ICICI Prudential PMS Flexicap Portfolio

(A series under the “Aggressive Portfolio”)

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

 ICICI Prudential PMS Flexicap Portfolio aims to generate long-term capital

appreciation and predominantly follows a Core & Satellite strategy. Style
Value Blend Growth Size
 The core is predominantly targeted towards sectors which have value on a
relative or absolute basis. The satellite will predominantly be a combination Large
of strategies such as Special Situation, GARP (Growth at Reasonable Price)
Philosophy etc.
Mid

The portfolio has invested into below mentioned themes: Small

Domestic Consumption: (Satellite strategy)
Aided by a reduction in GST rates in various product categories and recovery of Portfolio Statistics
rural markets, the FMCG sector has been on an upward tangent since Q3FY18.
The introduction and demand for natural and Ayurvedic products in the market
have been growing steadily and this trend is likely to continue, pushing players to PE Earnings ROE
introduce such products. Rural recovery, normalcy in trade channels, and Growth
stabilisation post-GST may lead to a strong revival in growth of the Sector.

Information Technology (Satellite strategy)

FY19E 44.9 29.6% 15.7%
The IT Sector, after bottoming out in 1HFY18, has entered into a recovery phase,
and the outlook is bullish, given high demand, US Corporate Profit Recovery, and
high outsourcing from Europe. There is potential for margin improvement as FY20E 45.0 25.7% 17.4%
digital initiatives gain scale and currency stabilizes. Additionally, the proportion of
low-growth business has been falling steadily and is being replaced by high-
growth digital business. RoEs are likely to expand as Companies have starting Source: Edelweiss Securities
distributing their unused cash reserves. Huge digital-led demand and consistent
buy backs may lead to high earnings growth, and in some cases, a re-rating.
Overweight Sectors
Chemicals (Core Strategy)
The Portfolio has exposure to the Chemicals industry as we believe there is a Sector Over weight %
mismatch between demand and supply, which may work in the favour of compared to
Domestic Players. Further, China‟s actions towards being more environmentally benchmark
friendly may also cause a shift in demand for domestic chemical companies. Consumer
7
Durables
Banks (Core Strategy)
Pharma &
We prefer select corporate lenders over retail lenders in the banking segment. As Healthcare 6
is commonly known, banks, especially PSU Banks have been grappling with Services
structural asset quality issues with a large number of frauds having significant
Auto
exposure being reported. The FY19 Budget extended the path of consolidation 6
with key triggers as follows: (i) Increased financing for MSME sector (under
Ancillaries
MUDRA Yojana) and new measures to tackle stress; (ii) Significant increase in
outlay (INR 645 Bn) for affordable housing under PMAY (Pradhan Mantri Awas Chemicals 5
Yojana); (iii) Introduction of National Health Protection Scheme to cover ~500mn
beneficiaries; (iv) SEBI to encourage large corporates to meet 25% of financing Hotels &
3
requirement through bond market. Leisure

Auto Ancillaries (Core Strategy) Market Cap Allocation

At this point we have a preference towards Auto Ancillaries over Auto OEMs as
we believe that Auto Ancillaries enjoy a structural advantage of value growth in Market Cap (%)
the long term, outstripping volume growth. Volumes for tyres, in terms of exports
and domestic consumption, are estimated to grow. This could be led by stable Large Cap 68
demand and increased acceptance of Indian tyres in overseas markets, both in
terms of quality and pricing. Mid Cap 12

Small Cap 20
ICICI Prudential PMS Flexicap Portfolio
(A series under the “Aggressive Portfolio”)
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 (%)

6.6
Bajaj Finserv Ltd.
• Bajaj Finserv, one of India‟s most diversified financial services group with services spanning across life insurance, general
insurance, and lending, with a pan-India presence. It has a long track record of building large scale, profitable businesses
and is also an opportunity to participate in India‟s insurance sector.
• The Company reported a 38% increase in Q3FY18 net profit at INR 767 cr against INR 556 Cr YoY. Net interest income rose
38% to INR 2,372 Cr.
• The fixed deposit book size of the company stands at INR 6,458 Cr as on December 31, 2017. Book (loan) size was up 35%
to INR 73,069 cr as on December 31, 2017.
• The Company saw improvement in operating variables across businesses and is going strong with 35% plus asset and
earnings surge as of 31st December, 2017.

