Capital Efficient

MOMENTUM PICK
Large Opportunity Pie

Capital Compounders

ICICI Securities – Retail Equity Research

Growth Consistency

Proven Track Record

ICICI Securities Ltd. | Retail Equity Research 1

Biggest risk in today’s market is not being there in the market

MOMENTUM PICK
Nifty 50
Nifty 50thorugh
throughthe years
the years
16000 US China
trade war
Covid
crash
14000
Slowdown in
China, Demonetisation
12000 devaluation of
Yuan

10000 Change in
Downgrade in Indian
US credit Government
ratings
8000 Subprime
crisis

ICICI Securities – Retail Equity Research

6000

4000

2000

Source: NSE, Company, ICICI Direct Research

March 24, 2021 ICICI Securities Ltd. | Retail Equity Research 2
Nifty shifting orbits …

MOMENTUM PICK
Nifty currently trades at a PE of ~32x (based on FY20 EPS) and at a PE of ~38x on Trend in Sectoral Weightages in Nifty
Trailing Twelve Months (TTM) basis, thereby helping build the public opinion that
the broader markets are highly euphoric and running ahead of fundamentals. We Sectors/Year Mar-09 Mar-14 Mar-19 Dec-20
however dispel this notion, as we logically derive that present absolute PE Financial Services 11.8 27.5 38.9 38.8
multiples make little sense especially when we had a blip in corporate earnings in IT 9.1 16.3 13.7 16.3
the recent past due to the Covid pandemic and are staging an impressive earnings Oil & Gas 40.7 14.3 15.3 12.5
CAGR (24%+ over FY21-23E) ahead of us. FMCG 6.4 12.6 11.3 11.5
Automobile 3.3 8.8 6.1 5.4
Our key focal points:
Pharmaceuticals 2.5 5.2 2.4 3.6
(i) Nifty constituents have undergone major change in past decade. The weights Metals 5.4 4.8 3.7 2.5
of capital efficient sectors such as FMCG, Financials (private banks), IT and Telecom 9.8 1.7 1.5 2.0
Pharma have increased from 29% in March 2009 to 70% in December 2020.

(ii) These sectors command higher PE multiples as markets prefer Earnings Target PE of few individual constituents based on FY23EPS

ICICI Securities – Retail Equity Research

visibility and consistency
Nifty Stocks Target PE (x) Nifty Stocks Target PE (x) Nifty Stocks Target PE (x)
(iii) Better performing business segments within existing companies is not Adani Ports 16.0 SBI Life 45.3 HDFC Bank Ltd 19.3
captured by current PE. Companies like L&T, SBI etc. have multiple business Asian Paints Ltd 58.2 Titan Co. 58.0 Reliance Industries 17.7
lines and hence SoTP (Sum of the parts) based valuations of these names are Bajaj Auto Ltd 18.9 Tata Steel 9.2 TCS 29.4
not captured by the PE ratio alone. Bajaj Finance Ltd 46.5 Sun Pharma 21.9 Divis Lab 40.0
Bharti Airtel Ltd 32.3 NTPC Ltd 5.4 Axis Bank Ltd 17.5
Dr Reddy's 26.0 Maruti 28.0 Shree Cement 39.8
Nestle India Ltd 63.3 Indusind 37.2 ITC Ltd 17.0
Infosys Ltd 25.4 Britannia 44.5 Grasim Industries 34.7

Overall Nifty PE 26.2

March 24, 2021 ICICI Securities Ltd. | Retail Equity Research 3

FII inflows at historical high, market sentiments bouyant…
FII Inflows/Outflows (2020)
January 12123 100 % of stocks above 200 SMA Nifty 500
February 1820
10400

MOMENTUM PICK
March -61973 80
April -6884 8400
May 14569 60
June 21832 6400
July 7563 40
4400
August 47080
September -7783 20 2400
October 19541
0 400
November 60358
December 62016
January (till
23630 Greater than 90% of the NSE500
26th Jan 2021)
FII Inflow s/Outflow s stocks are trading above their 200
2020 170262
SMA. This has never happened in
2019 101122 previous bull runs. This highlights
broad based participation and

ICICI Securities – Retail Equity Research

2018 -33014 15000
2017 51252 Nifty at all-time high clearly indicates strong market sentiments.
2016 20568 13000 improvement of sentiments
2015 17808
2014 97054 11000
2013 113136
9000
2012 128360
2011 -2714 7000
2010 133266
2009 83424 5000
2008 -52987
2007 71487 3000
2006 36540
1000
2005 47181
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
Jul-19
Jan-20
Jul-20
2004 38965
2003 30459
2002 3630

Source: NSE, NSDL, ICICI Direct Research

March 24, 2021 ICICI Securities Ltd. | Retail Equity Research 4
Positive conditions for a broad based market rally…

Interest rates at all time low Asset quality concerns peaked out
10
India 10 Year G-Sec Yield %
12

MOMENTUM PICK
10.8
10.3
9
10 9.0
8.5 8.5
7.6 7.8
8 8

(%)
7 6
(%)

4.6
3.8
4 3.1 3.2
6 2.2 2.3 2.6 2.5
2
5
0

Sep-20

Sep-20
Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20
4
Nov-2011

Aug-2014
Nov-2014

Aug-2017

Aug-2019
Mar-2018

Mar-2020
Apr-2011

Apr-2013

Sep-2015

Apr-2016
Dec-2010

Dec-2015

Dec-2017

Dec-2019
Feb-2012

Feb-2015

Feb-2017

Jun-2018
Jun-2015
Jan-2013

Jan-2014

Jan-2019
Jul-2011

Oct-2012
May-2012
Jul-2012

Jul-2013
Oct-2013

Jul-2016
Oct-2016

Oct-2018
May-2014

May-2017

May-2019

Jul-2020
Oct-2020
Corporate debt at lowest levels

ICICI Securities – Retail Equity Research

Historical GDP growth rate of India
Industry loans as % to total
50 15.0
45.1 45.8 45.6 11.0
44.2 44.3 10.3
45 42.8 10.0 8.0 8.3
6.6 7.4 7.0 7.0
6.4 6.1

