Portfolio Management ServicesAditya Birla Sun Life AMC Limited

1800-270-7000

Innovation Portfolio

• The portfolio will be invested in : ü Companies which are beneficiaries of the fast-changing landscape across industries (innovation led) ü Companies that have a scalability in the form of market size over the next decade (secular growers) • Objective is wealth creation with lower volatility• Well diversified multicap portfolio of 15-20 stocks across secular sectors, with less exposure to commodity cyclicals.

What is Innovation?

Portfolio Construct

Catego Weight Rationale

InnovationBayer CropScience, Biocon,HDFC Life Insurance

Bharti Airtel, MetropolisHealthcare

Stocks

Secular Growth

50%-75%

25%-50%

Capture maximum value in fast changing landscape across industries through product or process innovation.

Scalability in the form of market size over the next decade

• It is a new way of doing business, new systems of products & services or new interactions &

• Nearly 2000 examples of innovations were analyzed & from this emerged the framework of ten

• Innovation is new, differentiated and profitable way of doing business.

forms of engagement between your organization & customers.• Innovation must be able to sustain & return its weighted cost of capital• It should be relevant and significant to the organization.

types of innovation by Lar Keeley in his work ‘Ten types of innovation’.

Catego Innovation type Company characteristics (Inclusion Criteria)

Profit Model

Network

Organisation Structure

Process

Product Performance

Product System

Service

Channel

Brand

Customer Engagement

Business Model

Product Offering

Customer Experience

Top quintile ROCE/ROE vs. Sector

Highest number of service centres vs. peers leading to higher resales and customer retention

Strong cross sell franchise leading to lower customer acquisition cost for new products

Cost leadership in production and capex vs. peers

Improving share of new products, Market leadership in existing categories

Number of complimenta products launched vs. peers

Client retention, Customer Persistency

Sector leading distributor network, lower working capital intensity vs. peers

Strong brand recall reflected in market leadership in both B2B and B2C segment

Market share gains through customer engagement

ROE/ ROCELeverage and debt servicingManagement Quality

Risk / Reward Analysis

Apply Quantitative & Qualitative Screeners

Portfolio Universe

-Higher share of new products/ services-Market Leadership with limited competition-Global Market Leadership -Cost Leadership-Strong brand recall Customer Engagement

Potential upside of 100% in 3 - 4 years

Identify Companies that benefitfrom innovation themes

Portfolio optimisation

Select 15 - 20 quality companies with high growth and potential upside

Reject the companies which do not filter through the screeners

Narrow down the list to 50 - 60 stocks

Parameters Exclusion Criteria

Profitability

Balance Sheet

Cash Flow

• Bottom quintile ROCE/ROE vs. Sector• Loss for 3 consecutive years

• Debt/Equity > 1.5• Bottom quintile Working Capital intensity

• Operating Cash Flow <0• Cumulative FCF for last 5 years <0

Investment Process:

Basis the above investment framework the current portfolio is invested as below:

% of NetIndust allocation

Financials

Health Care

Materials

Consumer Discretiona

Consumer Staples

Communication Services

Energy

Industrials

Cash

25.4

17.7

14.7

11.7

9.0

6.8

6.0

5.1

3.6

Portfolio Data as on May 31, 2020.

Weight %Market cap bias

Largecap

Midcap

Smallcap

Cash

78.1

13.9

4.4

3.6

Current Portfolio Allocation

Portfolio Data as on May 31, 2020

Equity Outlook

The last 3 months have been truly exceptional where the investor sentiment has change from panic and anguish as markets corrected almost 40% in a matter of few weeks to hope and optimism as the markets moved up more than 30% reacting to the global stimulus packages and flatting of infection curve in many countries. While the Indian economy is gradually opening up, it might take some more time in India as the number of Covid cases are still rising, albeit at a slowing rate. A positive here is the high recove rate witnessed among Indians & also the low mortality rate compared to the Western world.

The rural & agri demand seems to be back to pre Covid levels while consumer durables, staples, pharma, cement & metals demand has picked up as the high frequency indicators confirm. Banks are still facing uncertainty with almost 40% of the borrowers loans being under moratorium as per the latest data from RBI. While this reduces the liquidity stress for borrowers, it also makes Banks’ balance sheets less transparent with asset quality issues being deferred into the future. For NBFCs, while new business acquisition has been slow, focus is on collections & processing pending cases. On an overall basis, we expect the larger, dominant players which have resilient balance sheet to benefit at the expense of smaller, weaker players going forward.

On 12 May, Prime Minister Narendra Modi had announced an economic package to the tune of Rs.20 lakh crore which is roughly 10% of the GDP. While the quantum of stimulus is clearly higher than expectation, bulk of the stimulus is in the form of moneta support with fiscal spending being much lower at around 1% of the Indian GDP. PM’s focus on land & labour laws, which if executed suitably may provide a much-needed impetus to India’s manufacturing sector. Also, the key thrust now is on self-reliance & local manufacture.

Coming to portfolio positioning, most of our portfolios are conservatively positioned with higher weight to sectors like Telecom, Pharmaceuticals and Consumption while lower weight to cyclicals and leverage companies. Considering the uncertain macro environment and sharp run up in markets, we consider it appropriate to be conservative in our positioning.

Portfolio vs Benchmark- Higher Growth/ROE’s with lower leverage

Top 10 Portfolio Holdings

Sr. No.

