Trideep Bhattacharya, CFA Senior Portfolio Manager - Alternatives AXIS AMC

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1 Trideep Bhattacharya, CFA Senior Portfolio Manager - Alternatives AXIS AMC

2 Top Global Brands Valuation (In billion $) $50b $20b $10b Source: Forbes 2018 Report 2

3 WHAT IS COMMON IN THESE NAMES? Strong connect with the customer Differentiated positioning Distinguishable product/service quality Consistency in delivery of good performance Innovation They spontaneously come to mind as the brand of choice 3

4 WHY INVEST IN BRANDS? Brands create Bargaining Power B 2 C Brands Customers B 2 B Brands - Strong IP Product/ Services - Marketing - Innovation Brands Bargaining Power Employees Suppliers 4

5 BARGAINING POWER LEADS TO SUPERIOR INVESTOR RETURNS Economies of Scale High Barriers to Entry Bargaining Power Strong Pricing Power Superior Return Ratios/Margins Superior Growth Higher Investor returns over business cycles Under-penetrated Markets 5

6 GLOBAL EVIDENCE: INVESTMENT IN STRONG BRANDS HAS WORKED IN LONG TERM BRANDS Index S&P 500 Index 5028 (12.96%) (6.05%) Source: Bloomberg. Returns are in USD terms. Performance Data in chart from December 2004 to March Brand Index is a Dynamic Alpha Brands Index offers investor access to a large-cap focused portfolio of the highest ranking Top Global Brands based on a proprietary rule-based methodology developed by Alpha Brands LLC. 6

7 I NDIA EVIDENCE: INVESTMENT I N STRONG BRANDS HAS WORKED IN INDIA TO O 8,000 7,000 India Brands 100 Index BSE 200 Index 6,712 (22.6% CAGR) 6,000 5,000 4,000 3,000 1,000 2,000 4,199 (16.6% CAGR) 1, Source: AIPL, IISL, Axis MF Research Date of Inception of India Brands 100 Index is 1 st April The India Brands 100 Index is not sponsored, endorsed, sold or promoted by India Index Services & Products Limited (IISL). India Brands 100 Index has been developed by Axis AMC and IISL has calculated and maintained as per the specifications and requirements of Axis AMC. IISL does not make any representation or warranty, express or implied regarding the advisability of investing in the products linked to India Brands 100 Index and availing the services generally or particularly or the ability of India Brands 100 Index to track general stock market performance in India. 7

8 PERFORMANCE (As On November 30, 2018) 11.8% 11.2% 6.4% 4.2% 2.0% 2.2% -0.6% -5.0% -10.5% -8.2% 1 month 3 month 6 month 1 year Since Inception (CAGR) Axis Brand Equity Portfolio BSE 200 Index (Bmk) Since inception Date: 7th February, The above portfolio returns are for a model client. Returns for individual clients may differ depending on time of entry in strategy. Portfolio returns are net of fees and expenses (adjusted for upfront). Past performance may or may not be sustained in future and should not be used as basis for comparison with other investments. 8

9 I N V E S T I N G I N B R A N D S : B E T T E R R I S K - A D J U S T E D P E R F O R M A N C E 9

10 INVESTING IN BRANDS IN : BETTER RISK-ADJUSTED RETURNS Returns Performance Standard Deviation Volatility 100% 80% 60% 85% 93% 45% 40% 35% 30% 25% 40% 31% 36% 25% 42% 31% 40% 20% 0% -20% 15% 7% 20% 15% 10% 5% 0% Falling Phase Rising Phase 2 Year Period -40% -60% -29% -41% Falling Phase Rising Phase 2 Year Period Brands Index Bse 200 Index Brands Index Bse 200 Index Source: Bloomberg. Returns are CAGR, Volatility as measured by Standard Deviation Falling Phase: Mar 08 to Mar 09, Rising Phase: Mar 09 to Mar 10, 2 Year Period : Mar 08 to Mar 10 Past performance may or may not be sustained in future and should not be used as basis for comparison with other investments. 10

