A MULTICAP FUND INVESTING IN MANUFACTURING SECTORS

Transcription

1 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 engaged in manufacturing theme. India s GDP: Sector Breakup Industry 31.22% Agriculture 14.82% Services 53.96% Sector wise GDP Contribution 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. The share of manufacturing in India s GDP has stayed in a narrow range of 1416% over last 4 decades. It recently moved out of this range to 18%. The Government aims to take it to 25% of GDP by 225. Source: CMIE, Edelweiss Research, CITI Feb

2 Trend in Services, Exports and Remittances Year Net services Exports/GDP Services Exports/GDP Services Imports/GDP Invisibles: Transfers FY1.3% 3.4% 3.1% 2.7% FY2.7% 3.5% 2.8% 3.2% FY3.7% 4.% 3.3% 3.2% FY4 1.6% 4.3% 2.7% 3.6% FY5 2.1% 6.% 3.9% 2.9% FY6 2.8% 6.9% 4.1% 3.% FY7 3.1% 7.8% 4.7% 3.2% FY8 3.1% 7.3% 4.2% 3.4% FY9 4.4% 8.7% 4.3% 3.7% FY1 2.6% 7.% 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.% 4.4% 3.5% FY14 4.% 8.2% 4.2% 3.5% FY15 3.8% 7.8% 4.% 3.2% FY16 3.3% 7.3% 4.% 3.% FY17 3.% 7.2% 4.2% 2.5% FY18 3.% 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 Manufacture in India: Building Ecosystem Implementation of long awaited GST (Goods and Services Tax) has aided organised sectors. Indirect Tax Reform Liberalized FDI Regime Most of the sectors are under automatic approval route. Sectoral caps across major sectors including defence and aviation has been increased to 1%. Manufacture in India Strengthening confidence among investors and lenders. New Insolvency Code Infrastructure Push 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: 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 offtake. Source: CSO, Citi Research, Edelweiss Research. Census 211

3 % YoY Segment wise growth of GDP 195 s 196 s 197 s 198 s 199 s 2 s Manufacturing Financial Services Trade, hotel, transport, communications Source: CSO, Citi Research 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. 35% 33% 31% 29% 27% 25% 23% 21% 19% 17% Korea Manufacturing Cycle Picks Up, Post Construction Cycle Matures Example Korea and Taiwan 13% 33% 12% 31% 11% 1% 29% 9% 27% 8% 25% 7% 23% 6% 5% 21% Taiwan 9% 8% 7% 6% 5% 4% 3% 15% 4% 19% 2% Manufacturing (%GDP) Construction (%GDP), RHS Source : Kotak Research, Past performance may or may not be sustained in future Manufacturing (%GDP) Construction (%GDP), RHS Manufacturing: A Big Picture Consumer Electricals Make for India Automobile Make for India for the Globe Power Paper Pharmaceuticals Auto Ancillaries Paint Chemicals Textile Plywood/ Building Material Textile Footwear Paper Machinery The stocks/sectors mentioned in this document is only for illustration purpose only. The stocks/sectors mentioned herein are a part of the broader sectors mentioned in scheme SID. 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).

4 No. of Companies with $1b Market Cap Metals & Mining Banks Telecom Technology Others Large Universe to Invest. With huge scope for new players to grow. Brazil China India Indonesia South Africa Source: Kotak Institutional Equities. Data as on 25th Aug 218 Thailand 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 Manufacturing Sectors Oil & Gas Electrical & Electronics Goods Pharmaceuticals Power Auto & Auto Ancillaries Consumer Non Durables Chemicals Capital Goods & Defence Manufacturing Manufacturing Sectors: Broad Classification MANUFACTURE IN INDIA Export Oriented Sectors Domestic Capex Domestic Consumption Pharmaceuticals Textile & Garments Defence Manufacturing Oil & Gas Electrical and Electronics Goods Auto Chemicals Auto Ancillaries Favourable Scenario: High CAD, high crude oil and depreciating currency. Capital Goods Mining Steel Low CAD, low interest rate rise risk, capacity utilization is high Power FMCG 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. The stocks/sectors mentioned herein are a part of the broader sectors mentioned in the SID

