A MULTICAP FUND INVESTING IN MANUFACTURING SECTORS

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Colin Burke
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NFO Opens: 21 st Sept 2018 NFO Closes: 5 th Oct 2018 The stocks/sectors mentioned in this presentation do not constitute any recommendation of the

1 A MULTICAP FUND INVESTING IN MANUFACTURING SECTORS ICICI Prudential Manufacture in India Fund is an open ended equity scheme which aims to generate long term capital appreciation by investing in the companies engaged in manufacturing theme. NFO Opens: 21 st Sept 2018 NFO Closes: 5 th Oct 2018 The stocks/sectors mentioned in this presentation do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these stocks/sectors. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

2 Index 1. Contribution of Manufacturing Sector in India 2. Manufacturing: Key for holistic growth 3. Broad classification of Manufacturing 4. Current Theme 5. Sectors in Manufacturing 6. Scheme Information

India s GDP: Sector Breakup India is sixth largest economy by nominal GDP and one of the fastest growing economies in terms of GDP growth. Sector wise breakup of India s GDP in 2017-18 Services: 53.

3 India s GDP: Sector Breakup India is sixth largest economy by nominal GDP and one of the fastest growing economies in terms of GDP growth. Sector wise breakup of India s GDP in Services: 53.96% Industry sector: 31.22% Agriculture and allied sectors: 14.82% Manufacturing, part of industry sector contributes around 18% in GDP. Sector wise GDP Contribution The share of manufacturing in India s GDP has stayed in a narrow range of 14-16% over last 4 decades. It recently moved out of this range to 18%. The Government aims to take it to 25% of GDP by Source: CMIE, Edelweiss Research, CITI Feb

Trend in Services, Exports and Remittances Year Net services Exports/GDP Services Exports/GDP Services Imports/GDP Invisibles: Transfers FY01 0.3% 3.4% 3.1% 2.7% FY02 0.7% 3.5% 2.8% 3.2% FY03 0.7% 4.

4 Trend in Services, Exports and Remittances Year Net services Exports/GDP Services Exports/GDP Services Imports/GDP Invisibles: Transfers FY01 0.3% 3.4% 3.1% 2.7% FY02 0.7% 3.5% 2.8% 3.2% FY03 0.7% 4.0% 3.3% 3.2% FY04 1.6% 4.3% 2.7% 3.6% FY05 2.1% 6.0% 3.9% 2.9% FY06 2.8% 6.9% 4.1% 3.0% FY07 3.1% 7.8% 4.7% 3.2% FY08 3.1% 7.3% 4.2% 3.4% FY09 4.4% 8.7% 4.3% 3.7% FY10 2.6% 7.0% 4.4% 3.8% FY11 2.6% 7.3% 4.7% 3.1% FY12 3.5% 7.8% 4.3% 3.5% FY13 3.6% 8.0% 4.4% 3.5% FY14 4.0% 8.2% 4.2% 3.5% FY15 3.8% 7.8% 4.0% 3.2% FY16 3.3% 7.3% 4.0% 3.0% FY17 3.0% 7.2% 4.2% 2.5% FY18 3.0% 7.5% 4.5% 2.4% Services have supported the growth, but for the next leg, manufacturing segment also needs to pick up. Source : Kotak Research, Past performance may or may not be sustained in future 4

Manufacture in India: Building Eco-system Implementation of long awaited GST (Goods and Services Tax) has aided organised sectors. Most of the sectors are under automatic approval route.

5 Manufacture in India: Building Eco-system Implementation of long awaited GST (Goods and Services Tax) has aided organised sectors. Most of the sectors are under automatic approval route. Sectoral caps across major sectors including defence and aviation has been increased to 100%. Strengthening confidence among investors and lenders. Development of New railway lines. A five year plan to build 83,677 km of roads under Bharatmala Project. Sagarmala project to enhance connectivity by sea. Source: FDI: Foreign Direct Investment 5

6 Manufacturing: Key for holistic growth Manufacturing helps in: Large scale employment generation. 44% of population is in age bracket of Self dependency: Large domestic consumption. Population of >1.3bn, India s domestic market itself offers immense growth opportunities. Import substitution helps reducing forex outflow. Increasing manufactured exports helps increasing forex reserve. India has established itself as global manufacturing hub in some of the sectors. i.e Pharmaceuticals, Auto Ancillaries etc. Revival in private capex and credit off-take. Source: CSO, Citi Research, Edelweiss Research. Census

