Alpha edge - March 2015

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“Dance, but near the door..!”

India Strategy | March 2015

March 2015 3

But dance near the door !

India Strategy | March, 2015

Foreword

Dear Investor,

The Union Budget of 2015-16 was the first full budget to be presented by the Modi led government and was preceded by sky high expectations of reform. The budget clearly did not disappoint as it gave due importance to all sections of the economy and tried to enhance the ease-of-doing business while keeping its focus on infrastructure development. Acknowledging the fact that the Indian economy had entered a sweet spot, the need for aggressive reduction of the fiscal deficit was no longer present, he presented a new fiscal framework by establishing new targets for fiscal consolidation. This increased fiscal space is being used for productive purposes as the government has increased capital expenditure by 0.2% while reducing subsidies by 0.4% of GDP. This is in line with expectations of expenditure switching towards higher quality spending. The budget has also tried to restart the investment cycle by incentivizing investments in infrastructure – roads, ports and railways by using tax free bonds, plans to revitalize PPP models. These models had inherent risks faced by the private sector which seemed to be better addressed by the creation of a National Investment and Infrastructure fund. These proposals were complimented by important incremental steps towards ensuring the success of the ‘Make in India’ campaign, by way of bringing down some tax rates and making manufacturing more competitive. On 4th March RBI surprised the market with an early rate cut of 25bp in the repo rate, nearly a month prior to the scheduled monetary policy review. Sustained low inflation over the last two quarters, confirmed the disinflationary pressures in the economy and provided adequate headroom for the RBI to cut policy rate. With a decline in inflation by more than 500bp over the last 12 months, the RBI has been acknowledging the scope for rate cuts and was only waiting for credible fiscal consolidation, which the government delivered in the Budget. Though markets have been riding on the momentum of Union Budget expectations and RBI monetary policy, the earnings are yet to pick up momentum. The December-end quarter numbers were disappointing across the sectors. PAT declined by 7%. Yes, declined while we were rooting for new highs on the bourses! Resultantly, the valuations have soared to 24.1x from 17.7x at the end of February last year on TTM basis We have tried to analyse the historical market behavior on a 6 month period when trailing valuations were at levels like now. We observe that in 99.50% cases in the last 16.2 years, when valuations were at current or higher levels, Investors probably lost money. Similarly we also foresee considerable volatility in markets on the back of high prevailing valuations where the earnings have been passable for last three quarters. We would advise our investors to pause incremental investments until one of the two happens…either time correction aided by earnings growth or price correction to fair valuations. It’s time that all of us dusted the concepts like asset-allocation & rebalancing and put them to use. Warm Regards,

A V Srikanth

March 2015 4

Alpha Edge | “Dance, but near the door!”

Asset Class performance

Asset Class returns for January 2015

Source: Bloomberg

Equity has been the best performer for February 2015 with returns of 1.1% followed by Long term debt performance of 0.4%. Gold has been the worst performer with returns of -4.3% with the rate cut expectations partially built in.

FII Flows for CY 2015

Source: Bloomberg

Flows have continued to be buoyant in Equities and Debt markets in the February 2015. Equities saw Net Inflow of Rs 11,476 Crs whereas Debt market has seen net inflow of Rs 13,088 Crs.

Sector Returns

Source: Bloomberg

IT, Teck and Capital goods have been outperformers

for February 2015. Oil & Gas, Consumer Durables and

PSU have been the laggards during the same period.

1.1%

0.4% 0.6%

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Equity 10 yrTresuries

Cash Gold

Asset Class Returns For February 2015

47 37 71

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S&P BSE OIL & GAS Index

S&P BSE Consumer Durables

S&P BSE PSU

S&P BSE FMCG

S&P BSE BANKEX

S&P BSE Small-Cap

S&P BSE AUTO Index

S&P BSE Realty Index

S&P BSE SENSEX

S&P BSE Mid-Cap

S&P BSE Health Care

S&P BSE Power Index

S&P BSE METAL Index

S&P BSE Capital Goods

S&P BSE TECk Index

S&P BSE IT

Sector Returns for Feb 2015 (%)

March 2015 5


Global Macro

Inflation:

US

Consumer prices in the US dropped 0.1 percent year-

on-year in January, the lowest rate since late 2009. On

a monthly basis, prices went down 0.7 percent due to

falling gasoline cost.

Year-on-year, energy prices fell 19.6 percent, with

gasoline recording the highest drop (-35.4 percent).

Additional downward pressures came from utility gas

service (-0.4 percent), used cars and trucks (-4.0

percent), and apparel (-1.4 percent). In contrast, food

cost rose 3.2 percent. The index for all items less food

and energy increased 1.6 percent.

Eurozone: That “D” Word, again! Prices in the Eurozone fell 0.3 percent year-on-year in

February, following a 0.6 percent drop in the previous

month. Energy cost is expected to decrease at a slower

pace while food prices increased. Signs of “D”eflation,

is precisely what’s keeping the European Central

bankers awake at night. Presently they are busy

throwing money at the problem forgetting its known

diminishing utility at this stage of the elusive recovery.

Looking at the main components of euro area inflation, services are expected to have the highest annual rate in February (1.1 percent, compared with 1.0 percent in January), followed by food, alcohol & tobacco (0.5 percent, compared with -0.1 percent in January), non-energy industrial goods (-0.2 percent, compared with -0.1 percent in January) and energy (-7.9 percent, compared with -9.3 percent in January).

Core inflation rate which excludes prices of energy, food, alcohol and tobacco is expected to be 0.6 percent, the same as in the previous month.

China

China's annual inflation rate slowed to 0.8 percent in

January, significantly down from 1.5 percent in the

previous month and touching the lowest level since

November of 2009. The politically sensitive food prices

increased 1.1 percent while non-food cost rose at a

slower 0.6 percent.

Month-on-month, consumer prices rose 0.3 percent in

January at the same pace as in the preceding month.

Producer prices declined by 4.3 percent from a year

earlier, the lowest since September of 2012, following a

3.3 percent fall in December. Interest Rates: US

The monetary tightening scare has been deferred for at least another month. Latest US wage data has again disappointed economists’ longstanding expectations that wages are about to get traction in America. Moreover, previous wage data was revised down. Thus, US average hourly earnings growth for private employees slowed from 1.9%YoY in November (revised down from 2.1%) to 1.7%YoY in December, the slowest growth rate since October 2012. Unless we see any traction in Wage data it will not be prudent to say that the American economy is nothing like as robust as the consensus assumes.