Motherson Sumi Systems Ltd. 6.5

• Established in 1986, Motherson Sumi Systems Ltd (MSSL), the flagship company of the Samvardhana Motherson Group,
including its subsidiaries and JVs, is one of the largest manufacturers of wiring harnesses, rear-view mirrors, IP modules
etc. for passenger cars.
• In January 2018, MSSL announced the formation of a Joint Venture with Ossia Inc. (Ossia). This was in order to help MSSL
introduce Ossia‟s patented Cota power systems into interiors of MSSL‟s customer vehicles by CY2021.
• MSSL may opt for three acquisitions over the next 6 months in order to fast-track its FY2020 vision of a revenue target of
$18 Billion.
• MSSL‟s India business is poised to do well owing to expectation of strong demand from rear view mirror and
interior/exterior of cars segment. The Company plans to add three new plants within FY19 and aims to add around USD 1
billion to the topline.

HDFC Bank Ltd. 6.0

• HDFC Bank is one of the largest private sector banks in India, and was added to the „too big to fail‟ list of systemically
important banks, in addition to SBI and ICICI Bank in September 2017.
• For Q4FY18, reported revenue was INR 14886 Cr, up 19% YoY, with Net Profit growing 20.3% YoY to INR 4799 Cr.
(Gross/Net Non-Performing Loans) GNPLs/NNPLs remained broadly stable at 1.3%/0.4% and credit cost was restricted to
sub-100bps.
• Deposits grew a strong 13% QoQ and 22.5% YoY, contributing to the growth of the bank, with Net Interest Income
growing at 17.7% YoY. Going forward, Net Interest Margin (NIM) is expected to remain in the range of 4.1% to 4.3%.
• The Bank plans to tap into few selected pockets where the growth seems to be strong within the infrastructure segment.
With a Core cost / income ratio at 41% as of Q4FY18, the Bank expects the improving trend to continue.

Britannia Industries Ltd. 5.5

• Britannia Industries Ltd, a 123 year-old brand in India, is the value leader in the biscuit category. It also has a presence in
the bread, cakes, rusk and dairy segment.
• The Company reported Revenue for Q4FY18 at Rs 2,567 cr, an increase of 12.5% YoY, led by the domestic volume growth.
EBITDA for the quarter grew by 26.8% YoY to Rs 398 cr.
• Britannia has been on an innovation drive, with a variety of new products being launched, and many more in the pipeline.
The Company also plans on introducing dairy-based products.
• The Company‟s profitability has been improving through focus on profitable products rather than the commoditized
categories.
• Britannia‟s strategy to enhance direct distribution coupled with push in rural and weaker states is likely to drive growth and
help sustain market share gains. Additionally, its robust product pipeline, entry into new categories and push for deeper
penetration may boost earnings growth.
ICICI Prudential PMS Flexicap Portfolio
(A series under the “Aggressive Portfolio”)
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

Cipla Ltd. 5.0

• Cipla Ltd (Cipla) is one of oldest companies in the pharmaceutical sector and has a vast presence in respiratory segment in
India.
• The company has strong research capabilities and is a good respiratory franchise, doing well in emerging markets and
South Africa.
• Net profit for Q3FY18 came in at Rs 401 Cr, up from Rs 375 Cr, YoY. Revenue from India, its biggest market, rose 15% to Rs
1,601 Cr. Revenue from North America fell 2% due to ongoing pricing pressures in the generics market.
• Cipla announced that it has received USFDA approval for Phenylephrine HCL Injection (used to treat Hypotension) and
Exemestane 25mg Tablets.
• There may be steady growth and margin recovery going forward as acquired businesses and own sales in US/EU start
ramping up. The launch of combination inhalers in EU could be a long-term driver for Cipla.

Infosys Ltd. 4.9

• Infosys is a global leader in technology services and consulting, and has a presence in 45 countries. It enables clients to
create and execute strategies for their digital transformation, and provides solutions from engineering to application
development, knowledge management and business process management.
• Infosys is a zero debt company, and is highly liquid. The Company is, to a large extent, cash intensive, with fairly large cash
reserves.
• For Q4FY18, constant currency revenue grew by 0.6% QoQ and US revenue came in at USD 2,805 Mn, up 1.8%
sequentially. INR revenue grew by 1.6% QoQ to INR 18,083 Cr, and EBITDA stood at INR 4,930 Cr, up 2.3% QoQ. PAT
declined by 28.1% QoQ to INR 3,690 Cr.
• The Company is set to expand its margins due to current low level of utilisation and possibility of increase in offshore
execution coupled with higher contribution from non-linear business.

