Model Portfolio update - ICICI...

Model Portfolio update

May 2, 2017

Deal Team – At Your ServiceLatest Model Portfolio

Source: Bloomberg, ICICIdirect.com Research

*Diversified portfolio - Combination of 70% large cap and 30% midcap portfolio

Midcap

• Exclusion – Aurobindo Pharma, reduced weight in Infosys

• Inclusion – Gail Ltd

Large cap

Name of the company Weightage(%)

Auto 15.0

Tata Motor DVR 4.0

Bosch 3.0

Maruti 5.0

EICHER Motors 3.0

BFSI 32.0

HDFC Bank 8.0

Axis Bank 4.0

HDFC 8.0

Bajaj Finance 6.0

SBI 6.0

Capital Goods 4.0

L & T 4.0

Cement 4.0

UltraTech Cement 4.0

FMCG/Consumer 18.0

Dabur 5.0

Marico 4.0

Asian Paints 5.0

Nestle 4.0

IT 12.0

Infosys 6.0

TCS 6.0

Media 4.0

Zee Entertainment 4.0

Pharma 6.0

Lupin 6.0

Oil and Gas 5.0

GAIL Ltd. 5.0

Total 100.0


Aviation 6.0

Interglobe Aviation 6.0

Auto 6.0

Bharat Forge 6.0

BFSI 12.0

Bajaj Finserve 6.0

J&K Bank 6.0

Capital Goods 6.0

Bharat Electronics 6.0

Cement 6.0

Ramco Cement 6.0

Consumer 30.0

Symphony 6.0

Supreme Ind 6.0

Kansai Nerolac 6.0

Pidilite 6.0

Rallis 6.0

Infrastructure 8.0

NBCC 8.0

Logistics 6.0

Container Corporation of India 6.0

Pharma 14.0

Natco Pharma 6.0

Biocon 8.0

Textile 6.0

Arvind 6.0

Total 100.0

• Exclusion – Torrent Pharma

• Inclusion – J&K Bank

• Our indicative large cap equity model portfolio has continued to deliver an

impressive return (inclusive of dividends) of 98.6% since its inception

(June 21, 2011) vis-à-vis the index return of 70.4% during the same

period, an outperformance of 28%. This validates our thesis of selecting

companies with sound business fundamentals that form the core theme of

our portfolio. Our midcap portfolio of 16 stocks outperformed the

benchmark by 1.5x (since June 2011), posting returns of 208%. Our

consistent outperformance demonstrates our superior stock picking ability

as markets in FY17 aligned to our view of favourable risk-reward, good

franchisee vs. reward-at-any-risk businesses. Some key performers of our

portfolio are Lupin, HDFC Bank and Bajaj Finance in the large cap portfolio

while Natco Pharma, Kansai Nerolac and Bajaj Finserv have delivered

stupendous returns in the midcap portfolio

• We continue to advocate the SIP mode of investment as the preferred

mode of deployment given the rich valuations that some pockets of the

market have reached. We highlight that the SIP return of our portfolio has

consistently outperformed indices. This affirms our belief in the staggered

and systematic approach of investment amid market volatility

• Average topline of Sensex companies in Q4FY17 is likely to grow 3% YoY

while EBITDA & PAT are expected to remain flattish. Sectors in the

consumption space like FMCG & consumer discretionary, which were

impacted by demonetisation in the previous quarter, are expected to

witness a demand revival in Q4FY17E. Cyclical sectors like metals &

mining, oil & gas, power & capital goods are expected to continue their

growth momentum in Q4FY17E

• On the positive side, the Indian Meteorological Department (IMD) has

cleared up the ambiguity with near normal monsoon forecast (96% of

LPA) for upcoming monsoon season 2017. Moreover, the spatial

distribution of rainfall is expected to be healthy and widespread thereby

benefiting the whole of the Indian subcontinent

• The portfolio ideology remains to be receptive to newer opportunities

available in the market. Subsequently, we have added Gail Ltd in our large

cap portfolio and J&K Bank in our midcap portfolio. Considering the

strengthening rupee coupled with near term issues around pharma

companies, we have excluded Aurobindo Pharma and Torrent Pharma

from large cap and midcap portfolio, respectively. Also, we have reduced

the weight of Infosys from the large cap portfolio

Deal Team – At Your ServiceOutperformance continues across all portfolios…

House view on Index

• Over FY14-17E earnings were largely flat with Sensex EPS remaining

range bound between | 1350 and | 1400 levels. A global meltdown in

commodity prices and NPA recognition by banks resulted in sluggish

earnings growth. Hereon, over FY18-19E, stable commodity prices,

revival of consumption led demand and low base impact may result in

strong double digit earnings recovery leading market to scale new highs

• We continue to maintain our high allocation towards the BFSI space with

total weightage of 32% in the overall portfolio. Apart from this, we

continue to remain positive on consumption and auto theme with

respective allocation of 18% and 15%

• Regulatory issues and pricing pressure in the US base business are the

major overhangs resulting in a reduction of our weightage on pharma

companies. Rupee appreciation could be further detrimental for these

export oriented units

• Positive judgment by APTEL and expected tariff revision for its major

pipelines are important triggers for Gail Ltd. The valuation comfort of J&K

Bank prompts its addition to the midcap portfolio. A revival in the capex

cycle coupled with a lower interest rate scenario would benefit the BFSI

and construction space (SBI, UltraTech, L&T, HDFC and HDFC Bank)