Source: Bloomberg

Eurozone

ECB’s quantitative easing program was supported by a large majority of voters, the first-ever minutes of a meeting revealed. Policymakers also showed concerns over low inflation. This programme would start in March 2015 and involve monthly purchases of €60 billion which were intended to last until the end of September 2016, and, in any case, until the Governing Council saw a sustained adjustment in the path of inflation consistent with the aim of achieving inflation rates below, but close to, 2%. As regards the risk-sharing regime, the consensus reached was that 20% of the overall additional asset purchases would be subject to sharing of hypothetical losses. This included the sharing of possible losses on

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US Employee hourly wage rate

March 2015 6


the NCB purchases of the bonds of supranational institutions, amounting to 12% of the additional asset purchases, as well as the sharing of possible losses on the 8% holdings of the additional purchases by the ECB. Japan The Bank of Japan decided by an 8-1 vote to keep buying enough government bonds to boost monetary base at an annual pace of about 80 trillion yen. Policymakers said the economy continues to recover moderately as a trend while an increase in year-on-year consumer prices is between 0.5 to 1.0 percent, reflecting a decline in energy prices.

Currency: Global divergence

Central bank actions have been very mixed. New Federal Reserve (Fed) Chair Janet Yellen brought an end to the Fed's quantitative easing (QE) programme and signaled monetary tightening in 2015, all without significant market volatility. Meanwhile, the European Central Bank (ECB) loosened monetary policy and announced a 60 bn a month QE till September 2016 or till achieving the targeted inflation 0f 2%. The Bank of Japan (BoJ) surprised most economists and investors in October by increasing its target of asset purchases to 80 trillion yen per year. Relative monetary policy stances drove currency divergence. The outperformance of the US economy and end of QE purchases helped drive the US dollar up against its main trading partners.

March 2015 7


Domestic Macro

Inflation:

Inflation, both retail and wholesale, has rapidly winded

down in a short period of time of last six months on

account of moderation in food inflation and the crash

in global commodities. Indian wholesale prices dropped

0.39 percent year-on-year in January of 2015, following

a 0.11 percent increase in the previous month, as

petrol prices declined. It is the first negative figure

since June of 2009.

Year-on-year, petrol prices fell 17.08 percent, following

a 11.96 percent drop in the previous month and cost of

diesel decreased by 10.41 percent, following a 6.31

percent fall in December.

Food prices rose 8.0 percent, accelerating from a 5.2

percent increase in December. Among food prices,

vegetables recorded the highest increase (19.74

percent), followed by fruits (17.19 percent) and milk

(+9.13 percent). In contrast, prices fell for minerals (-

13.75 percent), non-food articles (-4.07 percent), onion

(-1.90 percent) and wheat (-1.63 percent).

In January, cost of manufactured products increased

1.05 percent, down from 1.57 percent in the previous

month.

On a monthly basis, wholesale prices declined 0.8

percent, following a 0.94 percent drop in December.

Whereas, India CPI inflation rose for the second

consecutive month to 5.11 percent in January from 5

percent in the previous month, after the country

changed the base year for calculating consumer prices.

The base year was changed to 2012 from 2010 and

lower weights were given to food and fuel while

services like education and health became more

important.

In January of 2015, cost of food and beverages rose

6.13 percent, up from a 5 percent increase in

December, provisional estimates showed. The food

alone index rose 6.06 percent (4.78 percent in

December). Cost of vegetables jumped 9 percent, after

edging up 0.58 percent in December and fruit prices

increased 10.62 percent (14.84 percent in the previous

month). In contrast, price decreases were reported for

sugar (-1.10 percent) and egg (-0.24 percent).

Cost of fuel and light rose 3.74 percent, slightly up from

3.41 percent in December and cost of clothing and

footwear slowed slightly to 6.15 percent (6.51 percent

in the previous month).

Education cost increased 7.26 percent; housing

increased 5.11 percent and health went up 4.71

percent. Meanwhile, transport and communication

prices fell 1.17 percent.

The corresponding provisional inflation rates for rural

and urban areas for January of 2015 are 5.25 percent

and 4.96 percent.

Interest Rates:

The Reserve Bank of India left its benchmark repo rate

at 7.75 percent, as the central bank waited for more

evidence of last month's rate cut and indicated that the

key to further easing are continuing disinflationary

pressures and sustained fiscal consolidation.

The cash reserve ratio was left on hold at 4 percent of

net demand and time liabilities (NDTL).

Reserve Bank of India also decided to

Continue with cash reserve ratio at 4 percent of

net demand and time liabilities (NDTL).

Reduce the statutory liquidity ratio (SLR) by 50

basis points to 21.5 percent from February 7th;

Replace the export credit refinance (ECR)

facility with the provision of system level

liquidity from February 7th;

Continue to provide liquidity under overnight

repos at 0.25 percent of bank-wise-NDTL at the

LAF repo rate and liquidity under 7-day and 14-

day term repos of up to 0.75 per cent of NDTL

of the banking system through auctions and

continue with daily one-day term repos and

reverse repos to smoothen liquidity.

March 2015 8


Consequently, the reverse repo rate under the

LAF will remain unchanged at 6.75 percent, and

the marginal standing facility (MSF) rate and

the Bank Rate at 8.75 percent.

GDP:

The economy advanced 7.5 percent year-on-year in the

last quarter of 2014, following a revised 8.2 percent rise

in the previous period as the way the GDP is calculated

has changed.

India's GDP is now measured in market prices instead of

factor cost and the base year was changed to 2011/12

from 2004/05.

According to revised figures, the economy advanced 6.5

percent in the June quarter (5.7 percent under the older

methodology) and 8.2 percent in September quarter (5.3

percent was initially reported).

According to new numbers, in the last three months of

2014, the highest growth rates were reported for

services: electricity, gas, water supply and other utility

(10.1 percent); trade, hotels, transport, communication

and services related to broadcasting (7.2 percent);

financial, real estate and professional (15.9 percent) and

public administration, defence and other services (20

percent).

The manufacturing sector expanded 4.2 percent; mining

and quarrying went up 2.9 percent and construction rose

1.7 percent. In contrast, the farm sector shrank 0.4

percent.

The government estimates annual growth at 7.4 percent

in the fiscal year ending in March 2015 from a revised 6.9

percent growth a year earlier.

March 2015 9


Key concerns The two key concerns for India are:

Valuations look stretched on ECB QE announcement and budget expectations

The growth cycle remains hesitant.

Valuations look stretched on Union budget and RBI monetary policy:

Nifty is at an all-time high on Union Budget expectation and RBI monetary policy. Though the earnings are yet to pick up

momentum, the valuations has soared up to 24.1x from 17.7x at the end of February last year on TTM basis due to

exceptional performance from Nifty. We have taken TTM for a change, as against forward estimates that now look too

aggressive, in light of the recent tepid growth in corporate results.

Source: Bloomberg Source: Bloomberg

Nifty Index PE has breached 1 standard deviation of 22.12(x) in the month of February and it is currently at 24.06(x).