5 Diverse economic conditions favours different manufacturing segments + Current Account Manufacturing Capex Sectors : Capital Goods Electricals Oil & Gas Roads & Highways Sectors : Auto Ancillaries Textiles Pharma Tourism & Hospitality Manufacturing Capex ManufacturingConsumption (All time favourable) Rising CAD makes exports more competitive (5) (1) (15) Textile Exports CAD/GDP (%) Textiles yoy (%) (1.) (2.) (3.) (4.) (5.) (6.) (1) (2) Machinery CAD/GDP (%) Machinery yoy (%) (1.) (2.) (3.) (4.) (5.) (6.) (2) (4) Transport CAD/GDP (%) Transport yoy (%) (1.) (2.) (3.) (4.) (5.) (6.) (1) (2) Chemical CAD/GDP (%) Chemicals yoy (%) (1.) (2.) (3.) (4.) (5.) (6.) Source: Kotak Institutional Equities, GDP: Gross Domestic Product. CAD: Current Account Deficit Export Oriented Manufacturing Africa 19.1% Asia 18.8% European Union 19.7% United States 4.6% Pharmaceuticals: India contributes around 1% of the world production volume. Around 7% of its revenue comes from sale of generic drugs, of which around 5% 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. Geographical Split of Exports Source: Care, July 217, Investec May 218, Goldman Sachs Aug 218. 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).

6 1% Geography wise CashFlow (FY 18 Sales) 8% 6% 4% 2% Others India US % Sun Pharma Dr Reddys Torrent Nacto Lupin Cadila Cipla Alembic Aurobindo Glenmark Source: Care, July 217, Investec May 218, Goldman Sachs Aug 218. The stocks/sectors mentioned herein are a part of the S&P BSE 5. 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. Auto companies are increasingly using India as an export base. Around 2.7% of MNC production is exported from India. Global automotive sales of PVs and CVs grew at 3.1% in 217. Majority of growth came from china, India and Europe, which collectively account for 55.8% of global market. Industry Segment Sales Growth 24.2% 19.9% 14.8% 14.2% 7.9% PV CV 3W 2W Total Domestic Auto Parts Industry: Auto components industry is expected to grow at 1214% 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. Autocomponent 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 218, Crisil Report on Auto Component, July 218, ibef June 218. PV: Passenger Vehicle, CV: Commercial Vehicle, 3W: 3 wheeler, 2W: 2 wheeler. Chemical Industry: A Case Study Chinese chemicals market size is about US$ 4.35tn, about 4% of the total global market. It s chemical exports account for about US$ 2 bn, eight times larger than Indian exports. Stricter environmental protection policies implemented by China in Jan 215 by enforcing strict penalties led to shut down of mid/small size plants resulting industry suffered a 1% decline in exports. 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, 218. The stocks/sectors mentioned in this document is only for illustration purpose only. The stocks/sectors mentioned herein are a part of the broader sectors mentioned in the SID. 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). 15% 14% 8% 7% Germany India Japan US

7 India: One of the largest market Cuba In terms of population, almost each state in India is approximately equivalent to a country's population Map source: Edelweiss Research (June 218).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. Venezuela Taiwan United Kingdom South Africa Mexico Italy Iraq Switzerland France Turkey Greece Brazil Germany Australia Philippines Peru Spain Egypt Canada 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 USD2, the proportion of discretionary expenditure rises disproportionately. India s GDP per capita is expected to cross USD 2 by FY18/19. Domestic Consumption 2 Wheelers sales crossed 2 million unit mark first time in 217. Household penetration of 2W went up from 29% in 21 to 54% in 218. In same period four wheeler penetration has went up from 5% to 1%. PV penetration in India is akin to 2W penetration in Household penetration of 2Ws and PVs in India 2W sales (LHS, mn) 2W penetration (RHS, %) PV penetration (RHS, %) Source: Kotak Institutional Equitiesl 218, Investec June 218. Electrical Consumer Durable Industry Consumer Durable Car penetration (per people), Calendar year end, India China Brazil Russia S. Korea US Japan EU Electrical Industry is expected to grow at 11% CAGR over FY1722 on back of initiatives like Electrifying India, rising disposable income and urbanisation trend. Household Penetration of refrigerators is 2%, Washing Machines is 8% and AC is 34%. Organised players market share is expected to expand 8 percentage points to 72% over the same period. Electricity availability increases to 1718 hours/day as against 78 hours/per day earlier in rural areas. Initiatives like housing for all by 222 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 78% of segment revenue and is growing at 2% (Million Units) 12,, 1,, India Power Consumption 3Yr CAGR: 7% TV pentration (per 1 HH) Electric Fan penetration (per 1 HH) 4,, 7 6 6,, 5 4 4,, 3 2,, Source: JM Financial April 218, Investec June 218. 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). The stocks/sectors mentioned herein are a part of the broader sectors mentioned in the SID. Kerala Punjab Andra Pradesh Karnataka Maharashtra Gujrat All India MP Assam UP Jharkhand Bihar