Manufacturing: Key for holistic growth Growth rate of manufacturing sectors has to be much higher than GDP growth rate if contribution from the segment is expected to be higher in years

7 Manufacturing: Key for holistic growth Growth rate of manufacturing sectors has to be much higher than GDP growth rate if contribution from the segment is expected to be higher in years to come. Similar transformation has been observed in the past in financial services, hotel, transport and communication services. Segment wise growth of GDP Source: CSO, Citi Research 7

8 Manufacturing Cycle Picks Up, Post Construction Cycle Matures : Example Korea and Taiwan Korea Taiwan 35% 33% 31% 13% 12% 11% 33% 31% 9% 8% 29% 10% 29% 7% 27% 25% 23% 9% 8% 27% 25% 6% 5% 21% 19% 7% 6% 23% 4% 17% 5% 21% 3% 15% 4% 19% 2% Manufacturing (%GDP) Construction (%GDP), RHS Manufacturing (%GDP) Construction (%GDP), RHS Source : Kotak Research, Past performance may or may not be sustained in future 8

Manufacturing: A Big Picture Consumer Electricals Make for India Automobile Make in India for the Globe Power Paper Paint Plywood / Building Material Textile Footwear The stocks/sectors mentioned in

9 Manufacturing: A Big Picture Consumer Electricals Make for India Automobile Make in India for the Globe Power Paper Paint Plywood / Building Material Textile Footwear The stocks/sectors mentioned in this document is only for illustration purpose only. The sector(s)/stock(s) mentioned in this presentation do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector(s)/stock(s). 9

10 No of Companies with $1b Market Cap Large Universe to Invest. With huge scope for new players to grow. Metals & Mining Banks Telecom Technology Others Brazil China India Indonesia South Africa Thailand The stocks/sectors mentioned in this document is only for illustration purpose only. The sector(s)/stock(s) mentioned in this presentation do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector(s)/stock(s). Source: Kotak Institutional Equities. Data as on 25 th Aug

11 Why Manufacture in India? Large domestic Market Rising income levels of economy Manufacture In India Large skilled and unskilled work force Low labour cost Legal and tax reforms Significant Manufacturing Infrastructure Geographical Advantage Hub for exports to south Asian countries 11

12 Manufacturing Sectors The sectors mentioned in this slide is only for illustration purpose only. The sector(s) mentioned in this presentation do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector(s)/stock(s).the portfolio of the scheme is subject to changes within the provisions of the Scheme Information document of the scheme. Please refer to the SID for investment pattern, strategy and risk factors. 12

13 Manufacturing Sectors: Broad Classification Favourable Scenario: High CAD, high crude oil and depreciating currency. Low CAD, low interest rate rise risk, capacity utilization is high Followed by domestic capex. The sectors mentioned in this slide is only for illustration purpose only. The sector(s) mentioned in this presentation do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector(s)/stock(s).the portfolio of the scheme is subject to changes within the provisions of the Scheme Information document of the scheme. Please refer to the SID for investment pattern, strategy and risk factors. 13

Diverse economic conditions favours different manufacturing segments Manufacturing Capex Sectors : Auto Ancillaries Textiles Pharma Tourism & Hospitality

14 Diverse economic conditions favours different manufacturing segments Manufacturing Capex Sectors : Auto Ancillaries Textiles Pharma Tourism & Hospitality Current Account Sectors : Capital Goods Electricals Oil & Gas Roads & Highways Railways Manufacturing Export Manufacturing Consumption (All time favourable) 14

15 Rising CAD makes exports more competitive (5) (10) (15) Textile Exports CAD/GDP (%) Textiles yoy (%) (1.0) (2.0) (3.0) (4.0) (5.0) (6.0) (10) (20) Machinery CAD/GDP (%) Machinery yoy (%) (1.0) (2.0) (3.0) (4.0) (5.0) (6.0) (20) (40) Transport CAD/GDP (%) Transport yoy (%) (1.0) (2.0) (3.0) (4.0) (5.0) (6.0) (10) (20) Chemical CAD/GDP (%) Chemicals yoy (%) (1.0) (2.0) (3.0) (4.0) (5.0) (6.0) Source: Kotak Institutional Equities, The stocks/sectors mentioned in this document is only for illustration purpose only. The sector(s)/stock(s) mentioned in this presentation do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector(s)/stock(s). GDP: Gross Domestic Product. CAD: Current Account Deficit 15