28.25

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24.06

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CNX Nifty Index PE Long term Avg (10 yrs)

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1 Standard Deviation Below 2 Standard Deviation above 2 Standard Deviation Below

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EPS YoY (%) Nifty Index PE

Expensive Valuation

Cheaper Valuation

March 2015 10


We have tried to analyse the historical market behaviour at prevailing valuations to see the chances of capital preservation and returns in Equities in the next 6 months are and would like to share the following observations:

Out of all 4036 trading days since Jan 1st 1999, there have been only 202 days when the markets were trading at higher valuations than now.

Of such 202 days, in only 1 instance, on 30th Dec 1999 when markets were at 24 P/E, has principal been retained in the next 6 months. And when it did, it was a modest 0.80% absolute return.

That’s less than 0.50% chance of capital protection in the next 6 months at an Index level, if history repeats. Yes Index did go up by another 18.60% in between at the height of tech boom, before it gave it all away and ended at 0.80% 6 months later.

In the rest of 99.50% cases in the last 16.2 years, when valuations were at current or higher levels, Investors probably lost money.

Big and small, but at an average of -14.13%.

Interim returns

Date Next 6 months Peak returns Trough returns

Best Case 23-Dec-99 -0.01% 17.98% -17.73%

Worst Case 1-Jan-08 -36.58% 2.34% -32.68%

The present valuations are often found at closer to bull market peaks And they usually come about on the back of fantastic momentum in earnings, which is presently

lacking. Earnings momentum is not even closer to UPA-2 Highs**. This possibly renders the markets even more vulnerable.

Previous Cycle Index Returns In the 6 month period End of bull markets

PE above 24 Nifty 6 month later Peak returns Trough returns Date Nifty Level PE Level

22-Dec-99 1481.7 -0.40% 19% -17.37% 11-Feb-00 1756 28.47

9-Oct-07 5327.25 -11.60% 18% -15.47% 8-Jan-08 6287.85 28.29

13-Sep-10 5760 -4.00% 10% -9.27% 13-Oct-10 6233.9 25.91

Source: nseindia.com

March 2015 11


In all the instances where Nifty valuations has been above 24(x), Low risk assets have fared well in the next 6 months

period.

Source: nseindia.com

Assumption: Debt is assumed to generate 7% p.a.

Our Take: We foresee a considerable volatility in markets on the back of high prevailing valuations where the earnings

have been passable for last three quarters. We would advise our investors to pause incremental investments and

rebalance the portfolios as per Strategic Asset Allocation for current allocations.

The growth cycle remains hesitant:

Though the earnings cycle seemed to have bottomed out, the momentum is yet to pick up. Revenues have

been passable for last couple of quarters and the current quarter results do not show much promise either.

We have covered the same in detail in the later part of the monthly note but to give a heads up, Of the CNX

500 companies companies have published earnings numbers better than expected in Q3 FY 2015, 439

companies have disappointed as they fell short of the consensus estimates. Though the disappointment was

across the board, Healthcare and Financials sector has seen noticeable disappointments. Of the 85 Financials

companies in CNX 500, 34 companies published disappointing numbers. Other than Dr Reddy’s Labs, All the

other 15 Healthcare companies have earnings below consensus expectations.

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CNX Nifty Index PE Nifty Index PE > 24 Nifty 6 month Fwd Return (RHS) Debt Return (RHS)

24.06

March 2015 12


Union Budget Review

Fiscal consolidation relaxed a bit but quality of numbers good

States share of the gross tax revenues of

the central Government was raised from

32% earlier to 42% now. This negatively

impacted the Government’s fiscal space.

Under these constraints, the Government

has done well to present a fiscal

consolidation roadmap of 3.9%, 3.5% and

3.0% as the fiscal deficit target for the next

three years from 4.1% for FY15.

Tax growth assumption of 16% and

spectrum auction revenue of Rs420bn

(could be higher by approx. Rs80bn) leaves

room for positive surprise.

Subsidies are down 40bps YoY to 1.7% for

FY16. Financial inclusion program in-

tandem with UID should drive further

subsidy rationalisation going forward.

Initiatives at reviving investments

Central Government’s capex spend is up

25.5% YoY to US$39bn. We expect that the

states would also spend more (from the

higher share of taxes) and the gross

number should be higher.

Allocation for roads and railways capex is

up by US$2.3bn and US$1.6bn(33%

increase) respectively. Spend on DMIC

(Delhi Mumbai Industrial Corridor which

envisages creation of new industrial towns)

is slated to double to US$200m.

Clarification of tax issues should pave the

way for REITs and Infra trusts. These

coupled with Gold asset monetisation

schemes should help drive household

savings into productive assets.

A big step taken is the proposal to merge the

Forwards Markets Commission with SEBI to

reduce the volatility due to speculation in

Commodity Forward Markets and greater

control on capital flows in the form of Equity

Focus on social improvements / curb corruption

The Government’s flagship social schemes

including MNREGA will see a 12% rise in

FY16 spend to US$19bn.

Greater Government focus seems to be on

asset creation which is evident in plans to

build 60m houses by 2022 and 55m toilets.

3 new social security schemes have been

proposed. Those will offer pension, natural

death insurance and accidental death

insurance for rural poor.

The Government has proposed stringent

penalties (up to 10 years of rigorous

imprisonment) for tax evasion in relation to

foreign assets.

March 2015 13


Result Review Q3 2015

Technology

TCS is the only company which has fared marginally

better than the consensus estimates with an EPS of INR

29.16 (INR 28.54 consensus estimates) in technology

segment. Tech Mahindra too has just been on the

expectations mark with an EPS of INR 33.69 (INR 33.70

consensus estimates)

For all the other 3 major nifty tech companies the 3rd

quarter FY2015 numbers have been disappointing

, Wipro has missed the expectations by 9% with an EPS

of INR 8.07 (INR 8.85 consensus estimates)

Financials

State Bank of India has missed the earnings by 12% with

an EPS of INR5.13 (INR 5.85 consensus estimates)

whereas Bank of Baroda has missed the earnings by a

huge margin with an EPS of INR7.78 (INR 27.73

consensus estimates) with negative surprises not only

on asset quality front but also on credit growth front as

well.

Other major PSU bank has been Punjab National Bank

with an EPS of INR4.28 (INR 5.69 consensus estimates)

as miss of roughly 25% from the consensus. Private

bank has fared reasonably well as their results were in-

line, ICICI Bank with an EPS of INR4.99 (INR 5.06

consensus estimates) and Indusind Bank with an EPS of

INR 8.46 (INR 8.51 consensus estimates).

Energy

Cairn India’s results were below expectation by 22% as

its EPS was INR 7.2 (INR 9.18 consensus) for the

quarter.

Whereas, Reliance Industries missed the expectations

marginally with an EPS of INR 15.72 (INR 16.64

consensus).

