Model Portfolio update

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Model Portfolio update

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Deal Team – At Your Service

Latest Model Portfolio

Midcap

Large cap

Midcap

Large cap

Name of the company Weightage(%)

Auto 14.0 Tata Motor DVR 4.0 Bosch 3.0 Maruti 4.0 EICHER Motors 3.0 BFSI 23 0

Aviation 6 Interglobe Aviation 6 Auto 6 Bharat Forge 6 BFSI 6 BFSI 23.0 HDFC Bank 8.0 Axis Bank 3.0 HDFC 8.0 Bajaj Finance 4.0 Capital Goods 4.0 L & T 4.0 Cement 3 0 BFSI 6 Bajaj Finserve 6 Capital Goods 6 Bharat Electronics 6 Cement 6 Ramco Cement 6 Consumer 30 S h 6 Cement 3.0 UltraTech Cement 3.0 FMCG/Consumer 15.0 ITC 7.0 Marico 3.0 Asian Paints 5.0 IT 21.0 Infosys 10.0 Symphony 6 Supreme Ind 6 Kansai Nerolac 6 Pidilite 6 Rallis 6 FMCG 8 Nestle 8 y TCS 8.0 Wipro 3.0 Media 2.0 Zee Entertainment 2.0

Oil & Gas 4.0

Reliance Industries 4.0

Pharma 14.0

Infrastructure 8

NBCC 8

Logistics 6

Container Corporation of India 6

Pharma 12

Natco Pharma 6

Torrent Pharma 6

Source: Bloomberg ICICIdirect com Research

• Exclusion - Tata Steel, reduced weight of Larsen & Toubro • Inclusion - Marico, increased weight in Lupin, Dr Reddy’s

• Exclusion - Castrol, United Spirits • Inclusion - Rallis Lupin 6.0 Dr Reddys 5.0 Aurobindo Pharma 3.0 Total 100.0 o e t a a 6 Textile 6 Arvind 6 Total 100.0

Source: Bloomberg, ICICIdirect.com Research

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

Deal Team – At Your Service

Outperformance continues across all portfolios…

• In the large cap space we continue to remain positive on auto Our indicative large cap equity model portfolio has continued to deliver an

impressive return (inclusive of dividends) of 93.1% since its inception (June 21, 2011) vis-à-vis the index return of 37% during the same period, an outperformance of 57%. 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 ~3x since June 2011. Our consistent outperformance demonstrates our superior stock picking ability as markets in CY15

In the large cap space, we continue to remain positive on auto, infrastructure & cement. Relative to the benchmark index, we are underweight on BFSI

• We continue to remain underweight on metals and oil & gas with our only pick being Reliance Industries, which has a better risk-reward opportunity. We expect PSU banks to underperform next year owing to steep asset quality woes ahead. In the private banking space, we prefer large banks with a strong retail presence We continue to remain overweight to

p p g y

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 TCS in the large cap portfolio while Natco Pharma, Cummins and Shree Cement have delivered stupendous returns in the midcap portfolio

• We reiterate the SIP mode of investment as the preferred mode of deployment given the current volatile market conditions. We highlight that

with a strong retail presence. We continue to remain overweight to neutral on pure play defensives (IT, FMCG) as secular earnings coupled with sector rotation could lead to consolidation in near term valuations and offer stock specific opportunities. We remain positive on auto, pharma, capital goods and infrastructure

• Among individual names, we are strongly overweight on Infosys, TCS in the IT space, HDFC and HDFC Bank in the BFSI space, ITC and Nestlé in th d L&T & NBCC i th i f

deployment given the current volatile market conditions. We highlight that the SIP return of our portfolio has consistently outperformed the indices. This affirms our belief in the staggered and systematic approach of investment amid market volatility

• The initial results of some companies were higher than Street expectations, indicating a revival in the earnings cycle. Furthermore, India’s eight core industries output expanded 6.4% YoY in March 2016, which is the fastest growth in the last 16 months The countries’ top