8 Capex (INR bn) Metro network length (km) 2, 1,6 1, , 7,2 5,4 3,6 1,8 Metro Rail Network Operational Under Construction Upcoming 225E Railway Capex FY15 FY61 FY1115 FY162 E 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. Metro Rail: Currently, the network is operational/under construction in ten cities; by 218 end, four more cities may have metros. Air Traffic: Domestic air traffic, which catapulted from ~23mn passengers in 25 to whopping ~1mn in 216. Railways: Burgeoning traffic has led to severe congestion with 4% of all sections and ~65% of high density sections running at >1% utilisation. Paradigm shift is now underway: ~`85bn investment plan over 2162, 1.9x 215. Focus on freightcarrying capacity enhancement and improving passenger amenities and safety. Source: Edelweiss Research Feb, 218. E: Estimate. Cement production in India is where China was in , Tonnes Million 3 Tonnes Million India Cement Production ,5 25 2, 2 1,5 15 1, 5 China Cement production, FY94 FY96 FY98 FY FY2 FY4 FY6 FY8 FY1 FY12 FY14 FY16 Source : Kotak Research, Past performance may or may not be sustained in future ICICI Prudential Manufacture in India Fund 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 (An open ended equity scheme following manufacturing theme) AIMING TO BENEFIT FROM GROWTH OF MANUFACTURING SECTORS IN INDIA 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. 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 Recent update on manufacturing sector Percent Manufacturing Capacity Utilisation Source: B&K Securities Sept 218, RBI Capacity Utilisation Year Average Capacity utilization in manufacturing is improving Q1 FY16 Q2 FY16 Q3 FY16 Growth in Companents of GDP Q4 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 Industry grew by 1.3%. Manufacturing, component of Industry expaned by 13.5% Q1 FY19 Agriculture GDP Growth (%YoY) Industry GDP Growth (%YoY) Service GDP Growth (%YoY) Companies forming part of Manufacturing Sectors Oil & Gas Oil & Natural Gas Corporation Ltd GAIL (India) Ltd Pharmaceuticals Sun Pharmaceuticals Industries Ltd Cipla Ltd Lupin Ltd Zydus Wellness Ltd Auto and Auto Ancillaries Maruti Suzuki India Ltd Hero Motocorp Ltd MRF Ltd Balkrishna Industries Ltd Chemicals Pidilite Industries Ltd Tata Chemicals Ltd Pharmaceuticals Auto & Auto Ancillaries Oil & Gas Chemicals Electrical & Electronics Goods Capital Goods & Defence Manufacturing Power Consumer Non Durables Electrical and Electronics Goods Voltas Ltd Blue Star Ltd Havells India Ltd Power NTPC Ltd Power Grid Corporation of India Ltd Consumer Non Durables ITC Ltd Asian Paints Ltd Godrej Consumer Products Ltd Capital Goods and Defence Manufacturing Bharat Heavy Electricals Ltd Bharat Electronics Ltd Larsen & Toubro Ltd 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 218 (ROE Trailing twelve months). Nonbanking PSU stocks at inflection point Market cap. P/B ROE Companies (US$ bn ) (X) (%) ONGC Indian Oil Corp NTPC Power Grid BPCL GAIL (India) NMDC NHPC Container Corp BHEL Oil India National Aluminium Co Nifty The stocks above mentioned are part of the scheme benchmark that is S&P BSE 5. 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. The stocks/sectors mentioned herein are a part of the broader sectors mentioned in the SID.

10 ICICI Prudential Manufacture in India Fund NFO Period MICR cheques RTGS and transfer cheques Switches Option to be launched Entry / Exit Load Minimum Application Amount September 21 st, 218 to October 5 th, 218 Till the end of business hours on October 5, 218 Till the end of business hours on October 5, 218 Switches from equity schemes and other schemes 5 th October 218; Till cut off time (specified for switch outs in the source scheme) Growth Option & Dividend Option ( Dividend Payout and Reinvestment facility) Direct Plan Growth Option & Dividend Option ( Dividend Payout and Reinvestment facility) 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. `5,/ (an in multiple of `1 thereafter) Benchmark Index S&P BSE 5 Fund Managers* Mr. Anish Tawakley and Mr. Mittul Kalawadia *Ms. Priyanka Khandelwal for investment in ADR/GDR/ Foreign securities 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. Low Riskometer Moderately High Moderate Moderately High Low High Investors understand that their principal will be at high risk High 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 inhouse. 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.