Consumers

HUL has published its earning numbers which has been

fairly better than the consensus estimates with an EPS

of INR 5.79 (INR 5.02 consensus estimates).

ITC results were in-line with an EPS of INR 3.30 (IINR

3.38 consensus estimates).

Healthcare

Of the major 4 healthcare companies, Sun Pharma,

Lupin, Cipla and Dr. Reddy’s Labs other than Dr Reddys

all had disappointing Q3 earning numbers. Earnings

numbers for Sun Pharma were major disappointment

with an EPS of INR 8.89 (INR 6.9 consensus estimates).

Whereas, earnings numbers for Dr Reddy’s Labs were

in-line with the estimates with an EPS of INR 33.72 (INR

33.05 consensus estimates).

Auto and Auto-ancillaries

Q3 earnings numbers for Bajaj Auto were in-line with

the estimates with an EPS of INR 29.76 (INR 30.80

consensus estimates).

Whereas, Maruti Suzuki missed the expectations by

10% with an EPS of INR 26.55 (INR 29.46 consensus

estimates)

Metals and Mining

Sesa Sterlite surprised the street with an EPS of INR

5.35 (INR 4.38 consensus estimates).

Paints

Asian paints has missed the earnings by a huge margin

of 19% with an EPS of INR 3.68 (INR 4.54 consensus

estimates) main reasoning being the auto OEM

business which was affected by subdued consumer

demand.

March 2015 14


“Threadbare - A

Religare Invesco Mid N Small Cap Fund

Fund Manager: Vinay Paharia

(since May 2008)

Fund Objective:

Fund Style The fund shall primarily focus on the mid and

small cap stocks by following bottom up approach and the focus will primarily be on specific company rather than the industry in which that company operates.

Large

Medium

Small

Growth Blend Value

Portfolio Allocation Portfolio Behaviour Low Medium High

Asset Class Allocation Consistency with Fund Objective

Modified Portfolio Churn 0.51

NAV Fluctuation - (Std. Deviation) 32.37

Compensation for risk - (Sharpe Ratio) 0.73

Market Cap Allocation Responsive to benchmark - (Beta) 0.86

Correlation to Benchmark - (R-Squared) 0.97

Fund Managers out-performance - (Jensen's Alpha)

11.04

Consistency of out-performance - (Information Ratio)

1.20

Downside risk adjusted returns - (Sortino) 2.52

Equity

Debt

Cash

Others

Large Cap

Mid Cap

Small Cap

Others

March 2015 15


Top 10 Holdings

Top 10 Sectors

Company Name % Holding

Sector Name

% Holding

DB Corp Ltd 4.44

Bank – Private

11.57 Shriram Trans. Fin Co Ltd. 4.19

Printing And Publishing

6.53

ING Vysya Bank Ltd. 4.17

Finance - NBFC 5.38 Bharat Forge Ltd. 4.02

Plastic Products 5.35

Dish TV India Ltd. 3.90

Pesticides & Agrochem

4.35 Supreme Industries Ltd. 3.54

Cements

4.34

Voltas Ltd. 3.40

Castings/Forgings 4.02 HPCL 3.33

TV Broadcasting

3.90 City Union Bank Ltd. 3.23

Logistics

3.76 IDFC Ltd. 3.18

Air Conditioners

3.40

Multibagger Analysis

Portfolio Attributes

No of Stocks Multiples of Capital For Last 1 yr 2 yr 3 yr Ratio

Fund

0x-1x 8 21 23 Price to Earnings 22.80x

1x-2x 38 51 54 Price to Book Value 5.59x

2x-3x 18 7 16 Return on Equity 18.84%

3x-4x 3 5 9 Earnings Growth 25.56%

4x-5x 0 2 4 Dividend yield 1.05%

5x and Above 0 0 0s

Commentary:

The fund is growth biased and hence large proportion of the fund is invested in businesses where the intrinsic value is compounding at a pace faster than economic growth. The fund also invests about 10%‐25% of assets in small cap stocks with a favourable risk‐reward ratio. The fund follows their equity investment process very religiously as per our understanding from the discussion with the Fund Manager, Mr. Vinay Paharia and the analysis done on the monthly portfolios for last 5 years.

The fund mainly selects its stocks from the CNX Midcap and CNX Small cap indices. More, precisely companies whose market capitalisation lies between the market capitalisation of the highest and the lowest constituents of the CNX Midcap and CNX Small cap indices respectively adopting a bottom-up approach. While this may appear to be a limited universe, this fund house researches a fairly large number of stocks, with its research universe at 301 stocks.

The fund strays a good deal off the beaten track in its stock selection, relying to a great extent on filtering stocks by quantitative parameters, with a return on capital of over 15 per cent being a minimum bar.

Our take : As per consensus estimates on individual stocks held by the fund, the average earnings growth expected in FY16 is roughly 26%, whereas the Price to earnings multiples are at 23x as the Fund manager believes that quality and scalability is more important than cheap valuations. A high weighted average ROE of 18.8% depicts the capability to generate such high earnings growth estimated by the companies held by the Fund.

The Fund's market cap allocations lean towards mid-cap stocks, which made up anywhere between 61 and 80 per cent of the portfolio since last year, In June 2014 the allocation towards Mid cap was highest at 80%. The fund is overweight in mid-caps and under exposed to small-caps relative to its category. This may lead to some missed opportunities on returns as small-caps can soar faster in a bull run, but this leads to a better quality portfolio, as mid-caps usually have better fundamentals and protect downside better than the small-caps.

The fund also holds few large caps which have been bought when they have been in the midcap segment. For fresh investment ideas they strictly follow they there investment mandate to invest into companies which are constituents of CNX Midcap or CNX Smallcap.

March 2015 16


In the rising markets of 2010 and 2012, it beat its benchmark by 15% and 5%. When the category tumbled in 2011 this fund contained its losses to 19% against the 31% fall in the benchmark. In recent months, the fund has been overweight mainly on cyclicals such as financials and cement, and underweight in capital goods relative to its peers. However, the portfolio is well diversified within sectors adding a residual impact. The Fund has outperformed its benchmark by 15% per cent return in 2014, which signals this fund's active participation in the market rally.

Overall recommendation: Good to invest !