16 Export Oriented Manufacturing Geographical Split of Exports Pharmaceuticals: India contributes around 10% of the world production volume. Around 70% of its revenue comes from sale of generic drugs, of which around 50% comes from exports. Fundamental Reasons for optimism: 1. Price erosion trends stabilising. 2. Base business volume growth improving. Easing pressure on profitability. 3. Regulatory compliance issues starting to resolve. Increased spend on speciality / complex R&D expected to pay out. Geography wise Cash-Flow (FY 18 Sales) Source: Care, July 2017, Investec May 2018, Goldman Sachs Aug The stocks/sectors mentioned in this document is only for illustration purpose only. The stocks/sectors mentioned herein are a part of the S&P BSE 500. The sector(s)/stock(s) mentioned in this presentation do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector(s)/stock(s). 16

17 Export Oriented Manufacturing Automotive Industry: Indian auto industry is 4 th largest in the world with sales increasing at ~14%. Most MNC OEMs present in India have well established development and sourcing centres. Industry Segment Sales Growth Auto companies are increasingly using India as an export base. Around 20.7% of MNC production is exported from India. Global automotive sales of PVs and CVs grew at 3.1% in Majority of growth came from china, India and Europe, which collectively account for 55.8% of global market. Auto Parts Industry: Auto components industry is expected to grow at 12-14% year on year over a high base on back of domestic demand and exports. Exports the bulk of which is to the US and the euro zone are expected to rise based on global automotive demand. Auto-component exports are forecast to rise as India is well positioned as a hub for global OEMs due to its cost competitiveness. Source: M&M Ltd Annual Report 2018, Crisil Report on Auto Component, July 2018, ibef June The stocks/sectors mentioned in this document is only for illustration purpose only. The sector(s)/stock(s) mentioned in this presentation do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector(s)/stock(s). PV: Passenger Vehicle, CV: Commercial Vehicle, 3W: 3 wheeler, 2W: 2 wheeler. OEM: Original Equipment Manufacturer. 17

Export Oriented Manufacturing Chemical Industry: A Case Study Chinese chemicals market size is about US$ 4.35tn, about 40% of the total global market.

18 Export Oriented Manufacturing Chemical Industry: A Case Study Chinese chemicals market size is about US$ 4.35tn, about 40% of the total global market. It s chemical exports account for about US$ 200 bn, eight times larger than Indian exports. Stricter environmental protection policies implemented by China in Jan 2015 by enforcing strict penalties led to shut down of mid/small size plants resulting industry suffered a 10% decline in exports. China chemical exports to following countries has declined over last 2 years Growth Drivers for India: Domestic availability of raw material at competitive prices Strong demand growth in consumer industry that supports premiumisation. Competitive cost of manufacturing Investment in R&D An eco system to support industry and innovation. Source: Philip Capital Feb, The stocks/sectors mentioned in this document is only for illustration purpose only. The sector(s)/stock(s) mentioned in this presentation do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector(s)/stock(s). 18

19 India: One of the largest market In terms of population, almost each state in India is approximately equivalent to a country's population India has following strength: Strong domestic consumption market, low cost structure and competitive advantage in exports. Globally, It has been observed that the moment a country's per capita GDP crosses USD2000, the proportion of discretionary expenditure rises disproportionately. India s GDP per capita is expected to cross USD 2000 by FY18/19. Map source: Edelweiss Research (June 2018).Map not to scale. This map has been used for design and representational purpose only, it does not depict the geographical boundaries of the country. These do not conform to the external boundaries of India recognized by the Survey of India. 19

