Ltd. 4.5

• Axis Bank is one of the largest private sector banks in India in terms of asset size. It earns substantial fee income from
transaction and merchant banking activities.
• Axis Bank’s Q4FY18 Net Interest Income was flat YoY to Rs 4,730 cr against Rs 4,729 cr in Q3FY17 with domestic Net
Interest Margins at 3.59%.
• Its GNPA (Gross Non-Performing Assets) for Q4FY18 stood at 6.77% and NNPA (Net Non-Performing Assets) for the
quarter came at 3.4% s. Net Profit for FY18 contracted to Rs 276 cr. Loan growth during the quarter stood at 18% YoY
led by pick-up across all segments. Retail, SME and Corporate loan book grew 23%, 19% and 12% YoY respectively.
• The retail segment continues to strengthen and capital infusion may continue to aid growth in the coming quarters.
Digitization remains a key theme, with 58% customers now being digitally active. The Bank's future focus is on digital
and analytics capability.

Triveni Engineering & Industries Ltd. 4.4

• Triveni Engineering & Industries (TEIL) is among the largest sugar manufacturers and is a leader in the engineering
businesses comprising high speed gears, gearboxes, and water treatment solutions.
• The gears business is expecting to receive sizeable orders from defence, which may add substantially to topline growth.
• Additionally, TEIL has participated in a large number of tenders which, once finalized can provide earnings growth
visibility.
• Government’s initiatives towards stabilizing demand-supply of sugar may help price of sugar.

Source: Internal, EdelResearch, IndiaInfoline

ICICI Prudential PMS Infrastructure Portfolio
(Infrastructure Theme)
Portfolio Strategy Note – April 2018
The information contained herein is solely for private circulation for reading/understanding of registered
distributors and referral agents of ICICI Prudential PMS and should not be circulated to investors/prospective
investors.

Top Alpha Generators

Company Alpha (%)

KNR Constructions Ltd. 15.92
JMC Projects (India) Ltd. 11.45
Blue Star Ltd. 7.02
Triveni Engineering & Industries Ltd. 4.81
HDFC Bank Ltd. 4.65
Data Source: Internal; Period: April 30, 2015 – April 30, 2018.

Portfolio Performance
Particulars Returns (%)
1 3 5 Since
year years years inception
ICICI Prudential PMS 18.97 15.52 25.08 16.18
Infrastructure Portfolio
Nifty Infrastructure 7.62 3.56 7.60 -
Source: Factsheet for ICICI Prudential PMS Infrastructure Portfolio
Less than 1 year: Absolute Returns; greater than or equal to 1 year: compound annualised return.
Past performance may or may not be sustained in future.

Stock In & Stock Out

Stock in – Bharat Electronics Ltd.
Stock out – N/A

Stocks Added
Bharat Electronics Ltd. (BHE): BHE, one of India’s largest defence Public Sector Undertakings
(PSU), specialises in manufacturing defence electronics. It is emerging as one of the key beneficiary of
increase in defence capital expenditure. The government’s Make in India drive is likely to encourage
domestic manufacturing. Further, domestic companies, including BHE, are likely to benefit from key
changes in government policies, notably the offset clause (30% of an order must be subcontracted
domestically). It has a strong order book, equivalent to over 4 years of revenues, providing good
visibility and hence is less affected by the near-term lull in intake.

Source: Internal

About The Portfolio

ICICI Prudential PMS Infrastructure Portfolio is a long term investment of funds having potential for
capital appreciation derived from the growth and development of the infrastructure theme.

Features of the Portfolio

Focused portfolio of 15-20* stocks comprising of listed Indian companies.

Buy stocks with a view to unlock value over the holding period.

Aiming to generate alpha by riding the dominant themes through market cycles.
Capital appreciation by investing in securities with a focus on infrastructure companies which shall
play out with the economic recovery.
ICICI Prudential PMS Infrastructure Portfolio
(Infrastructure Theme)
Portfolio Strategy Note – April 2018
The information contained herein is solely for private circulation for reading/understanding of registered distributors and
referral agents of ICICI Prudential PMS and should not be circulated to investors/prospective investors.

Disclaimer
 All data provided above is as on 30th April, 2018, unless specified otherwise.
 Investing in securities including equities and derivatives involves certain risks and considerations associated
generally with making investments in securities. The value of the portfolio investments may be affected generally by
factors affecting financial markets, such as price and volume, volatility in interest rates, currency exchange rates,
changes in regulatory and administrative policies of the Government or any other appropriate authority (including tax
laws) or other political and economic developments. Consequently, there can be no assurance that the objective of
the Portfolio would achieve. Prospective investors are advised to carefully review the Disclosure Document, Client
Agreement, and other related documents carefully and in its entirety and consult their legal, tax and financial advisors
to determine possible legal, tax and financial or any other consequences of investing under this Portfolio, before
making an investment decision. The fees and charges mentioned in this document are indicative and shall be in
accordance with the Agreement executed by the Portfolio Manager with the Client.
 The Stock(s)/Sector(s) mentioned in this material do not constitute any recommendation of the same and the
portfolios may or may not have any future positions in these Stock(s)/Sector(s). The composition of the portfolio is
subject to changes within the provisions of the disclosure document. The benchmark of the portfolios can be
changed from time to time in the future. Trading volumes, settlement periods and transfer procedures may restrict
the liquidity of investments in portfolios. Different segments of the Indian financial markets have different settlement
periods and such periods may be extended significantly by unforeseen circumstances.
 Individual returns of Clients for a particular portfolio type may vary significantly from the data on performance of the
portfolios as may be depicted. This is due to factors such as timing of entry and exit, timing of additional flows and
redemptions, individual client mandates, specific portfolio construction characteristics or structural parameters,
which may have a bearing on individual portfolio performance. No claims may be made or entertained for any
variances between the performance depictions and individual portfolio performance. Neither the Portfolio Manager
nor its Directors, Employees or Sponsors shall be in any way liable for any variations noticed in the returns of
individual portfolios.
 The Client shall not make any claim against the Portfolio Manager against any losses (notional or real) or against any
loss of opportunity for gain under various PMS Products, on account of or arising out of such circumstance/ change
in market condition or for any other reason which may specifically affect a particular sector or security.
 The Portfolio Manager shall have the sole and absolute discretion to invest in respect of the Client’s account in any
type of security subject to the Agreement and as stated in the Disclosure Document and make such changes in the
investments and invest some or all of the Client’s investment amount in such manner and in such markets as it
deems fit would benefit the Client. The Portfolio Manager’s decision (taken in good faith) in deployment of the
Clients’ account is absolute and final and can never be called in question or be open to review at any time during the
currency of the agreement or any time thereafter except on the ground of malafide, fraud, conflict of interest or gross
negligence. This right of the Portfolio Manager shall be exercised strictly in accordance with the relevant Acts, rules
and regulations, guidelines and notifications in force from time to time.
 All data/information used in the preparation of this material is dated and may or may not be relevant any time after
the issuance of this material. The Portfolio Manager/ the AMC take no responsibility of updating any data/information
in this material from time to time. The Portfolio Manager and the AMC (including its affiliates), and any of its officers
directors, personnel and employees, shall not liable for any loss, damage of any nature, including but not limited to
direct, indirect, punitive, exemplary, consequential, as also any loss of profit in any way arising from the use of this
material in any manner.
 *The No. of Stocks provided is to explain the investment philosophy and the actual number may go up and down
depending on than prevailing market conditions at the time of investment. The fund may invest in up to 20 stocks
depending on the discretion of the Fund Managers.