March 2015 17


Model Portfolio : Conservative

Conservative Market Cap wise (%)

Asset Class Sub-Asset Class Mutual Fund Schemes

Strategic

Tactical

Large cap Mid & Small cap

Others

Equity - - PMS - - Large Cap - - ICICI Pru Focused BlueChip Eq Fund - - 97.4 - 2.6

UTI Opportunities Fund - - 98.1 1.9 -

Mirae Asset India Opportunities Fund - - 80.5 12.2 7.3

Mid & Small Cap - - Religare Invesco Mid N Small Cap Fund - - 65.7 29.4 4.9

HDFC Mid-Cap Opportunities Fund - - 74.9 21.2 3.9

BNP Paribas Mid Cap Fund - - 62.3 35.6 2.2

Multi Cap - - L&T India Spl.Situations Fund - - 81.8 14.3 3.8

ICICI Pru Value Discovery Fund-Reg - - 74.8 16.3 8.9

Franklin India High Growth Cos Fund - - 65.2 32.2 2.7

Thematic / Sectoral Funds - - Equity Hybrid Funds - - Average

Maturity Years

Mod

Duration Years

YTM

(%)

Debt 90.0% 92.5% Short Term 30.0% 30.0% Axis Short Term Fund 10.0% 10.0% 2.1 1.7 8.7

Franklin India ST Income Plan 10.0% 10.0% 2.6 2.3 10.5

HDFC STP 10.0% 10.0% 2.0 1.6 9.7

Dynamic Bond Funds 30.0% 32.5% IDFC Dynamic Bond Fund-Reg 10.0% 10.8% 14.5 8.1 8.2

SBI Dynamic Bond 10.0% 10.8% 13.9 7.4 8.4

UTI Dynamic Bond Fund-Reg 10.0% 10.8% 5.2 NA NA

Income Funds 30.0% 30.0% DWS Premier Bond Fund 10.0% 10.0% 2.3 1.9 8.5

HDFC Income Fund 10.0% 10.0% 12.9 7.0 8.4

UTI Bond Fund 10.0% 10.0% 11.6 NA NA

Gilt - - Debt Hybrid Funds - -

Cash 5.0% 5.0% Liquid Funds - - Ultra Short Term 5.0% 5.0%

Gold 5.0% 2.5% Gold 5.0% 2.5% Total 100.0% 100.0%

0.0%

90.0%

5.0% 5.0%

Strategic Portfolio

Equity Debt Cash Gold

0.0%

92.5%

5.0% 2.5%

Tactical Portfolio


98.0

99.0

100.0

101.0

102.0

103.0

31-Dec-14 31-Jan-15 28-Feb-15

Conservative UCI Index

March 2015 18


Model Portfolio : Moderately Conservative

Mod Conservative Market Cap wise (%)


Strategic

Tactical


Others

Equity 25.0% 25.0% PMS - - Large Cap 25.0% 25.0% ICICI Pru Focused BlueChip Eq Fund 8.3% 8.3% 97.4 - 2.6

UTI Opportunities Fund 8.3% 8.3% 98.1 1.9 -

Mirae Asset India Opportunities Fund 8.3% 8.3% 80.5 12.2 7.3

Mid & Small Cap - - Religare Invesco Mid N Small Cap Fund - - 65.7 29.4 4.9

HDFC Mid-Cap Opportunities Fund - - 74.9 21.2 3.9

BNP Paribas Mid Cap Fund - - 62.3 35.6 2.2





Maturity Years

Mod

Duration Years

YTM

(%)



HDFC STP 10.0% 10.0% 2.0 1.6 9.7


SBI Dynamic Bond 10.0% 10.8% 13.9 7.4 8.4


Income Funds 5.0% 5.0% DWS Premier Bond Fund 1.7% 1.7% 2.3 1.9 8.5

HDFC Income Fund 1.7% 1.7% 12.9 7.0 8.4

UTI Bond Fund 1.7% 1.7% 11.6 NA NA

Gilt - - Debt Hybrid Funds - -

Cash 5.0% 5.0% Liquid Funds - - Ultra Short Term 5.0% 5.0%

Gold 5.0% 2.5% Gold 5.0% 2.5% Total 100.0% 100.0%

25.0%

65.0%

5.0% 5.0%

Strategic Portfolio


25.0%

67.5%

5.0% 2.5%

Tactical Portfolio


96.0

98.0

100.0

102.0

104.0

31-Dec-14 31-Jan-15 28-Feb-15

Mod Conservative UCI Index

March 2015 19


Model Portfolio : Balanced

Balanced Market Cap wise (%)


Strategic

Tactical


Others




Mid & Small Cap 15.0% 7.5% Religare Invesco Mid N Small Cap Fund 5.0% 2.5% 65.7 29.4 4.9

HDFC Mid-Cap Opportunities Fund 5.0% 2.5% 74.9 21.2 3.9

BNP Paribas Mid Cap Fund 5.0% 2.5% 62.3 35.6 2.2





Maturity Years

Mod

Duration Years

YTM (%)



HDFC STP 10.0% 10.0% 2.0 1.6 9.7


SBI Dynamic Bond 5.0% 6.7% 13.9 7.4 8.4


Income Funds - - DWS Premier Bond Fund - - 2.3 1.9 8.5

HDFC Income Fund - - 12.9 7.0 8.4

UTI Bond Fund - - 11.6 NA NA

Gilt - - Debt Hybrid Funds - 7.5% DSPBR Dynamic Asset Allocation Fund - 7.5% - - -

Cash - - Liquid Funds - - Ultra Short Term - -

Gold 10.0% 5.0% Gold 100.0% 100.0%

45.0%

45.0%

0.0% 10.0%

Strategic Portfolio


37.5%

57.5%

0.0%

5.0%

Tactical Portfolio


96.0

98.0

100.0

102.0

104.0

106.0

31-Dec-14 31-Jan-15 28-Feb-15

Balanced UCI Index

March 2015 20


Model Portfolio : Moderately Aggressive

Mod Aggressive Market Cap wise (%)


Strategic

Tactical


Others







Multi Cap 10.0% 6.7% L&T India Spl.Situations Fund 3.3% 2.2% 81.8 14.3 3.8

ICICI Pru Value Discovery Fund-Reg 3.3% 2.2% 74.8 16.3 8.9

Franklin India High Growth Cos Fund 3.3% 2.2% 65.2 32.2 2.7

Thematic / Sectoral Funds - - Equity Hybrid Funds - 3.3% Edelweiss Absolute Return Fund 3.3% Average

Maturity Years

Mod

Duration Years

YTM

(%) Debt 20.0% 43.0%

Short Term 20.0% 20.0% Axis Short Term Fund 6.7% 6.7% 2.1 1.7 8.7


HDFC STP 6.7% 6.7% 2.0 1.6 9.7

Dynamic Bond Funds - 5.0% IDFC Dynamic Bond Fund-Reg - 1.7% 14.5 8.1 8.2

SBI Dynamic Bond - 1.7% 13.9 7.4 8.4

UTI Dynamic Bond Fund-Reg - 1.7% 5.2 NA NA




Gilt - 0.0% Debt Hybrid Funds - 18.0% DSPBR Dynamic Asset Allocation Fund - 18.0% - - -