1

2

3

4

5

6

7

8

9

10

% to Net AssetsCompany Name

Hdfc Bank

Biocon

Bharti Airtel

Cipla

Reliance Industries

Avenue Supermarts

HDFC Life Insurance Company

ICICI Bank

PI Industries

Larsen & Toubro

9.1

7.1

6.8

6.3

5.9

5.6

5.2

5.2

5.2

5.1

InnovationNisty 500Nisty

42.2

20.2

18.7

35.1

19.1

17.7

32.0

20.1

18.4

36.8%

PE (x)

InnovationNisty 500Nisty

41.6%

InnovationNisty 500Nisty

126.5%

InnovationNisty 500Nisty

-85.0%

ROE (%)

EPS growth(%)

FY1 9A

FY1 9A

FY1 9A

FY20E

FY20E

FY20E

FY21E

FY21E

FY21E

Net debt toEquity (%) FY1 9

Prem/Discto benchmark

(FY22E)

Prem/Discto benchmark

(FY22E)

Prem/Discto benchmark

(FY22E)

Prem/Discto benchmark

11.1%

12.8%

13.3%

12.8%

10.0%

11.0%

14.0%

9.0%

10.0%

12.9%

12.0%

12.8%

20.0%

5.7%

6.0%

9.8%

-5.0%

-4.0%

10.7%

71.4%

82.2%

23.9

17.5

15.6

FY22E

FY22E

FY22E

15.6%

11.0%

11.5%

34.0%

15.0%

18.0%

One India Bulls Centre, Tower 1, 17th Floor, Jupiter Mill Compound, 841, Senapati Bapat Marg, Elphinstone Road, Mumbai - 400 013.

Tel: 4356 8000. Fax: 4356 8110 / 8111

Security investments are subject to market risks and there is no assurance or guarantee that the investment objective will be achieved.

Aditya Birla Sun Life AMC LimitedCIN: U65991MH1994PLC080811.

For any service related queries, please contact us:

1800 270 7000 care.pms@adityabirlacapital.com

Risk Factors and Disclaimers:

Investments in securities are subject to market risks and there can be no assurance or guarantee that the objectives of the Product will be achieved. Any information contained in this publication does not constitute and shall be deemed not to constitute an advice, an offer to sell/ purchase or as an invitation or solicitation to do so for any securities ofany entity. Please note that this is not an advertisement. The document is solely for the information and understanding of intended recipients only. If you are not the intended recipient, you are hereby notified that any use, distribution, reproduction or any action taken or omitted to be taken in reliance upon the same is prohibited and may be unlawful. Aditya Birla Sun Life Asset Management Company Ltd. (ABSLAMC) / its subsidiaries / affiliates or their officers, employees, personnel, directors shall not be liable for any loss, damage, liability whatsoever for any direct or indirect loss arising from the use or access of any information that may be displayed in this publication from time to time. Recipients of the information contained herein should exercise due care and caution and read the disclosure document (including if necessa, obtaining the advice of tax / legal / accounting / financial / other professionals) prior to taking of any decision, acting or omitting to act, on the basis of the information contained herein. Aditya Birla Sun Life AMC Limited-Portfolio Managers 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 PMS and / or its affiliates and which may have been made available to the PMS and / or to its affiliates. Information gathered and material used in this document is believed to be from reliable sources. The PMS however does not warrant the accuracy, reasonableness and / or completeness of any information. The actual investments / portfolio decisions are a result of complex technical & fundamental valuations at the disposal of the portfolio manager. Investors are advised against replication of strategies implemented. Information contained herein shall not be copied/circulated/reproduced/quoted in any form or manner (in part or whole) without the express written consent of Aditya Birla Sun Life Asset Management Co. Ltd. Any forward-looking word, phrase or expression is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those contemplated by the said forward-looking word, phrase or expression.

Model Portfolio refers to portfolio of earliest investor in the product and in case of redemption of the model client, portfolio of earliest client in the said product rebased for computation of returns. It refers to specific investments that the investor will have in his portfolio when it is completely built-up over a period of time. Past performance may not be sustained in the future. Investments in securities are subject to market risks. Please refer to disclosure document. The returns are absolute for the period mentioned less than 1 year and in CAGR for the period more than 1 year. Individual portfolios of investors may va from the model portfolio due to factors such as timing of ent and exit, timing of additional flows and redemptions, individual investor mandates (if any), specific portfolio construction characteristics or structural parameters. These factors may have bearing on individual portfolio performance and hence individual returns of investors for the said portfolio type may va from the data on performance of the portfolio depicted above. Neither the Portfolio Manager nor the Asset Management Company, its Directors, employees or sponsors shall in any way be liable for any variation in the actual returns of individual portfolios.

Disclaimer: The views expressed above are the views of the Fund Managers of Innovation Portfolio and should not be construed as an investment advice.

Investments in securities are subject to market risks and there can be no assurance or guarantee that the objectives of the Product will be achieved. Past performance may or may not be sustained in future.

Hindustan Unilever Limited: It is the Indian subsidia of Unilever PLC. Its products include foods, beverages, cleaning agents, personal care products, water purifiers and consumer goods. We expect HUL to be a key beneficia of the rural demand recove. Although the lockdown would affect near-term volumes, we expect volumes and earnings to bounce back once the situation normalizes. HUL is operating with shorter planning cycles, stepping up agility and building resilience in the supply chain. This is expected to serve well as demand patterns are changing, and the company is likely to see an upswing in categories such as health, hygiene and nutrition. HUL is responding well with 60x production of sanitisers and innovations such as Lifebuoy germ kill spray, Domex germ removal wipes, Domex disinfectant spray. Disruptive times like these are particularly hard on unorganised players; hence, we expect HUL to continue to gain market share.

(Source: Bloomberg, ABSLAMC Internal Research)

In the month of May, we added Hindustan Unilever Ltd to the portfolio.

Portfolio Update