11 PERFORMANCE ANALYSIS: JOURNEY SO FAR (As On Nov 30, 2018) 36.7% 46.6% 11.8% 11.2% -15.4% -28.3% Falling Phases Rising Phases Since Inception Portfolio BSE 200 Index Source: Bloomberg. Returns are Absolute, Volatility as measured by Standard Deviation Falling Phase (Calendar Months): June, August, Sep, Nov 2017, Feb, Mar, May & June 2018, September 2018, Oct Rising Phase: Feb, March, April, May, July, Oct, Dec 2017 & Jan 2018, April 2018, July 2018, August 2018, November Since inception: Feb 7 th 2017 to October 31 st The above portfolio returns are for a model client. Returns for individual clients may differ depending on time of entry in strategy. Portfolio returns are net of fees and expenses (adjusted for upfront). Past performance may or may not be sustained in future and should not be used as basis for comparison with other investments. 11

12 I N V E S T M E N T P R O C E S S A N D P O R T F O L I O 12

13 PMS APPROACH Long-term wealth creation through investment in companies with strong brands Focused Risk Management 13

14 I NVESTMENT PROCESS: FROM THEORY TO PRACTICE Investment Universe Screening Significant brand investment (incl. advertising, marketing, communication, royalty, R & D expenses) Investment > Hurdle rate (As % of Sales) Growth > GDP growth Superior bargaining power/ brands Brands universe Returns > Cost of Capital Eliminates the highly cyclical sectors/ companies Portfolio construction & review Research Management Interaction, Competition Analysis, Industry Visits Margin of Safety Analysis Leverage Axis/ Schroders Capabilities 14

15 PRESENTING AXIS BRAND EQUITY PORTFOLIO Investment Style - Bottom-up investments in Quality businesses - Growth Biased Companies with strong brand power - Businesses with sustainable competitive advantage driven by strong brands - An eclectic mix of about 50% each in Emerging and Established brands Best ideas portfolio - Compact best ideas portfolio - Investments across market capitalization - Absolute return orientation Long term investing - Companies selected based on 3-5 year prospects - Target a stable low-churn portfolio 15

16 REASONABLY DIVERSIFIED ACROSS SECTO RS While portfolio will consist of bottom-up best ideas, portfolio construction will target reasonable diversification across sectors Given the theme, certain sectors are likely to be more represented than others Sectors likely to see higher allocations Sectors B2C brands - Financials - Autos - Consumption B2B brands - Exporters (Pharma/ IT) - Industrials Sectors likely to see lower allocations Deep Cyclicals (Including commodities) Regulated sectors 16

17 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 BRANDS LIFE CYCLE AND INVESTOR RETURNS Life-cycle of a brand 520% 420% Emerging Brand Established Brand Fading Brand Turn around or Demise? % % % % % 20.0 Ann. Share price returns (LHS) ROCE (%, RHS) Source: Ambit Capital, Returns are absolute Past performance may or may not be sustained in future and should not be used as basis for comparison with other investments. 17

18 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Stage 1: EMERGING BRAND: THE INFANCY Page Industries ( ) 140% % 100% 80% 60% 40% 20% We note that the Stock generated average annualreturns of 64% with annual volatility of 54% during this timeframe. While the stock-returns were very high, investors had to live with significantly higher volatility as well. 0% % 25.0 Ann. Share price returns (LHS) ROCE (%, RHS) Source: Ambit Capital, Returns are absolute This stock may or may not form part of client portfolio. The above information must be used for Illustrative purposes only. Past performance may or may not be sustained in future and should not be used as basis for comparison with other investments. 18

19 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Stage 1: EMERGING BRAND: THE INFANCY Bajaj Finance ( ) 400% 350% 300% 250% 200% 150% 100% 50% We note that the stock generated average returns of 73% with annual volatility of 155% during this time-frame. While the stock-returns were very high but investors had to live with significantly higher (7.0) volatility as well. 0% % -100% -150% (2.0) (7.0) Ann. Share price returns (LHS) RoE (%, RHS) Source: Ambit Capital, Returns are absolute This stock may or may not form part of client portfolio. The above information must be used for Illustrative purposes only. Past performance may or may not be sustained in future and should not be used as basis for comparison with other investments. 19

20 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Stage 2: ESTABLISHED BRAND : THE PRIME HDFC Bank (2003-Now) 300% % 200% 150% 100% 50% We note that the stock generated average returns of 29% with annual volatility of 29% during this timeframe. While the stock-returns have Been steady, investor - returns were significantly less volatile as well. 0% % 10.0 Ann. Share price returns (LHS) RoE (%, RHS) Source: Ambit Capital, Returns are absolute This stock may or may not form part of client portfolio. The above information must be used for Illustrative purposes only. Past performance may or may not be sustained in future and should not be used as basis for comparison with other investments. 20