Cash - -

Liquid Funds - - Ultra Short Term - -

Gold 10.0% 5.0%

Gold 10.0% 5.0% Total 100.0% 100.0%

70.0%

20.0%

0.0% 10.0%

Strategic Portfolio


52.0% 43.0%

0.0% 5.0%

Tactical Portfolio


90.0

95.0

100.0

105.0

110.0

31-Dec-14 31-Jan-15 28-Feb-15

Mod Aggressive UCI Index

March 2015 21


Model Portfolio : Aggressive

Aggressive Market Cap wise (%)


Strategic

Tactical

Large cap Mid &

Small cap

Others







Multi Cap 30.0% 20.0% L&T India Spl.Situations Fund 10.0% 6.7% 81.8 14.3 3.8

ICICI Pru Value Discovery Fund-Reg 10.0% 6.7% 74.8 16.3 8.9

Franklin India High Growth Cos Fund 10.0% 6.7% 65.2 32.2 2.7

Thematic / Sectoral Funds - - Equity Hybrid Funds - 10.0% Edelweiss Absolute Return Fund 10.0% Average

Maturity Years

Mod

Duration Years

YTM

(%)

Debt - 20.0% Short Term - - Axis Short Term Fund - - 2.1 1.7 8.7

Franklin India ST Income Plan - - 2.6 2.3 10.5

HDFC STP - - 2.0 1.6 9.7

Dynamic Bond Funds - 5.0% IDFC Dynamic Bond Fund-Reg - 1.7% 14.5 8.1 8.2

SBI Dynamic Bond - 1.7% 13.9 7.4 8.4

UTI Dynamic Bond Fund-Reg - 1.7% 5.2 NA NA




Gilt - - Debt Hybrid Funds - 15.0% DSPBR Dynamic Asset Allocation Fund - 15.0% - - -

Cash - - Liquid Funds - - Ultra Short Term - -

Gold 10.0% 5.0% Gold 10.0% 5.0% Total 100.0% 100.0%

75.0% 20.0%

0.0% 5.0% Tactical Portfolio


90.0%

0.0% 0.0% 10.0%

Strategic Portfolio


90.0

95.0

100.0

105.0

110.0

31-Dec-14 31-Jan-15 28-Feb-15

Aggressive Nifty

March 2015 22


Citadelle Growth Opportunities Portfolio Company Name

% Allocation

Recommended Price

Market price

% Incr/Decr

Rationale Result Update

Axis Bank Ltd. 5% 502.05 613.40 22%

Axis Bank is geared up to ride the next growth cycle with strong capitalization (12.6% Tier I), healthy ROA (1.7%) and expanding liability franchise (2,505 branches). Leveraging on the strong distribution network AXSB increased the share of retail deposits and CASA increased to 79% as compared 59% in FY11. It has delivered stable numbers with improving margins though economy was at a recovery mode. We remain confident of bank’s ability of strengthening its retail franchise further.

Axis Bank delivered decent set of numbers with spike in credit uptick, stable margins and credit costs within expected lines. It reported strong trends (a) Loan growth picked up (+8% QoQ and +23% YoY) led by strong growth in retail (+10% QoQ and +24% YoY) and Mid/Large corporate segment (+10% QoQ and 25% YoY), (b) fees growth picked up to 16% YoY (1H-10%) led by retail fees (+50% YoY, 30% in 1H).

Bharat Forge Ltd.

5% 942.30 1253.60 33%

It is global leader in forging business having transcontinental presence across India, Germany and Sweden, serving several sectors including automotive, power, oil and gas, etc. CV business will benefit from pre-buying in US before emission norm changes and strong cyclical recovery in India. This coupled with scale-up in PVs would drive strong growth in Auto segment.

Net revenue grew by ~44% YoY to ~INR11.9b (v/s est. INR10.5b), driven by 53% growth in exports (led by ~122% growth in US) and ~24% growth in domestic revenue. Non-auto revenue grew 69% YoY to ~INR5.8b (~48% of revenue). EBITDA margin expanded 440bp YoY (+170bp QoQ) to 30.2% (v/s est. 28.2%), driven by RM cost savings and benefit of operating leverage. Adj. PAT grew 109% YoY (~11% QoQ) to ~INR1.96b (v/s est. ~INR1.59b).

Crompton Greaves Ltd.

5% 187.65 176.85 -6%

Crompton Greaves is part of the USD4b Avantha Group, and is a global leader in the management and application of electrical energy Crompton Greaves is aggressively focusing on increasing exports and leveraging the Indian manufacturing base.

Standalone results have been stable (EBIDTA margins at 8.7% and EPS of INR2/sh), while disappointment continues to be the overseas business (EBIDTA level loss, despite EUR revenues up 8.4% YoY; resulting in continued PAT loss of INR1.2b).

Dewan Housing Fin Corpn Ltd.

5% 395.15 493.50 25%

Dewan Housing is a good play on Tier 2 and Tier 3 cities housing demand growth. Strong visibility on business growth and margins, superior asset quality, healthy provision cover and healthy return ratios augurs well for Dewan Housing.

DHFL delivered strong earnings growth (28% YoY) on the back of healthy NII growth (37% YoY). High loan growth (28% YoY) and NIM expansion due to higher share of debt market borrowings are key drivers.

Eicher Motors Ltd.

5% 15103.50 16226.6 7%

Eicher Motors is a leader in Cruise bikes in India and No.2 player in Medium Commercial Vehicles. The management has increased its production target to 280,000 units in CY2014 (from 250,000 units) and is expected that demand can reach 500,000 units in 3-4 years. Eicher Motors will invest Rs. 6 bn over the next two years in the Royal Enfield business to expand capacity in the Oragdum plant.

Consolidated operating performance was above estimate driven by a beat in EBITDA margin to 13.2% (v/s est. 12.6%). EBITDA was at INR3.03b (v/s est. INR2.8b) driven by strong VECV performance but diluted by weaker RE performance. Tax rate was higher at 29.4% (v/s est. 25.8%), resulting in PAT of INR1.54b (v/s est. INR1.6b), growth of 60% YoY (-7% QoQ).

Gujarat Pipavav Port Ltd.

5% 206.50 217.45 5%

GPPV is favorably positioned on the West coast which enables access to the global trade route/rich northern hinterland. Strong parentage and robust evacuation further provides comfort. GPPV is expanding its container handling facility from 0.8m TEUs to 1.35m TEUs, which would be key driver of volume growth. In addition, higher throughput of liquid volume (2m tons capacity) would aid volume growth.

Not yet announced

HDFC Bank Ltd. 5% 952.00 1076.00 13%

HDFC Bank is best-placed in the current environment, with a CASA ratio of ~45%, growth outlook of at least 1.3x of industry and least asset quality risk.

Not yet announced

Hero MotoCorp Ltd.