• We continue to remain neutral on FMCG as secular earnings coupled with

sector rotation could lead to consolidation

Strategy 2016 - Sensex & Nifty Target

1375 1406 1750 20981.2%

2.3%

24.5%

19.9%

0.0%

10.0%

20.0%

30.0%

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2200

2400

FY16 FY17E FY18E FY19E

(|)

Sensex EPS Growth (%)

Deal Team – At Your ServicePerformance so far* …


• The large cap equity model portfolio continued its outperformance vis-à-

vis the index with 98.6% return since its inception (June 21, 2011) vis-à-

vis index return of 70.4% in the same period. Our sustained preference for

high quality names has aided this outperformance on a consistent basis.

We continue to be rewarded for our meticulous approach towards stock

selection while we endeavour to emulate the broader index

• On the other hand, given the astute selection in the midcap portfolio, the

outperformance in the same continues, with a return of 207.9% compared

to the midcap index return of 134.9%

• Given the overall outperformance in both (large & midcap) portfolios, the

diversified portfolio (combination of 70/30 ratio) has outperformed its

benchmark indices

• Since the last update (December 2016), our large cap portfolio has

outperformed the benchmark index, generating a return of 15.9%

compared to benchmark return of 13.4%. The outperformance was mainly

on the back of the improved performance in Bajaj Finance and UltraTech

Cement. This was partly offset by negative returns in Aurobindo Pharma

and Lupin

• Our conservative stock selection in the midcap portfolio continues to

exhibit strong out-performance to the broader indices. The portfolio

outperformed with a return of 27.7% compared to index return of 24.4%.

Strong performance in Bajaj Finserv and Natco Pharma resulted in the

outperformance

Portfolio performance since inception Portfolio performance since last update (December 2016)

98.6

207.9

125.8

70.4

134.9

85.5

0

25

50

75

100

125

150

175

200

225

Large Cap Midcap Diversified

%

Portfolio Benchmark

15.9

27.7

19.4

13.4

24.4

13.5

0

5

10

15

20

25

30

Large Cap Midcap Diversified

%

Portfolio Benchmark

Deal Team – At Your ServiceTop movers* so far…

Large cap Midcap Diversified

Source: Bloomberg, ICICIdirect.com Research , *Starred stocks have been included in the portfolio since the last rejig in July 2012/May, August ,December 2013/ April, June, December 2014/ May 2015/July

2015/October 2015. Rest all are since inception in June 2011

Large cap Midcap Diversified

0

50

100

150

200

250

Lupin HDFC Bank Bajaj

Finance

Axis Bank Ultratech

(%

)

Gainers

0

40

80

120

160

200

Natco

Pharma*

Kansai

Nerolac*

Bajaj

Finserve*

Indusind

Bank

Cummins

(%

)

Gainers

0

100

200

300

400

500

600

Natco

Pharma*

Lupin Kansai

Nerolac*

HDFC Bank Bajaj

Finance

(%)

Gainers

-30

-25

-20

-15

-10

-5

0

Bharti

Airtel

Tata Steel Aurobindo

Pharma

Coal India Dr Reddys

Lab

(%

)

Draggers

-25

-20

-15

-10

-5

0U

nited S

pirits

Indig

o

Castrol India

Exid

e Industrie

s L

td

CA

RE

(%

)

Draggers

-40

-32

-24

-16

-8

0

Exide

Industries

Ltd

CARE Coal India Biocon Ltd Dr Reddys

Lab

(%

)

Draggers

Deal Team – At Your ServicePerformance* so far in SIP mode …


• Systematic investments at regular intervals in all our three portfolios have outperformed their respective benchmarks, acting as a perfect shield to the

volatility that the market encountered last year

• Assuming | 1,00,000 invested as SIP at the end of every month

• Start date of SIP is June 30, 2011

7,1

00

,00

0

7,1

00

,00

0

7,1

00

,00

0

9,7

87

,79

5

16

,43

3,5

10

11

,14

3,6

91

7,5

14

,32

3

8,5

47

,46

0

8,5

50

,61

8

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

Largecap Midcap Divesified

|

Investment Value of Investment in Portfolio Value if invested in Benchmark

Deal Team – At Your ServiceWhat’s in, what’s out?

