ICICI Prudential PMS Value Portfolio

(A series under the “Deep Value 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

The core investment philosophy of value investing is based on the belief that: Investment Style

 Stocks cannot continue to quote at values that are well below their fair values
over the long term. Style
Value Blend Growth Size
 At some point in time, the markets are likely to recognize the extent of under-
valuation of these companies. Large

 Currently, due to deteriorating macroeconomic status of markets globally, led Mid

by an increase in oil prices to ~$80, 10 year US Treasury Yield at ~3.1% and
10 year Indian G-Sec Yield at ~7.9%, coupled with increasing tightness in Small
domestic market liquidity and expensive valuation of all companies, we
believe that increasing cash holdings in the portfolio is a safer bet. We aim to
utilize this cash to buy stocks when opportunity arises, especially since the Portfolio Statistics
Karnataka elections are now over and the impact on the markets will be
minimal. PE Earnings ROE
Growth
The Portfolio is invested into the below mentioned Sectors:
Auto & Auto Ancillaries:
The Indian Government’s imposition of anti-dumping duties on Chinese tyres led 17.4 24.2% 13.2%
FY19E
to an increase in domestic carbon black prices, causing nearly all automakers to
announce price hikes w.e.f. January 1 or April 1, 2018, to offset impact of higher
input and regulatory costs. Volumes for tyres, in terms of exports and domestic FY20E 16.9 17.5% 14.2%
consumption, are estimated to grow. This could be led by stable demand and
increased acceptance of Indian tyres in overseas markets, both in terms of quality
and pricing. Additionally, focus on capex and increase in capex outlined towards
Overweight Sectors
development of Electric Vehicles remains strong and may be a good growth
driver of this sector.
Sector Over weight %
Software: compared to
The IT Sector, after bottoming out in 1HFY18, has entered into a recovery phase, benchmark
and we believe the outlook is bullish, given high demand, US Corporate Profit Industrial
Recovery, and high outsourcing from Europe. There is potential for margin Products & 7
improvement as digital initiatives gain scale and currency stabilizes. Additionally, Capital Goods
the proportion of low-growth business has been falling steadily and is being
Media &
replaced by high-growth digital business. RoEs are likely to expand as Companies 6
have starting distributing their unused cash reserves. Huge digital-led demand
Entertainment
and consistent buy backs may lead to high earnings growth, and in some cases, a
Software 6
re-rating.

Banks & Finance: Real Estate 4

The FY19 Budget extended the path of consolidation with key triggers as follows:
(i) Increased financing for MSME sector (under MUDRA Yojana) and new Textiles 3
measures to tackle stress; (ii) Significant increase in outlay (INR 645 Bn) for
affordable housing under PMAY (Pradhan Mantri Awas Yojana); (iii) Introduction
of National Health Protection Scheme to cover ~500mn beneficiaries; (iv) SEBI to Market Cap Allocation
encourage large corporates to meet 25% of financing requirement through bond
market.
Market Cap (%)

Large Cap 25

Mid Cap 37

Small Cap 38
ICICI Prudential PMS Value Portfolio
(A series under the “Deep Value 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 (%)

NTPC Ltd. 6.9

 NTPC is the largest power generator of India, with a total installed capacity touching 51,383 MW with the commercial
declaration of 4,415 MW capacity during the current financial year (FY18).
 The Company’s standalone net profit dropped by 4.4% to Rs 2,360 cr in the third quarter ended December 31, 2017. Its
total revenue increased to Rs 21,087 cr.
 In Q3FY18, NTPC's power generation increased by 10.40% to 67.78 Billion units (BUs) versus 61.39 BUs YoY.
 Management has guided for INR22bn capex and commercialisation of 4GW capacity in FY19, and is also looking for
opportunities to grow inorganically, i.e., through mergers & acquisitions.

City Union Bank Ltd. 6.7

 The main focus of City Union Bank Ltd (CUBK) is lending to MSME, Retail / Wholesale Trade with granular asset profile
including providing short term and long term loans to agricultural sector.
 NII (Net Interest Income) for Q3FY18 grew 19% to Rs 365.1 Cr, with a corresponding 22% increase in Net Profit to Rs
154.8 Cr. Gross NPA stood at 3.3%.
 CUBK has a strong Capital Adequacy ratio of 14.93% out of which Tier 1 constitutes 14.47%.
 The Bank has taken up a new initiative, a FASTag facility for making payments at toll plazas.

Gujarat Pipavav Port Ltd. 6.7

 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.

Tata Investment Corp Ltd. 6.4

 Tata Investment Corporation Ltd. (TICL) invests in a diversified portfolio of quoted and unquoted securities of companies,
including Tata Companies, which are engaged in various businesses with a history of strong operating and financial
performance. The Company usually seeks a combination of value and growth.
 Net profit for Q4FY18 rose 161.04% to INR 42.08 Cr. Sales rose 62.82% to INR 58.34 Cr.
 Tata Investment Corporation has a considerable stake in Tata Asset Management as well as Tata Capital.

Orient Refractories Ltd. 6.0

 Orient Refractories Limited (ORL) is part of the RHI Group of Austria. In India, ORL is one of the largest players in the steel
flow control process segment, with a market share of ~30%.
 Net profit of ORL for Q3FY18 rose 30.97% to Rs 21.99 crore, while Sales rose 23.23% to Rs 157.83 crore in the quarter.
 Strong technological prowess and rich product portfolio enables the company to partner with a steel company right from
the capacity formulation stage. It has a technology license agreement with its parent, but pays meager royalty and
technical fees.
 Domestic market share is likely to continue improving and the company expects to capture exports opportunity, led by
increasing sourcing by the parent and additional capacities to be added.
ICICI Prudential PMS Value Portfolio
(A series under the “Deep Value 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.