5% 3103.40 2869.55 -8%

Strong franchise of Splendor & Passion, and wide distribution reach makes it best placed to tap strong demand growth, especially in rural markets. It is targeting exports of 1m units over by FY17 Post split from Honda, Hero MotoCorp is free to tap global opportunity in 2W.

Not yet announced

IndusInd Bank Ltd.

5% 802.55 871.00 9%

IndusInd Bank Ltd is one of the new generation private sector banks in India. Asset quality performance remains healthy, despite a challenging environment and significant slowdown in the CV segment. The management expects that the worst for CV financing is behind and gradual improvement is likely to be seen in coming quarters

We believe that IndusInd Bank has the potential to grow faster than the industry and strengthen its market share as it expands its network.

Kotak Mahindra Bank Ltd.

5% 1263.15 1320.85 5%

Kotak Mah. Bank is one of the fastest growing bank. Merger with ING Vysya Bank will be BV accretive for Kotak Mah. Bank at standalone and consolidated level. Merger places Kotak Bank in a sweet spot for the next growth cycle with strong presence across geographies, expertise in key product lines and continued healthy capitalization.

Kotak Mahindra Bank’s 3QFY15 consolidated PAT missed our estimate by 18%. While banking business’ profits were in line with consensus estimates, aided by strong loan (+22% YoY) and fees (+45% YoY in 3Q/9M) growth, continued competitive pressure on other businesses (EPS INR 9.29) impacted overall profitability (est. EPS of INR 11.3).

Larsen & Toubro Ltd.

5% 1496.50 1700.10 14%

L&T is well placed to capitalize on long-term infrastructure demand. L&T's order inflow prospects is expected to double from last year's level, to US$75bn. L&T’s preparedness to exploit the evolving India defence opportunity. The stock's underperformance vs. the BSE Sensex.

Not yet announced

Lupin Ltd. 5% 1427.55 1584.35 11%

Lupin is amongst the larger pharma companies that is actively targeting the regulated generics markets. Strategy of focusing on niche, low-competition products for the US market likely to benefit in the long run. US generics is expected to grow 20-22% due to a rich generic pipeline.

Not yet announced

Maruti Suzuki India Ltd.

5% 3328.30 3645.25 10%

Maruti is the best auto OEM play on macro-economic recovery in India. Following flat volumes for the past four years, we expect car sales to bounce back, led by high pent-up demand, economic recovery, and deceleration in car ownership costs. Maruti’s strong product pipeline, coupled with lower competitive intensity, should help it consolidate its leadership.

Maruti Suzuki (MSIL) Q3FY15 results surprised positively at operating level as adjusted EBITDA margin surpassed 13% on softer RM costs. MSIL continued to outpace industry growth and gain market share which stood at 45% during 9MFY15. We believe this trend to continue for some time until industry growth normalizes.

March 2015 23


Company Name

% Allocation

Recommended Price

Market price

% Incr/Decr


Gujarat Pipavav Port Ltd.

5% 206.50 217.45 5%

GPPV is favorably positioned on the West coast which enables access to the global trade route/rich northern hinterland. Strong parentage and robust evacuation further provides comfort. GPPV is expanding its container handling facility from 0.8m TEUs to 1.35m TEUs, which would be key driver of volume growth. In addition, higher throughput of liquid volume (2m tons capacity) would aid volume growth.

GPPV reported 4QCY14 revenues of INR1.9b, up 27% YoY, but marginally lower than estimate of INR2b. This was led by lower container volume growth, but higher bulk cargo growth leading to marginally impacting overall realisation. Higher proportion of bulk cargo also led to operating cost increase and EBIDTA stood at INR1bm lower than estimate of INR1.3b. EBIDTA margin for the quarter thus stood at 54.5%, vs 56.4% QoQ and 57.5% YoY. Reported PAT thus stood lower at INR893m, vs estimate of INR1.2b.E

HDFC Bank Ltd. 5% 952.00 1067.85 12%

HDFC Bank is best-placed in the current environment, with a CASA ratio of ~45%, growth outlook of at least 1.3x of industry and least asset quality risk.

HDFC Bank's (HDFCB) 3QFY15 PAT grew 20% YoY (in-line) to INR28b. Strong trading gains (INR2.7b) were utilized to make provisions (PCR +120bp QoQ to 73.9%). NIMs declined 10bp QoQ to 4.4%. Momentum in fee income (+15% YoY) continued to improve (+9% YoY in 1Q and +13% YoY in 2QFY15) Other highlights: (1) NSL remains lowest at 36bp (2) Loan growth (+17% YoY) was also helped by strong growth in wholesale segment (+8% QoQ and +22% YoY) (3) Opex growth (+19% YoY) continue to lag/grow inline revenue growth (+21% YoY)

Hero MotoCorp Ltd.

5% 3103.40 2682.65 -14%

Strong franchise of Splendor & Passion, and wide distribution reach makes it best placed to tap strong demand growth, especially in rural markets. It is targeting exports of 1m units over by FY17 Post split from Honda, Hero MotoCorp is free to tap global opportunity in 2W.

Sales was down 1%yoy as volumes declined 2%yoy. EBITDA margin declined to 12.1% as staff cost rose 11%qoq (+30%yoy) with starting of commercial production at Neemrana facility and festive bonus to employees. Marketing/Advt. spend was higher due to signing up Tiger Woods for a four year contract as part of global branding strategy. Also, the company is the title sponsor Indian Football League which is played during the quarter. Going forward as well Q3 will continue to have higher marketing spend due to these factors. PAT was up 11%yoy due to royalty phase out.

IndusInd Bank Ltd.

5% 802.55 915.95 14%

IndusInd Bank Ltd is one of the new generation private sector banks in India. Asset quality performance remains healthy, despite a challenging environment and significant slowdown in the CV segment. The management expects that the worst for CV financing is behind and gradual improvement is likely to be seen in coming quarters

We believe that IndusInd Bank has the potential to grow faster than the industry and strengthen its market share as it expands its network.


5% 1263.15 1320.85 5%




5% 1496.50 1700.10 14%


Not yet announced

Lupin Ltd. 5% 1427.55 1584.35 11%


Not yet announced

March 2015 24


Company Name

% Allocation

Recommended Price

Market price

% Incr/Decr



5% 1263.15 1397.40 11%




5% 1496.50 1766.90 18%


Revenues at INR150b (up 7% YoY, vs est of INR152b) and adj EBIDTA at INR15.7b (down 2% YoY, vs est of INR17b). Adj profits (excluding subsidiary dividend) is down 2.6% YoY. Reported earnings have been impacted by increased interest costs, partly on actuarial valuations (decline in bond yields) and higher borrowings (INR28b).