House view on Index

• We expect Sensex EPS to de-grow 3.5% to | 1311 in FY16E. However, following the de-growth in two consecutive year, Sensex EPS is expected to grow 19% in FY17E to |1559

the consumer space and L&T & NBCC in the infra space

which is the fastest growth in the last 16 months. The countries top automakers are off to a strong start in the new financial year with all segments passenger vehicles (PV), two-wheelers, commercial vehicles (CV) and tractors reporting strong April sales. These initial upticks are the lead indicators for an economic revival

• Given the last revamp in the portfolio, we have made minimal changes in

the current edition, to capture the new opportunities available in the market Following the same we have reshuffled the weights of some

17.1% 18.9% 20.0%

30.0%

1400 1500 1600

Strategy 2016 - Sensex & Nifty Target

market. Following the same, we have reshuffled the weights of some companies. Among large caps, we have reduced the weight of L&T by 1% and simultaneously increased the weights in Lupin and Dr Reddy’s by 1% each. Furthermore, affirming our view on consumption demand, we have added Marico in our large cap portfolio. We believe that as the softness in commodities continues, oil & gas and metal sectors would continue to remain under pressure. Following this, we have exited Tata Steel from large caps Furthermore following the prospects of a good monsoon we

-0.4% -3.5% 1365 1359 1311 1559 -10.0% 0.0% 10.0% 1100 1200 1300 1400

FY14 FY15 FY16E FY17E

(|

)

large caps. Furthermore, following the prospects of a good monsoon, we

have added Rallis in our midcap portfolio and exited Castrol FY14 FY15 FY16E FY17E

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Deal Team – At Your Service

**Performance so far* …**

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

93.1 132.0 104.6 100 125 150 10.5 6.9 9.5 7.4 8.7 4 6 8 10 12 36.6 43.0 45.0 0 25 50 75

Large Cap Midcap Diversified

% -6.7 -8 -6 -4 -2 0 2

Large Cap Midcap Diversified

%

• The large cap equity model portfolio-“Quality-22” continued to heavily outperform the index with ~93% return since its inception (June 21, 2011) vis-à-vis index return of 36.6% in the same period. Our sustained preference for high quality names has aided this outperformance on a

i t t b i W ti t b d d f ti l

• Since the last update, our large cap portfolio outperformed the benchmark index, generating a return of 10.5% compared to benchmark return of 7.4%. The outperformance was mainly on the back of positive performance in Bajaj Finance and UltraTech Cement

Portfolio Benchmark _Portfolio _Benchmark

consistent basis. We continue to be rewarded for our meticulous approach towards stock selection while we endeavour to emulate the broader index

• The “Consistent-16” midcap portfolio accelerated its performance since the last update, with a surge of ~3x as compared to its benchmark index • Given the overall outperformance in both (large & midcap) portfolios, the

diversified portfolio (combination of Q-20/C-15 in a 70/30 ratio) has

• However, our conservative stock selection of midcap portfolio exhibited some resilience to the negativity in markets. Though the index lagged, the stellar performance of Ramco Cements and Supreme helped the outperformance in our midcap portfolio

p ( / / )

outperformed its benchmark indices

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Deal Team – At Your Service

**Top movers* so far…**

Large cap

Midcap

Diversified

Large cap Midcap

Diversified

200 250 300 ) Gainers 120 160 200 ) Gainers 150 200 250 300 % ) Gainers 0 50 100 150

Lupin HDFC Bank TCS Axis Bank* Tata Motors (% ) 0 40 80 Natco

Pharma* Cummins* Indusind Bank* Nerolac*Kansai Cement*Shree

(% ) 0 50 100 150 Lupin Natco

Pharma* Cummins* Indusind Bank* HDFC Bank

(%

Large cap Midcap

Diversified

DVR Pharma Bank 0 Draggers 0 Draggers 0 Draggers -15 -10 -5 0 (% ) -30 -25 -20 -15 -10 -5 a* o* t* E* o* (% ) 32 -24 -16 -8 (% )