20 Domestic Consumption 2 Wheelers sales crossed 20 million unit mark first time in Household penetration of 2W went up from 29% in 2010 to 54% in In same period four wheeler penetration has went up from 5% to 10%. PV penetration in India is akin to 2W penetration in Household penetration of 2Ws and PVs in India Car penetration (per 000 people), Calendar year-end, W sales (LHS, mn) 2W penetration (RHS, %) PV penetration (RHS, %) India China Brazil Russia S. Korea US Japan EU Source: Kotak Institutional Equitiesl 2018, Investec June The stocks/sectors mentioned in this document is only for illustration purpose only. The sector(s)/stock(s) mentioned in this presentation do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector(s)/stock(s). 20

Consumer Durable Electrical Consumer Durable Industry Electrical Industry is expected to grow at 11% CAGR over FY17-22 on back of initiatives like Electrifying India, rising disposable income and

Organised players market share is expected to expand 8 percentage points to 72% over the same period.

21 Consumer Durable Electrical Consumer Durable Industry Electrical Industry is expected to grow at 11% CAGR over FY17-22 on back of initiatives like Electrifying India, rising disposable income and urbanisation trend. Household Penetration of refrigerators is 20%, Washing Machines is 8% and AC is 3-4%. Organised players market share is expected to expand 8 percentage points to 72% over the same period. Electricity availability increases to hours/day as against 7-8 hours/per day earlier in rural areas. Initiatives like housing for all by 2022 is expected to be key trigger for the sector. Focus on energy efficiency also driving demand for new categories. i.e LED in lighting now account for 70-80% of segment revenue and is growing at 20%. Penetration of electrical goods is set to improve Source: JM Financial April 2018, Investec June The stocks/sectors mentioned in this document is only for illustration purpose only. The sector(s)/stock(s) mentioned in this presentation do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector(s)/stock(s). 21

22 Capex (INR bn) Metro network length (km) Domestic Capex Government capex and Domestic/Export Demand will triggers private capex Infrastructure development has been a perennial challenge for India across board Road connectivity: Already the second longest in the world, can expand significantly with concerted efforts like Bharatmala Project. 2,000 1,600 1, Metro rail network Metro Rail: Currently, the network is operational/under construction in ten cities; by 2018 end, four more cities may have metros. Air Traffic: Domestic air traffic, which catapulted from ~23mn passengers in 2005 to whopping ~100mn in Railways: Burgeoning traffic has led to severe congestion with 40% of all sections and ~65% of high density sections running at >100% utilisation. Paradigm shift is now underway: ~Rs. 85bn investment plan over , 1.9x Focus on freight-carrying capacity enhancement and improving passenger amenities and safety ,000 7,200 5,400 3,600 1,800 0 Operational Under Construction Upcoming 2025 E Railway Capex FY01-05 FY06-10 FY11-15 FY16-20 E Source: Edelweiss Research Feb, The stocks/sectors mentioned in this document is only for illustration purpose only. The sector(s)/stock(s) mentioned in this presentation do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector(s)/stock(s). E: Estimate. 22

23 Cement production in India is where China was in ,500 Tonnes Million 3,000 India Cement Production Tonnes Million 2, , , China Cement production, FY94FY96FY98FY00FY02FY04FY06FY08FY10FY12FY14FY16 Source : Kotak Research, Past performance may or may not be sustained in future 23

24 AIMING TO BENEFIT FROM GROWTH OF MANUFACTURING SECTORS IN INDIA, INVEST IN NFO Opens: 21 st Sept 2018 NFO Closes: 5 th Oct 2018 Fund Manager*: Mr.Anish Tawakley and Mr.Mittul Kalawadia *Priyanka Khandelwal for investment in ADR/GDR/ Foreign securities. 24

25 ICICI Prudential Manufacture in India Fund (An open ended equity scheme following manufacturing theme) ICICI Prudential Manufacture in India Fund gives an opportunity to participate into diverse themes of manufacturing Contribution of Manufacturing in GDP has seen improving trend. Scheme can go overweight into the following sub theme of manufacturing based on various economic parameters Exports oriented manufacturing Domestic consumption Domestic capex manufacturing Scheme will follow market cap agnostic approach of investing The portfolio of the scheme is subject to changes with in the provisions of the Scheme Information document of the scheme. Please refer to the SID for investment pattern, strategy and risk factors. The asset allocation and investment strategy will be as per Scheme Information Document. 25