Lupin Ltd. 5% 1427.55 1746.95 22%


Lupin (LPC) 3Q PAT at INR 6b (+26% YoY) beat est. solely due to fx gains (INR 169m) & lower taxes (28% vs 31% est.) as operational results were in line. Sales at INR 31.4b (+5% YoY, 5% miss) disappointed on fewer new launches in US. However, EBITDA at INR 8.5b was largely in line on continued margin surprise (27% vs 26.3% est.).

Maruti Suzuki India Ltd.

5% 3328.30 3618.25 9%

Maruti is the best auto OEM play on macro-economic recovery in India. Following flat volumes for the past four years, we expect car sales to bounce back, led by high pent-up demand, economic recovery, and deceleration in car ownership costs. Maruti’s strong product pipeline, coupled with lower competitive intensity, should help it consolidate its leadership.

Maruti Suzuki (MSIL) Q3FY15 results surprised positively at operating level as adjusted EBITDA margin surpassed 13% on softer RM costs. MSIL continued to outpace industry growth and gain market share which stood at 45% during 9MFY15. We believe this trend to continue for some time until industry growth normalizes.

Thermax Ltd. 5% 1067.65 1151.95 8%

Thermax is benefiting from few structural trends: (1) energy shortages and inconsistent availability of power, driving demand for energy efficiency products, (2) hunt for alternative energy, given demanding regulations and improving viability, (3) increased environmental concerns and stringent regulatory intervention, (4) currency depreciation leading to increased possibilities of exports etc. Thermax is likely to report acceleration in revenue growth, driven by improvement in GFCF particularly in base industries) and interplay of several structural trends.

Earnings at EPS of INR 6.40 were roughly in-line with consensus estimates (EPS of INR 6.70) with revenues at INR11.5b, up 13% YoY (estimate of INR11.2b) and EBIDTA margins at 11.5%, up 250bps YoY (meaningfully above estimates of 10.5%).

March 2015 25


Company Name

% Allocation

Recommended Price

Market price

% Incr/Decr


PVR Ltd. 5% 703.10 665.20 -5%

India’s largest and fastest growing multiplex chain with 23-25% bollywood market share and 33-35% Hollywood market share. Movie screening is an under-penetrated business in India and we believe PVR will be the biggest beneficiary of revival in discretionary spends.

Earnings came in 25% above expectation on higher EBITDA and lower tax rate of 1%, versus our expectation of 5%. Revenue of Rs4.2bn (+24.6% yoy) was in line.

Shree Cement Ltd.

5% 9412.10 10822.55 15%

Shree Cement is one of the most cost efficient cement producers in India. Shree Cement is the largest single-location integrated cement plant in North India, with an installed capacity of 13m ton.

Net sales at Rs16.05 bn (+28.7% yoy, -2.8% qoq) was in-line with consensus estimate of Rs16.21 bn. Also, EBITDA at Rs3.37bn (+35% yoy) in line with estimate. Expansion plans of 4mtpa on track (2mt in Raipur and Uttar Pradesh each). We believe that the new capacities would help the co. to continue its growth momentum, which has already been above industry growth rate (14% in FY14 against industry growth rate of 3-4%).

Tech Mahindra Ltd.

5% 2591.55 2865.00 11%

Satyam's acquisition will help Tech Mahindra to diversify its client base and industry focus. Large deals like those of KPN and a gradual revival in the telecom vertical will help volume growth. Deals have kept growth coming (outside the BT account) despite challenged IT budgets in the telecom vertical.

Result for Tech Mahindra has been in-line with an EPS of INR 33.69 (INR 33.70 consensus estimates). EBITDA margin of 20.2% is also in line with consensus estimate of 20.3%.

TVS Motor Company Ltd.

5% 268.30 277.95 4%

TVS is well positioned to benefit from the scooterization wave with its complete scooter portfolio. With international presence in more than 50 countries in Asia, Africa and Latin America it plans to launch multiple products across segments to reinforce and fill gaps in portfolio in next 2 years.

Net sales grew 38.9% YoY (-1.1% QoQ) to INR26.5b (est. INR25.9b) driven by volume growth of 23% YoY (- 3% QoQ) to 655,571 units (est. 653,000 units). Realizations rose by 4.9% YoY (2% QoQ) to ~INR40,495 (v/s est. ~INR39,733), driven by higher contribution of Motorcycles and 3Ws. EBITDA margin was flat YoY, down 10bp QoQ to 6% (v/s est. 6.3%). PAT grew ~31% YoY (-4.9% QoQ) to ~INR902m (v/s est. ~INR943m).

Ultratech Cement Ltd.

5% 2671.25 3137.40 17%

Ultratech is the largest cement company with pan-India presence. It has potential to increase its output without incurring major capex by increasing utilization and blending, along with locational advantage, gives it the flexibility to either export or sell in the domestic market. Significant potential to increase output by increasing blending. Allied businesses of white cement and RMC lend stability to overall performance.

Earnings at EPS of INR 13.28 were way below the consensus estimates (EPS of INR 15.75) Earnings miss partially attributed to lower RMC revenue. We expect double-digit cement demand growth next year with the Indian government's oil related savings translating into higher investments in national highways, rural roads, rural and urban housing and railways (driving >70% of the cement demand). We believe Ultratech is the best proxy to participate in a potential cement upcycle.

March 2015 26


Company Name

% Allocation

Recommended Price

Market price

% Incr/Decr


VA Tech Wabag Ltd.

5% 1474.80 1750.15 19%

VA Tech Wabag (VATW) is one of the leading players in water treatment industry, is attempting to expand into new geographies, including South East Asia, Sub-Sahara Africa, LatAm, Central Asia, etc. In FY14, the company received initial orders in Nepal, Tanzania, etc which also opens up interesting growth possibilities to ramp-up the business. Order intake in overseas subsidiaries has increased from INR6-7b in FY12-13 to INR16.4b in FY14

Consolidated revenue grew 5% YoY to INR6.2b, supported by 9% YoY increase in subsidiary revenue to INR3.3b. Standalone revenue remained flat YoY at INR2.9b. Consolidated adjusted EBITDA declined 5% YoY to INR423m led by INR 100m of provisions related to liquidity damages for Al Gubra project due to execution delaysand increase manpower cost in Istanbul because of increased O&M order inflows. Consolidated PAT declined 36% YoY to INR138m because of higher tax provisioning at subsidiary level in order to comply with local tax regulations.

Citadelle Growth Opportunities Portfolio Current Asset Allocation

Equity Cash

111

107

95

100

105

110

115

31

-Dec

-201

4

12

-Jan

-20

15

24

-Jan

-20

15

05

-Feb

-20

15

17

-Feb

-20

15

Citadelle Growth Opportunities Portfolio Performance

Citadelle Growth Opportunities Portfolio NAV Nifty Index

28

-Feb

-20

15

Alpha Edge | But dance near the door!

Thank you for your time !

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March 2015 27

Economy & Finance

Alpha edge - March 2015