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 -25

-20

Bharti

Airtel Ltd United Spirits State Bank of India Tata Steel Ltd Dr Reddys Lab Ca

st ro l I nd ia In di go He id el be rg C em en t CA RE St ar F er ro -40 -32

Star Ferro* Dr Reddys

Lab CARE* Tata Steel Ltd Heidelberg Cement*

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

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Deal Team – At Your Service

**Performance* so far in SIP mode …**

00 00 047 00 8,500,000 9,500,000 6, 000,0 0 6, 000,0 0 6, 000,0 0 7, 717, 476 11,299, 0 8, 441,765 6, 988,962 6, 833,053 7,851,678 4,500,000 5,500,000 6,500,000 7,500,000 | 3,500,000

Largecap Midcap Divesified Investment Value of Investment in Portfolio Value if invested in Benchmark

• Systematic investments at regular intervals in all our three portfolios have outperformed their respective benchmarks acting as a perfect shield to the volatility encountered by the market in the last year

• Assuming | 1,00,000 invested as SIP at the end of every month • Start date of SIP is June 30, 2011

Source: Bloomberg ICICIdirect com Research Source: Bloomberg, ICICIdirect.com Research

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Deal Team – At Your Service

What’s in, what’s out?

What's in?

What s in?

Name Portfolio Weight

Lupin Largecap Increased from 5% to 6%

Dr.Reddy's Laboratories Largecap Increased from 4% to 5%

M i L 3%

Marico Largecap 3%

Rallis Midcap 6%

What's out ?

Name Portfolio Weight

L&T Largecap Reduced from 5% to 4%

Tata Steel Largecap 2%

Castrol Largecap 6%

United Spirits Midcap 2%

Source: ICICIdirect com Research

United Spirits Midcap 2%

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Deal Team – At Your Service

The story of the stocks…

Rallis India (RALIND)

M i (MARIN)

Rallis India (RALIND)

• Rallis India, a Tata enterprise, is a major crop protection (agro chemicals) player domestically with a presence across the agricultural value chain ranging from hybrid seeds (Metahelix) to plant growing nutrient to organic manure & soil conditioners (Zero Waste Agro Organics) to crop protection solutions

• Rallis has ~9% market share in the domestic crop protection market with

Marico(MARIN)

• Marico epitomises urban India’s discretionary consumption in the form of a host of its urban centric brands such as Saffola, one of its flagship brands, Set Wet, Livon, Parachute Advansed, Nihar and Hair & Care. Simultaneously, Marico’s origins lie in the deep-rooted brand equity of its other flagship brand, Parachute coconut oil, a dominant player in the

domestic coconut hair oil market. Marico enjoys leadership position in the p p

notable presence in contract manufacturing segment wherein it manufactures chemical and formulation for other reputed industry players. Rallis has a strong distribution network with ~2300 dealers and 40,000 retailers, thereby covering ~80% of the Indian districts.

• With both IMD (106% of LPA) and Skymet (105% of LPA) forecasting above normal rainfall in the upcoming monsoon season 2016 with widespread distribution, agri input players like Rallis India tend to benefit. domestic coconut hair oil market. Marico enjoys leadership position in the

~| 6100 crore value added hair oil market with 32% market share by volume. We believe that Marico is well positioned to gain from the gradual recovery in urban discretionary consumption going forward. • Marico displayed a stellar improvement in EBITDA margins in FY16 to

17.4% (an expansion of ~220 bps in margins from FY15) on the back of benign commodity prices, especially copra, which is the largest

component of its input cost On the topline front Marico witnessed widespread distribution, agri input players like Rallis India tend to benefit. More importantly, both agencies forecast the onset of La Niña conditions at the end of the monsoon 2016 leading to even better monsoon prospects, going forward. This may also lead to normal to positive monsoons in 2017.