Axis Bank Ltd. 4.7

• 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.

JSW Steel Ltd. 4.3

• JSW Steel Ltd (JSW) is engaged in the business of production and distribution of iron and steel products. Its segments
include Steel, Power and Others, which includes cement, mining and construction activities.
• JSW reported good growth on the revenue and operating fronts in Q3FY18. Revenue grew by 16.6% YoY to Rs17,861cr,
and EBIDTA margin rose by 314bps YoY to 21.6%. Adj. Net Profit stood at Rs1,510cr after adjusting for a one-off gain of
Rs264cr relating to provisions on one of the company‟s foreign mines.
• Management expects realization to remain buoyant given the traction from constructions sector.
• The outlook for global steel industry is improving primarily on capacity cuts being implemented in China. We expect JSW
Steel to further improve its profitability on the back of lower raw material prices and value added products in the portfolio.

Power Grid Corporation of India Ltd. 4.0

• State-run Power Grid Corporation (PGCIL), has planned heavy capex for fiscal FY19. Revenue for Q3FY18 grew by 13.2%
YoY to Rs7,506cr. Net Profit stood at Rs2,040.8cr.
• PGCIL is evaluating growth opportunities via intra‐state projects and also international geographies. PGCIL has so far
awarded INR100bn in projects and plans to award another INR 50‐60bn projects in Q4FY18 & Q1FY19.
• PGCIL signed an MoU with the Ministry of Power which includes various targets to be achieved by PGCIL during FY 2018-
19. Capex target for the year has been set at INR 25,000 Cr.
• PGCIL is setting up transmission corridors to supply power from solar parks to the national grid. It plans to establish 11
renewable energy management centers in states such as Tamil Nadu, Karnataka and Andhra Pradesh.
ICICI Prudential PMS Flexicap Portfolio
(A series under the “Aggressive Portfolio”)
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

State Bank of India 3.9

• 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 operating expenditure and higher fee income
growth.

Source: Internal, EdelResearch, IndiaInfoline

Top Alpha Generators

Company/ Index Alpha (%)

Alembic Pharmaceuticals Ltd. 5.55
Bajaj Finserv Ltd. 4.16
Orient Paper & industries Ltd. 3.93
Infosys Ltd. 3.53
TVS Motor Company Ltd. 3.10
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
17.06 14.15 23.5 20.61
Flexicap Portfolio
S&P BSE 200 15.69 11.31 14.61 14.85
Data Source: Factsheet for ICICI Prudential PMS Flexicap 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 – Blue Star Ltd., Sandhar Technologies Ltd.
Stock out – Ashok Leyland Ltd.

Stocks Added
Blue Star Ltd: Blue Star could continue to gain market share in Room AC industry over the next few
years, due to its strong brand franchise, well established service network, expanding presence in North
India and strong offerings in energy efficient products (5 star and inverter ACs). Lower penetration of
room ACs and rising disposable income could continue to fuel growth in India‟s room AC market. It has
also recently entered into water purifier, air purifier and air cooler markets.

Sandhar Technologies Ltd (STL): STL enjoys dominant share in locks and mirrors. Hero Motocorp, TVS
Motors and Royal Enfield (which account for ~60% of industry) provide 100% business to STL. We are
optimistic about 2W segment growth over next 2-3 years driven by (1) rural recovery; (2) election
spending and (3) rapid premiumization driving increase in content per vehicle. With late entry in scooters
(in TVS), the company is seeing its revenue outperform the industry. There is also scope for market share
gain through new technology products.
ICICI Prudential PMS Flexicap Portfolio
(A series under the “Aggressive Portfolio”)
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.

About The Portfolio

ICICI Prudential PMS Flexicap Portfolio is a diversified equity portfolio that endeavours to achieve
long term capital appreciation and generate returns by investing across market cap.

Features of the Portfolio

Aims to capture opportunities with relatively low risk throughout different stages of economic cycles

Exposure to each market cap segment is based on their relative valuation and risk-return characteristics

The Portfolio Manager actively manages exposure to those sectors on which he holds a contrarian view
Portfolio consciously endeavours to remain underweight on such sectors to which the larger market holds
an overweight position
Conversely, active bets are taken on under- owned sectors

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.