What's in?

Source: ICICIdirect.com Research

What's out ?

Name Portfolio Weight

GAIL Ltd. Largecap 5%

J&K Bank Midcap 6%

Name Portfolio Weight

Aurbindo Pharma Largecap 3%

Torrent Pharma Midcap 6%

Infosys Largecap Reduced from 8% to 6%

Deal Team – At Your ServiceThe story of the stocks…

Source: Bloomberg ICICIdirect.com Research

Gail India (GAIL)

• Gail(India) Ltd is India’s largest gas transmission company, operating a

gas pipeline network of ~11500 km with a capacity of ~240 mmscmd.

The core strength of Gail lies in its pan-India presence and further pipeline

expansion plan, which will enable the company to tap the growing

demand for natural gas in the country. Gail’s transmission volumes are

expected to increase at 6.6% CAGR over FY16-19E to 112 mmscmd in

FY19E, due to incremental LNG capacity coming on stream and higher

demand for contracted LNG

• Gail received positive a judgment from APTEL on the Gail-PNGRB tariff

revision case. Also, restoration of gas volumes and expected tariff

revision for its major pipelines including HVJ pipeline would continue to

remain important triggers for the stock. We expect Gail’s gas transmission

EBIT to increase at 18.8% CAGR in FY16-19E to | 3095.3 crore in FY19E

• The petchem business, which is operating at an optimal level at Pata

phase 2 unit, is expected to contribute majorly on the profitability front

due to lower feedstock prices. The petchem EBIT is expected at | 803.4

crore in FY19 against loss of | 806.6 crore in FY16

• We expect Gail's profit to increase at 28.9% CAGR over FY16-19E to

| 4920.5 crore in FY19E. Stable gas transmission and trading business,

turnaround in the petchem operations, increasing CGD business and

stable LPG/LHC segment makes Gail a preferred choice from a long term

investment perspective

Key Financials FY16 FY17E FY18E FY19E

Net Sales (| crore) 51,914.2 47,809.8 50,887.0 53,237.7

EBITDA (| crore) 4,268.2 6,697.5 7,808.0 8,115.0

PAT (| crore) 2,298.9 4,301.7 4,650.9 4,920.5

EPS (|) 13.6 25.4 27.5 29.1

PE (x) 28.0 14.9 13.8 13.1

P/BV (x) 2.1 1.9 1.7 1.6

ROE (%) 7.5 12.8 12.5 12.1

ROCE (%) 7.6 13.0 15.2 14.8

Jammu & Kashmir Bank (JAMKAS)

