Aditya Birla ISOP

Question 1

The Strategy

Answer 1

Investment Philosophy
- Purchase at reasonable price
- Focus on businesses with ability to grow earnings faster than GDP
- Buy companies that have
- Large opportunity canvas
- Credible Management
- Emphasis on capital efficiency
- Super return ratios

Investment Process

Fundamentals
- ROE> 15%
- Net Debt/EBITDA <2%
- improving margins & turnover ratios
- aggregate portfolio liquidity

Valuation
- Higher EPS growth, ROCE, Net Debt/EBITDA vs benchmark
- large opportunity canvas

Governance
- Promotors conduct and management integrity
- High pledge & accounting red flag
- Limited equity dilution in recent past

Financial Modelling & Due dilligence

- Earning CAGR >15% in medium term    - Sustained competitive advantage

Portfolio COnstruction
- 70_100% : Micro Turn Around, Macro change in business cycle, Deleveraging, Demerger

• 0 - 30% : Mid to large cap potential, Secular growth names

Portfolio Quants

PE ( FY 23A, FY 24 E, FY 25 E) : 21.8, 23.2, 20.1

ROE : 16.6%, 17.3%, 17.7%

EPS : 33.4%, 23.7%, 20.1%

Portfolio Return

1Y/2Y/3Y/5Y : 21.9/10.9/27.6/18.1
BSE 500 : 17.5/8.5/24.3/15.1
Nifty : 14.9/5.6/20.4/12.4

Upside capture : 0.9
Downside Capture ; 0.7
Sharpe ratio : 1.3
PEG Ratio, FY25 : 0.9

Net debt to equity : -11.6%

• Management Fee : 2.5%
• Exit Load : 1%< 1 Year
• Fund Manager : Sameer Narayan, Dhaval Mehta, Salvin Shah
• AUM : 638Cr
• AMC AUM : 3316 Cr
• no of stocks : 34
• Large Cap : 62.1%
• Mid Cap : 30%
• Small cap : 4.5%
• Cash : 3.5%

Top 5 Sectors
- Financial Services : 23.3%
- Capital Goods : 15.6%
- IT : 10.9%
- FMCG : 7.9%
- Auto : 6.3%

Top 10 Stocks
- ICICI Bank
- Bharat Dynamics
- ITC Ltd
- Persistent Systems
- TCS
- Bharti Airtel
- Axis Bank
- BOB
- Trent Ltd
- AIA Engineering

Question 2

AIA Engineering

Answer 2

CMP : 3627
Market Cap : 34,208 Cr
ROCE : 25.1%
ROE : 20%

PE : 30
Book Value : 603

Stocks Price Growth(1,3,5,10) : 37%,30%,17%,24%

Profit Growth(1,3,5,10) : 72%,23%,19%,18%

About the company
AIAE is in the niche business of mfg chrome based mill internals and is second largest manufacturer in the world
Key clients are Cement,Copper & Gold mining companies
Median price target of 3629 by 16 analyst

Triggers
Co is almost debt free
Co has delivered profit growth of 19% CAGR for last 5 years
Huge expansion plan of cement manufacturing co
Lower material cost
Power to pass on price increase to consumers hence superior margin of 20% +
Conversion to chrome casting from traditional forged casting. Penetration is still at 12%
Copper demand is outrunning supply
Cement demand to go up to 550 – 600 MTPA in FY 25 from 355 MTPA in FY 22

Question 3

TRENT Ltd

Answer 3

CMP : 2231
Market Cap : 79,304 Cr
ROCE : 11.5%
ROE : 11.9%

PE : 177
Book Value : 73

Stocks Price Growth(1,3,5,10) : 46%,48%,46%,37%

Profit Growth(1,3,5,10) : 50%,47%,26%,33%

About the company
Trent is one of the leading players in Indian Retail Industry with a series of established brand such as Westside, ZARA,Star Bazaar & Landmark Stores(Books & Music)
Zudio, Samoh are additional stores

Triggers
Mid cap to large cap potential
On doubling of effective store area(25% CAGR over FY23-26E), absolute EBITDA/Sqft to improve significantly from Rs 2100 to Rs 3100
Thought it is trading at 74-83 times FY 24 earnings, it is justified looking at future growth potential
MOSL : 1835, Nuvama : 1908
Tata will add 30 Westside and 10 Samoh stores this year with an investment of 800 crs.

Question 4

Bharat Dynamics

Answer 4

CMP : 1035
Market Cap : 18,973 Cr
ROCE : 15.6%
ROE : 11.3%

PE : 44.6
Book Value : 184

Stocks Price Growth(1,3,5,10) : 6%,51%,29%,

Profit Growth(1,3,5,10) : -31%,-13%,-8%,2%

About the company
BDL is engaged in mfg of guided missiles and allied defence equipments
Products – Akaash( Surface to air missile). Konkur ( Anti tank missiles ), Helina ( Air to surface missile ) NAG

Triggers
Export orders of Akaash
Bharat Dynamics is one amongst many beneficiaries of the defence indigenization theme playing out in the country
Order wins have been strong ( order book – 20400 Cr)
Cash flow from the business is improving
Working capital intensity has dropped
Beneficiary of Atmanirbhar Bharat
Order book has potential to reach 230Bn in next two years.Book to bill ratio – 5x
It can play leading role in achieving defence export target of 350Bn by CY 25

Question 5

Persistent Systems

Answer 5

CMP : 6246
Market Cap : 48,044 Cr
ROCE : 30.3%
ROE : 25.3%

PE : 47.9
Book Value : 574

Stocks Price Growth(1,3,5,10) : 70%,76%,62%,32%

Profit Growth(1,3,5,10) : 24%,41%,25%,17%

About the company
Persistent Systems provide software engineering and strategy services to help companies implement and modernize their businesses.
Products
BFSI : Cloud banking & Insurance solutions
Healthcare : Mobile healthcare

Triggers
Delivered profit growth of ~ 25% in last 5 Years.
Healthy sales growth of ~ 20% in last 10 Yrs
It has been named fastest growing Indian IT Service brand since 2020 with 268% growth and ranked 9th among Indian IT services cos.
Annual EPS gowth for last 3 years : 41%

Question 6

Sundaram Fasteners

Answer 6

CMP : 1280
Market Cap : 26,897 Cr
ROCE : 19.3%
ROE : 17.04%

PE : 53.5
Book Value : 153

Stocks Price Growth(1,3,5,10) : 33%,40%,19%,41%

Profit Growth(1,3,5,10) : 8%,15%,5%,19%

About the company
SFL is a part of TVS Group engaged in mfg of critical, high precision components such as fasteners, power train components used in automotive, infrastructure, windmill and aviation sectors
Maintained leadership in the market with 33% revenue from export, 57% from domestic OEMs and 10% from after market

Triggers
Last 3 years EPS growth : 15%
CAPEX forecast of 1000 cr over FY23-25E
32% earning CAGR over next 2 years