5.4
Cummins India Ltd.
 Cummins India (KKC) is a leading manufacturer of medium-high HP (Horsepower) range of diesel engines in India with
manufacturing facilities in Pune and Daman. The company is a major outsourcing hub for its parent, especially in the LHP
generators & High HP engines.
 KKC is a play on the multiple segments of power requirement, rising mobile penetration across rural and suburban
geographies, strong coal requirement (driving demand in mining), and continued growth in automobile sales on the back
of large potential in environment friendly natural gas fuel-based engines. KKC may benefit from growth in the above
segments.
 Capex guidance for FY19 is ~INR 3-3.5 bn.

Music Broadcast Ltd. 4.8

 Music Broadcast Ltd. (MBL), a subsidiary of Jagran Prakashan Limited (JPL) owns and operates FM Radio Stations under
the brand name of Radio City. Radio City is the first and oldest private FM Radio Broadcaster in India.
 The Net Sales of the company for Q3FY18 were recorded at Rs 76.18 cr, up by 4.66% on a YoY basis. However, due to
increase in staffing and employee costs, owing to the increase in the number of stations, PAT fell by 1.6% YoY.
 Since the company has expanded to smaller cities and newer territories, it has the potential to gain a higher number of
listeners as compared to its competitors, and generate higher advertising revenues due to a broader listenership.
 Owing to a cautious revival in the economy, a pick-up is seen in Govt., Real Estate and Banks, Financial Services and
Insurance (BFSI) advertising spending, which may further contribute to an increase in ad revenue for the company,
especially post its expansion.

Apollo Tyres Ltd. 4.6

 Apollo Tyres is a tyre manufacturer and seller with multiple manufacturing units in India, the Netherlands and Hungary.
 Imposition of Anti-Dumping Duty on imports from China has improved prospects for Companies such as Apollo Tyres as
volumes and pricing have both improved.
 Apollo may benefit from strong growth prospects for auto Original Equipment Manufacturers (OEMs).
 New plants in India and Hungary have stabilized, and may improve earnings in the next few quarters. Additionally, given
the strong demand, pricing scenario has picked up, and may improve further.

Ashiana Housing Ltd. 4.6

 Ashiana Housing Ltd. (Ashiana), is a prominent real estate builder, established in various locations in India, and is
committed towards providing quality construction and safety of investment.
 Ashiana and International Finance Corporation (IFC), a part of World Bank Group, have entered into an agreement to co-
invest in upcoming affordable and middle income residential projects including in senior living projects, which may add
to the Company’s growth.
 We believe that strong financials including a debt free balance sheet and sound management may lead to increased
growth prospects of Ashiana Housing Ltd.

Grindwell Norton Ltd. 4.3

 Grindwell Norton (GNO) pioneered the manufacturing of grinding wheels in India in 1941. Today, GNO’s businesses
include: Abrasives, Silicon Carbide, High Performance Refractories, Performance Plastics, among others.
 In the past ten years, GNO clocked strong 15% CAGR each in sales and PAT along with 17% EBITDA margin. Improving
utilisation focus on new product launches and parent’s target of tripling group sales in India by 2019, we expect strong
sales growth.
 Pick up in automotive segment and pent up demand in industrial may act as growth catalysts for the Company.
Source: EdelResearch, IndiaInfoline, Internal

Top Alpha Generators

Company Alpha (%)

City Union Bank Ltd. 2.66
Glenmark Pharmaceuticals Ltd. 2.27
Alembic Pharmaceuticals Ltd. 2.23
Colgate-Palmolive (India) Ltd. 1.99
Natco Pharmaceuticals Ltd. 1.98
ICICI Prudential PMS Value Portfolio
(A series under the “Deep Value 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.

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
16.71 11.69 25.61 17.95
Value Portfolio
S&P BSE Midcap 14.96 17.76 21.81 15.26
Data Source: Factsheet for ICICI Prudential PMS Value 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 – Oil & Natural Gas Corporation Ltd., Yes Bank Ltd.
Stock Out- Cyient Ltd., VST Tillers Tractors Ltd.

Stocks Added
Oil & Natural Gas Corporation Ltd. (ONGC): ONGC may register robust gas growth as it benefits
from its projects valued at INR800bn. Net debt is at comfortable levels. Additionally, ONGC has
good growth prospects on the back of reviving gas production and rising oil and gas prices.

Yes Bank Ltd.: PSU banks have vacated corporate lending space due to lack of capital, high
credit costs and accelerated provisioning due to RBI circular. Yes Bank is well placed to
capture this opportunity. Yes Bank has taken proactive and effective measures to reduce
exposures to outstanding and stress accounts and is well positioned to grow.

Source: Internal

About The Portfolio

ICICI Prudential PMS Value Portfolio aims to follow long-term investment style of funds having
potential for capital appreciation following value investment philosophy.

Features of the Portfolio

A portfolio of 20-25* stock ideas, biased towards Mid-Caps

Investment Horizon: 3 Years & Above

Maximum exposure to a security – 10% of the Portfolio

Maximum exposure to a sector – 25% of the Portfolio or +/- 7% from the sectorial weightage in
the Benchmark Index whichever is higher

Minimum Investment Amount: INR 25 lakh

Reference / Benchmark Index: S&P BSE Midcap Index

ICICI Prudential PMS Value Portfolio
(A series under the “Deep Value 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.

*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 25 stocks
depending on the discretion of the Fund Managers

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.