• Jammu & Kashmir (J&K) Bank has a dominant position in J&K with ~65%

of market share in terms of advances and deposits. For the bank, ~51% of

advances and 80% of deposits are being sourced from the state. A

slowdown in J&K state and corporate slippage led to a moderation in

credit growth as well as increased stressed asset accretion impacting

profitability. Going ahead, with the new management’s focus on balance

sheet growth, credit offtake is expected to pick up at 14.5% CAGR in

FY18-19E

• Due to a strong reach & liability franchise, J&K Bank has consistently

maintained higher NIM at 4%. The bank earns 6%+ NIM within J&K and

sub 3% NIM outside J&K. Moderation in credit offtake and higher

slippages led to a decline in margin at <3.5% in FY17E. However, with

anticipated moderation in slippages, calculated NIM is expected to remain

steady at 3.3%, with an upward bias

• Asset quality has been under pressure with stressed asset accretion at

~23.3%, led by slowdown in J&K and corporate slippage. With balance

sheet growth and the management’s focus on recovery, we expect GNPA

ratio to improve at 10.4% in FY19E from current level of 11.8%

• With a pick-up in credit growth and moderation in slippages, earnings is

expected to improve at | 638 crore in FY19E. Return ratios (RoE) are seen

inching up in double digit at 10.8% in FY19E. A higher than anticipated

recovery offers potential for upward re-rating of the multiple

Key Financials FY16 FY17E FY18E FY19E

NII 2,708.8 2,398.3 2,606.6 2,982.4

PPP 1,666.7 1,284.6 1,475.6 1,814.2

PAT 415.3 -1379.0 391.2 637.6

EPS (|) 8.6 -28.4 8.1 13.1

PE (x) 9.5 -2.9 10.1 6.2

P/ABV (x) 0.9 1.7 1.7 1.5

ROA (%) 0.5 -1.6 0.4 0.6

ROE (%) 6.6 -23.5 7.1 10.8

Deal Team – At Your ServiceLarge cap portfolio


Earlier Now


Auto 15.0

Tata Motor DVR 4.0

Bosch 3.0

Maruti 5.0

EICHER Motors 3.0

BFSI 32.0

HDFC Bank 8.0

Axis Bank 4.0

HDFC 8.0

Bajaj Finance 6.0

SBI 6.0

Capital Goods 4.0

L & T 4.0

Cement 4.0


FMCG/Consumer 18.0

Dabur 5.0

Marico 4.0

Asian Paints 5.0

Nestle 4.0

IT 14.0

Infosys 8.0

TCS 6.0

Media 4.0


Pharma 9.0

Lupin 6.0

Aurobindo Pharma 3.0

Total 100.0


Auto 15.0

Tata Motor DVR 4.0

Bosch 3.0

Maruti 5.0

EICHER Motors 3.0

BFSI 32.0

HDFC Bank 8.0

Axis Bank 4.0

HDFC 8.0

Bajaj Finance 6.0

SBI 6.0

Capital Goods 4.0

L & T 4.0

Cement 4.0


FMCG/Consumer 18.0

Dabur 5.0

Marico 4.0

Asian Paints 5.0

Nestle 4.0

IT 12.0

Infosys 6.0

TCS 6.0

Media 4.0


Pharma 6.0

Lupin 6.0

Oil and Gas 5.0

GAIL Ltd. 5.0

Total 100.0

Deal Team – At Your ServiceMidcap portfolio


Earlier Now


Aviation 6.0


Auto 6.0

Bharat Forge 6.0

BFSI 6.0

Bajaj Finserve 6.0

Capital Goods 6.0


Cement 6.0

Ramco Cement 6.0

Consumer 30.0

Symphony 6.0

Supreme Ind 6.0

Kansai Nerolac 6.0

Pidilite 6.0

Rallis 6.0

Infrastructure 8.0

NBCC 8.0

Logistics 6.0


Pharma 20.0

Natco Pharma 6.0

Torrent Pharma 6.0

Biocon 8.0

Textile 6.0

Arvind 6.0

Total 100.0


Aviation 6.0


Auto 6.0

Bharat Forge 6.0

BFSI 12.0

Bajaj Finserve 6.0

J&K Bank 6.0

Capital Goods 6.0


Cement 6.0

Ramco Cement 6.0

Consumer 30.0

Symphony 6.0

Supreme Ind 6.0

Kansai Nerolac 6.0

Pidilite 6.0

Rallis 6.0

Infrastructure 8.0

NBCC 8.0

Logistics 6.0


Pharma 14.0

Natco Pharma 6.0

Biocon 8.0

Textile 6.0

Arvind 6.0

Total 100.0

Deal Team – At Your ServiceDiversified portfolio (1/2)


Earlier Now


Auto 12

Tata Motor DVR 3

Bosch 2

Maruti 4

Eicher Motors 2

Bharat Forge 2

Consumer Discretionary 16

Symphony 2

Supreme Ind 2

Kansai Nerolac 2

Pidilite 2

Asian Paints 4

Arvind 2

Interglobe Aviation 2

Rallis 2

BFSI 24

HDFC Bank 6

Axis Bank 3

SBI 4

HDFC 6

Bajaj Finance 4

Bajaj Finserve 2

Power, Infrastructure & Cement 13

L & T 3

UltraTech Cement 3

Ramco Cement 2

NBCC 2

Bharat Electronics 2

Container Corporation of India 2


Auto 12.3

Tata Motor DVR 2.8

Bosch 2.1

Maruti 3.5

Eicher Motors 2.1

Bharat Forge 1.8

Consumer Discretionary 16.1

Symphony 1.8

Supreme Ind 1.8

Kansai Nerolac 1.8

Pidilite 1.8

Asian Paints 3.5

Arvind 1.8


Rallis 1.8

BFSI 26.0

HDFC Bank 5.6

Axis Bank 2.8

SBI 4.2

HDFC 5.6

Bajaj Finance 4.2

Bajaj Finserve 1.8

J&K Bank 1.8

Power, Infrastructure & Cement 13.4

L & T 2.8


Ramco Cement 1.8

NBCC 2.4



Deal Team – At Your ServiceDiversified portfolio (2/2)


Earlier Now


FMCG 9

Nestle 3

Marico 3

Dabur 4

Pharma 12

Lupin 4

Aurobindo Pharma 2

Natco Pharma 2

Torrent Pharma 2

Biocon 2

IT 10

Infosys 6

TCS 4

Media 3

Zee Entertainment 3

Total 100.0


FMCG 9.1

Nestle 2.8

Marico 2.8

Dabur 3.5

Pharma 8.4

Lupin 4.2

Natco Pharma 1.8

Biocon 2.4

IT 8.4

Infosys 4.2

TCS 4.2

Media 2.8


Oil and Gas 3.5

GAIL Ltd. 3.5

Total 100.0

13

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC

Andheri (East)

Mumbai – 400 093

[email protected]

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subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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