21 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Stage 2: ESTABLISHED BRAND : THE PRIME Bajaj Finance (2014- Now) 400% 350% 300% 250% 200% 150% 100% 50% 0% -50% -100% -150% (2.0) (7.0) We note that the stock generated average returns of 81% with annual volatility of 33% during this timeframe. Hence, while the stock-returns have been steady, investor - returns were significantly less volatile as well. Ann. Share price returns (LHS) RoE (%, RHS) Source: Ambit Capital, Returns are absolute This stock may or may not form part of client portfolio. The above information must be used for Illustrative purposes only. Past performance may or may not be sustained in future and should not be used as basis for comparison with other investments. 21

22 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Stage 3: FADING BRAND : A PASSING PHASE Infosys ( ) 520% 420% 320% 220% 120% We note that the stock generated average returns of 9% with annual volatility of 19% during this timeframe. This hasn t been a profitable period for investors. 20% % 20.0 Ann. Share price returns (LHS) ROCE (%, RHS) Source: Ambit Capital, Returns are absolute This stock may or may not form part of client portfolio. The above information must be used for Illustrative purposes only. Past performance may or may not be sustained in future and should not be used as basis for comparison with other investments. 22

23 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Stage 4: TURNAROUND OR DEMISE IndusInd Bank ( ) 500% 400% 300% 200% 100% We note that the stock generated average returns of 142% with annual volatility of 256% during thistimeframe. This has been a profitable period for investors. 0% % - Ann. Share price returns (LHS) RoE (%, RHS) Source: Ambit Capital, Returns are absolute This stock may or may not form part of client portfolio. The above information must be used for Illustrative purposes only. Past performance may or may not be sustained in future and should not be used as basis for comparison with other investments. 23

24 KEY PILLARS OF AXIS APPROACH Growth biased focusing on sustainable growth Look for quality businesses Aim to deliver superior risk adjusted returns High conviction investors Sustainable Quality Growth At Reasonable Price 24

25 RISK MANAGEMENT I S CENTRAL TO THE I NVESTMENT PROCESS Type of Risk Risk Description Risk Management Strategy Quality Risk Price Risk Investing in unsustainable/weak companies Overpaying for a company Experienced investment professionals help limit investment universe to high quality businesses Detailed in-house research enables Fair value based investment recommendations Liquidity Risk High impact costs Controlled at portfolio construction stage Volatility Risk Event Risk Price volatility due to company or portfolio specific factors Price risk due to company or sector specific event Overall portfolio volatility and risk exposures monitored Timely response to uncertain events enabled through in depth understanding of businesses 25

26 Top 10 Portfolio Stocks (November 30 th, 2018) Stocks % Weight HDFC Bank Ltd 10.62% Bajaj Finance Limited 7.55% IndusInd Bank Ltd 6.48% Astral Poly Technik Ltd 6.10% Asian Paints Ltd 6.05% Kansai Nerolac Paints Ltd 4.36% Whirlpool of India Ltd 4.36% V-Guard Industries Ltd 4.26% Mahindra and Mahindra Financial Services Ltd 4.22% Supreme Industries Ltd 4.22% Total 58.2% The above portfolio is for a model client. Portfolios for individual clients may differ depending on time of entry in strategy. This stock may or may not form part of client portfolio. The above information must be used for Illustrative purposes only. 26

27 BRITANNIA Investment Universe Screening Brand Spend: 17.9% 8.0% Revenue Growth: 9.9% ROE: 32.9% Investment Rationale: Brands universe Amongst a handful of large listed F&B plays in India, well positioned to gain from the long term consumer opportunity and shift towards branded / organized segment. Research Britannia's operating and financial metrics have seen a sharp uptick in the last 5 years which has driven earnings and valuation rerating. Portfolio construction & review Volume growth above peers as holistic product and distribution strategies are executed along with a premiumisation & cost management agenda. Average Brand Spend, Revenue growth and ROE over a business cycle. This stock may or may not form part of client portfolio. The above information must be used for Illustrative purposes only. 27