• We expect consolidated sales to grow at a CAGR of 14.2% inFY16-18E to | 2101 crore in FY18E. We expect EBITDA & PAT to grow at a CAGR of 20 9% & 18 9% respectively in FY16-18E Rallis is indeed a portfolio component of its input cost. On the topline front, Marico witnessed

growth of 7% YoY in FY16 to | 6122.4 crore owing to deflationary environment. However, Marico wrapped up FY16 with stupendous 26.4% YoY increase in earnings to | 724.8 crore, driven by higher EBITDA. • Going forward, we expect Marico to sustain its strong volume growth

momentum with 8-10% volume growth. We believe Marico would be able to further inch up its margins to 17.9% by FY18E largely on the back of

improvement in sales mix We estimate revenue & earnings CAGR of 20.9% & 18.9%, respectively, in FY16 18E. Rallis is indeed a portfolio stock with >20% return ratios in the past, controlled working capital cycle (<60 days) and un-levered balance sheet (debt: equity <0.1).

improvement in sales mix. We estimate revenue & earnings CAGR of 13.2% & 18.8%, respectively, in FY16-18E. Led by strong earnings visibility, we value the stock at 36x its FY18E

Key Financials FY15 FY16 FY17E FY18E

Net sales (| crore) 5,720.3 6,122.4 6,751.2 7,846.8 EBITDA margin (%) 15.2 17.4 17.5 17.9 PAT (| ) 573 5 724 8 828 4 1 022 7

Key Financials FY15 FY16 FY17E FY18E

Revenue (| crore) 1,821.8 1,628.6 1,929.9 2,122.9 EBITDA (| crore) 277.0 230.1 296.0 336.3 Net Profit 157 2 143 0 174 4 202 1 PAT (| crore) 573.5 724.8 828.4 1,022.7 EPS (|) 4.4 5.6 6.4 7.9 P/E (x) 57.2 45.2 39.6 32.1 P/BV (x) 9.0 15.6 13.6 11.6 RoCE (%) 38.7 46.3 45.6 46.7 RoNW (%) 31.4 34.6 34.4 36.0 Net Profit 157.2 143.0 174.4 202.1 EPS (|) 8.1 7.4 9.0 10.4 P/E 25.7 28.3 23.2 20.0 EV/EBIDTA 15.0 17.8 13.7 11.7 P/BV 5.0 4.5 4.0 3.6 RONW (%) 19.3 15.9 17.4 18.0 ROCE (%) 24.7 20.5 23.8 25.7

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Deal Team – At Your Service

Large cap portfolio

Earlier

Now

Earlier

Now

Auto 14 Tata Motor DVR 4 Bosch 3 Maruti 4 EICHER Motors 3 BFSI 23

Auto 14.0 Tata Motor DVR 4.0 Bosch 3.0 Maruti 4.0 EICHER Motors 3.0 BFSI 23 HDFC Bank 8 Axis Bank 3 HDFC 8 Bajaj Finance 4 Capital Goods 5 L & T 5 Cement 3 BFSI 23.0 HDFC Bank 8.0 Axis Bank 3.0 HDFC 8.0 Bajaj Finance 4.0 Capital Goods 4.0 L & T 4.0 Cement 3 UltraTech Cement 3 FMCG/Consumer 14 ITC 7 United Spirits 2 Asian Paints 5 IT 21 Infosys 10 Cement 3.0 UltraTech Cement 3.0 FMCG/Consumer 15.0 ITC 7.0 Marico 3.0 Asian Paints 5.0 IT 21.0 TCS 8 Wipro 3 Meida 2 Zee Entertainment 2 Metal 2 Tata Steel 2

Oil & Gas 4

Reliance Ind stries 4

Infosys 10.0

TCS 8.0

Wipro 3.0

Media 2.0

Zee Entertainment 2.0

Oil & Gas 4.0

Reliance Industries 4.0

Reliance Industries 4 Pharma 12 Lupin 5 Dr Reddys 4 Aurobindo Pharma 3 Total 100 Pharma 14.0 Lupin 6.0 Dr Reddys 5.0 Aurobindo Pharma 3.0 Total 100.0

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Deal Team – At Your Service

Midcap portfolio

Earlier

Now

Earlier

Now

Aviation 6

Interglobe Aviation 6

Auto 6

Bharat Forge 6

Aviation 6 Interglobe Aviation 6 Auto 6 Bharat Forge 6 BFSI 6 Bajaj Finserve 6 Capital Goods 6 Bharat Electronics 6 Cement 6 Ramco Cement 6 Consumer 24 g BFSI 6 Bajaj Finserve 6 Capital Goods 6 Bharat Electronics 6 Cement 6 Ramco Cement 6 Consumer 30 Symphony 6 Supreme Ind 6 Kansai Nerolac 6 Pidilite 6 FMCG 8 Nestle 8 Infrastructure 8 Consumer 30 Symphony 6 Supreme Ind 6 Kansai Nerolac 6 Pidilite 6 Rallis 6 FMCG 8 Nestle 8 NBCC 8