26 Recent update on manufacturing sector Capacity utilization in manufacturing is improving Industry grew by 10.3%. Manufacturing, component of Industry expanded by 13.5%. Source: B&K Securities Sept 2018, RBI. 26

27 Some sectors at inflection point Some sectors with growth potential available at reasonable valuation Index Name PE PB Dividend Yield S&P BSE Basic Material S&P BSE Manufacturing Index S&P BSE Auto S&P BSE Energy S&P BSE Metal S&P BSE Oil & Gas S&P BSE Power S&P BSE Capital Goods S&P BSE Sensex Source: Kotak Institutional Equities, Aug 2018 (ROE Trailing twelve months). The stocks/sectors mentioned in this document is only for illustration purpose only. The stocks/sectors mentioned herein are a part of S&P BSE 500. The sector(s)/stock(s) mentioned in this presentation do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector(s)/stock(s). 27

28 ICICI Prudential Manufacture in India Fund NFO Period : September 21, 2018 to October 05, 2018 MICR cheques : Till the end of business hours on October 05, 2018 RTGS and transfer cheques : Till the end of business hours on October 05, 2018 Switches : Switches from equity schemes and other schemes 5 th October 2018; Till cut off time (specified for switch outs in the source scheme) Option to be launched : Growth Option & Dividend Option ( Dividend Payout and Reinvestment facility) Direct Plan Growth Option & Dividend Option ( Dividend Payout and Reinvestment facility) Entry / Exit Load : 1% of the applicable NAV - If units purchased or switched in from another scheme of the Fund are redeemed or switched out within 18 months from the date of allotment. Nil thereafter Minimum Application Amount : Rs.5,000/- (an in multiple of Re.1 thereafter) Benchmark : S&P BSE 500 Index Fund Manager* : Mr. Anish Tawakley and Mr. Mittul Kalawadia *Priyanka Khandelwal for investment in ADR/GDR/ Foreign securities. 28

Riskometer & Disclaimer ICICI Prudential Manufacture in India Fund is suitable for investors who are seeking:* Long term wealth creation An open ended equity Scheme that aims to provide capital

29 Riskometer & Disclaimer ICICI Prudential Manufacture in India Fund is suitable for investors who are seeking:* Long term wealth creation An open ended equity Scheme that aims to provide capital appreciation by investing in equity and equity related securities of companies engaged in manufacturing theme. *Investors should consult their financial advisors if in doubt about whether the product is suitable for them. Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Disclaimer: All figures and data given in the document are dated unless stated otherwise. In the preparation of the material contained in this document, the AMC has used information that is publicly available, including information developed in-house. Some of the material used in the document may have been obtained from members/persons other than the AMC and/or its affiliates and which may have been made available to the AMC and/or to its affiliates. Information gathered and material used in this document is believed to be from reliable sources. The AMC however does not warrant the accuracy, reasonableness and / or completeness of any information. We have included statements / opinions / recommendations in this document, which contain words, or phrases such as will, expect, should, believe and similar expressions or variations of such expressions, that are forward looking statements. Actual results may differ materially from those suggested by the forward looking statements due to risk or uncertainties associated with our expectations with respect to, but not limited to, exposure to market risks, general economic and political conditions in India and other countries globally, which have an impact on our services and / or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices etc. The AMC (including its affiliates), the Mutual Fund, the trust 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, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this material in any manner. The recipient alone shall be fully responsible/are liable for any decision taken on this material. The sector(s)/stock(s) mentioned in this presentation do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector(s)/stock(s). Past performance may or may not be sustained in the future. The portfolio of the scheme is subject to changes within the provisions of the Scheme Information document of the scheme. Please refer to the SID for investment pattern, strategy and risk factors. Investors are advised to consult their own legal, tax and financial advisors to determine possible tax, legal and other financial implication or consequence of subscribing to the units of ICICI Prudential Mutual Fund. 29

30 Thank You 30

A MULTICAP FUND INVESTING IN MANUFACTURING SECTORS

A MULTICAP FUND INVESTING IN MANUFACTURING SECTORS ICICI Prudential Manufacture in India Fund An open ended equity scheme which aims to generate long term capital appreciation by investing in the companies