28 ASTRAL POLYTECNIK Investment Universe Screening Brand Spend: 17.9% 2.0% ROE: 20.9% Revenue Growth: 33.3% Brands universe Portfolio construction & review Research Investment Rationale: CPVC pipes Leadership position in an expanding market: Pioneer in residential CPVC pipes market in India due to its strong innovation track record and productrelated tie-ups with global majors. Increasing product applications, awareness and affordability should lead to market expansion. Adhesives Distribution strength is undervalued: Astral is aspiring to build India s second largest adhesives business franchise. Acquisitions of well-established brands in India and UK have helped gain strong foothold in this space. Backward integration, higher utilization to help RoCE expansion: New resin sourcing agreement with Sekisui for in-house production provides edge in CPVC business. Average Brand Spend, Revenue growth and ROE over a business cycle. This stock may or may not form part of client portfolio. The above information must be used for Illustrative purposes only. 28

29 PORTFOLIO MANAGER Name Trideep Bhattacharya, CFA Duties Senior Portfolio Manager Alternatives, AXIS AMC Trideep has over 20 years of experience in equities and portfolio management in India and other Asian Emerging Markets as well as developed equity markets Before joining Axis AMC, he spent significant amount time as portfolio manager at State Street Global Advisors, and also with UBS Global Asset Management in London He has been a well-established stock-picker and sellside analyst in various investor surveys like Institutional Investor and Asia Money He holds a B.Tech. degree (Electrical Engineering) from IIT Kharagpur and M.B.A. (Finance) from S.P. Jain Institute of Management & Research. He is currently a charterholder of CFA Institute, USA. Industry experience 20 years 29

30 RESEARCH CAPABILITIES Name Duties Industry experience Deepak Agrawal Ashish Naik Mayank Hyanki Nitin Arora Hitesh Das Analyst Equity, AXIS AMC Research coverage: Banks & Financial Institutions Analyst Equity, AXIS AMC Research coverage: Autos & Logistics, Agro Inputs & Chemical, Other Commodities, Metal, Metal Products & Mining, Cement & Building Materials Analyst Equity, AXIS AMC Research coverage: Healthcare, Real Estate, Oil & Gas Analyst Equity, AXIS AMC Research coverage: Industrial, Infrastructure, Utilities Analyst Equity, AXIS AMC Research coverage: FMCG, Retail, Information Technology Research personnel of Axis AMC provides supports to Mutual Fund, Portfolio Management Services and Advisory Services of AXIS Asset Management Company 30

31 ABOUT AXIS ASSET MANAGEMENT COMPANY Axis Asset Management Company was set up in Jan 2009 by Axis Bank Axis Bank is the third largest private sector Bank in India Expansive distribution network in 3,779 branches in centers and 12,834 ATMs Schroders acquired a 25% stake (+1 share) in September 2012 Management team with extensive experience One of the fastest growing asset managers in India Manages local mutual fund schemes under the Axis Mutual Fund range and advises Schroders on its global India product range Source: Axis AMC, Axis Bank data as of 30 th Sep

32 DISCLAIMERS AND RISK FACTO RS Past performance may not be sustained in the future Axis Asset Management Company Limited is registered with SEBI as a Portfolio Manager ( Portfolio Manager ). This Document is for information purpose only. This Document does not constitute an investment advice or an attempt to influence the opinion or behavior of the Recipients. Any use of the Information / any investments and investment related decisions of the Recipients are at their sole discretion & risk. Investments in Portfolio Management Products are subject to market risks and there is no assurance or guarantee that the objectives of the investment will be achieved. The investments may not be suited to all categories of Investors/Recipients. As with any investment in any securities, the value of the portfolio under any Product can go up or down depending on the factors and forces affecting the capital market. Past performance of the Fund Manager or the promoter/portfolio manager does not indicate the performance of any portfolio managed by the portfolio manager. The portfolio manager does not guarantee or assure any return on investment and is not responsible nor liable for any losses resulting from the management of client portfolios/advisory services, etc. The AMC may be engaged in buying/selling of such securities. The Portfolio Manager, its affiliates/associates, their directors, employees, representatives or agents shall not be liable or responsible for the performance of any Product, the contents of any document or any investments in the Products including any and all direct, special, punitive, indirect, or consequential damages (including lost profits), even if notified of the possibility of such damages. Individual returns of Clients for a particular portfolio type may vary significantly from the data on performance depicted in this material. 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. Prospective investors are advised to carefully review the Disclosure Document, Client Agreement and other related documents carefully and consult their legal, tax and financial advisors before making an investment decision. 32

33 THANK YOU