Oil & Gas 6

Castrol 6

Logistics 6

Pharma 12 Natco Pharma 6 Nestle 8 Infrastructure 8 NBCC 8 Logistics 6

Pharma 12

Natco Pharma 6

T t Ph 6

Natco Pharma 6 Torrent Pharma 6 Textile 6 Arvind 6 Total 100 Torrent Pharma 6 Textile 6 Arvind 6 Total 100.0

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Deal Team – At Your Service

Diversified portfolio (1/2)

Earlier

Now

Earlier

Now

Auto 12

Tata Motor DVR 3

Bosch 2

Maruti 3

Auto 12 Tata Motor DVR 3 Bosch 2 M ti 3 Maruti 3 Eicher Motors 2 Bharat Forge 2 Consumer Discretionary 16 Symphony 2 Supreme Ind 2 Kansai Nerolac 2 Pidilite 2 Maruti 3 Eicher Motors 2 Bharat Forge 2 Consumer Discretionary 16 Symphony 2 Supreme Ind 2 Kansai Nerolac 2 Pidilite 2 United Spirits 1 Asian Paints 4 Arvind 2 Interglobe Aviation 2 BFSI 18 HDFC Bank 6 A i B k 2 Pidilite 2 Asian Paints 4 Arvind 2 Interglobe Aviation 2 Rallis 2 BFSI 18 HDFC Bank 6 Axis Bank 2 HDFC 6 Bajaj Finance 3 Bajaj Finserve 2

Power, Infrastructure & Cement 13

L & T 4 UltraTech Cement 2 Axis Bank 2 HDFC 6 Bajaj Finance 3 Bajaj Finserve 2

Power, Infrastructure & Cement 13

L & T 3

UltraTech Cement 2

Ramco Cement 2

NBCC 2

Bharat Electronics 2

Ramco Cement 2

NBCC 2

Bharat Electronics 2

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Deal Team – At Your Service

Diversified portfolio (2/2)

Earlier

Now

Earlier

Now

FMCG 7 Name of the companyFMCG Weightage(%)9

ITC 5

Nestle 2

Metals & Mining 1

Tata Steel 1

Oil and Gas 5

Reliance Industries 3

Castrol 2

ITC 5

Nestle 2

Marico 2

Oil and Gas 3

Reliance Industries 3 Pharma 13 Lupin 4 Pharma 12 Lupin 4 Dr Reddys 3 Aurobindo Pharma 2 Natco Pharma 2 Torrent Pharma 2 IT 15 p Dr Reddys 4 Aurobindo Pharma 2 Natco Pharma 2 Torrent Pharma 2 IT 15 Infosys 7 TCS 6 Infosys 7 TCS 6 Wipro 2 Media 1 Zee Entertainment 1 Total 100 TCS 6 Wipro 2 Media 1 Zee Entertainment 1 Total 100

Source: Bloomberg ICICIdirect com Research Source: Bloomberg, ICICIdirect.com Research

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Pankaj Pandey

Head – Research

[email protected]

ICICIdi

t

R

h D k

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC

Andheri (East)

M

b i 400 093

Mumbai – 400 093

[email protected]

13

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Disclaimer

ANALYST CERTIFICATION

We /I,Pankaj Pandey,Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the 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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ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking

Disclaimer

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ICICI Securities has received an investment banking mandate from Government of India for disinvestment in ONGC. This report is prepared based on publicly available information

publicly available information.

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ICICI Securities has received an investment banking mandate from Government of India for disinvestment in Bharat Electronics Limited. This report is prepared based on publicly available information.

ICICI Securities Limited has received an Investment Banking mandate from Castrol India Ltd. This report is prepared based on publicly available information.