%
39.5 5.5
40 4.2
5.0
36.6
(%)

35 33.5 -
32.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
29.9
30 (5.0)

25 (10.0) Real GDP growth rate (Annual % change) (7.7)

Nov-10

Nov-12

Nov-13

Nov-14

Nov-15

Nov-17

Nov-18

Nov-20
Nov-11

Nov-16

Nov-19

Source: NSE, RBI, IMF, WorldBank, ICICI Direct Research

March 24, 2021 ICICI Securities Ltd. | Retail Equity Research 5
Capacity utilisation trend for core sectors

MOMENTUM PICK
Steady demand from core industries should improve capacity utilisation in steel sector Focus on infrastructure to provide headroom for cap utilisation levels in cement sector

Steel Capacity utilisation Capacity utilisation (%)

82%
80
80%
78%
75
76%
74%
70

ICICI Securities – Retail Equity Research

72%
70%
65
68%
66%
60
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Capacity utilisation Capacity utilisation (%)

Source: Company, ICICI Direct Research

March 24, 2021 ICICI Securities Ltd. | Retail Equity Research 6
In long term, all market cap types & sectors have performed…

450% 392%
400% 360% Performance between 2009-2015
Broader Indices 1 year 3 year 5 year 10 year
350%

MOMENTUM PICK
Nifty 50 16.6% 26.3% 86.0% 155.3% 300% 277% 266%
231%
Nifty 100 16.1% 23.2% 85.1% 161.9% 250% 210%
189% 178% 173%
200%
Nifty midcap 100 16.4% -0.2% 69.5% 168.0% 150%
100% 77%
Nifty smallcap 100 14.8% -19.9% 44.1% 101.8% 44%
50% 16%
0%
-50%
-34%
-100%

NSEINFR Index
NSEPHRM Index

NSEFIN Index

NSEBANK Index

NSEMCAP Index

Nifty Index
SENSEX Index
NSEIT Index

NSESMCP Index

NSEMET Index

NSEREAL Index
NSE100 Index

NSENRG Index

ICICI Securities – Retail Equity Research

Sectoral Indices 1 year 3 year 5 year 10 year 250% 231% Performance between 2015-2020
Nifty Realty -4.3% -10.2% 103.4% 6.5% 198% 191%
200%
Nifty Bank -0.5% 11.3% 99.9% 187.7% 172% 170% 169% 167% 162% 153%
Nifty Metal 20.6% -23.0% 91.6% -25.6% 150% 136%
122% 117% 114%
Nifty Financial Services 4.2% 31.2% 131.3% 254.6%
100%
Nifty Energy 7.9% 15.3% 95.7% 88.6%
Nifty Infra 13.5% 3.2% 53.8% 23.7% 50%
Nifty IT 57.4% 95.2% 128.7% 270.8%
Nifty Pharma 49.0% 30.4% 6.9% 167.6% 0%

NSEMCAP

NSEINFR Index
NSESMCP
NSEFIN Index

Nifty Index

NSEBANK Index
SENSEX Index

NSEMET Index
NSEIT Index

NSEREAL Index

NSEPHRM
NSE100 Index
NSENRG Index

Index

Index
Index
Source: Bloomberg, ICICI Direct Research
March 24, 2021 ICICI Securities Ltd. | Retail Equity Research 7
Favorable government policies

MOMENTUM PICK
Capex plan under National Infrastructure plan PLI scheme boost for favorable domestic manufacturing

25 Annual phasing of investment under NIP S e c tors Es tima te d Ex p (| c rore )

21.5 21.3
Mobile phone manufacturing 47240
20
6.0 6.2 16.5 15.4 API & others 6940
14.4 14.4
Manufacturing of Medical devices 3420
(| Lakh Crore)

15 13.2
4.2 3.6
4.6 4.0
4.4 4.7 9.0
1.9 Advanced Cell Chemistry Battery 18100
2.3 2.2 1.6
10 2.6 3.1
3.0 3.3 2.7 2.2 1.7 Electronic/Technology products 5000
1.3 3.8 1.7 3.6 2.5 2.4 3.3 Automobiles & Auto Components 57042
5
3.3 3.0 4.7 5.0 4.7 Pharmaceutical Drugs 15000

ICICI Securities – Retail Equity Research

4.4 4.4
2.3 1.7
0
Telecom & Networking products 12195
FY20 FY21 FY21IDE FY22 FY23 FY24 FY25
Textile products 10683
Energy & Power Roads Railways Urban & Housing Others Food products 10900
High Efficiency Solar PV Modules 4500
White Goods (Acs & LED) 6238
Specialty Steel 6322
Total 203580

Source:: Budget Documents, Media reports, ICICIDirect Research

8
What we will not touch: stocks and sectors impacted by
disruption
Declining trend in Li-ion battery costs Renewable capacity in India

Renewable capacity

MOMENTUM PICK
1,000 917
Advancements in battery technology & scale 95000 91153
benefits through higher EV adotion has driven 89229
800 721 90000 87027
663 battery costs lower globally
588 85000
600
US$/kWh

381 80000 77641

400 293
219 75000
180 156 69022
135 70000
200
65000
0
60000
2011

2012

2014

2015

2016

2017

2018
2013

2019

2020
55000
Li-ion battery costs
50000
2018 2019 2020 Sep-20 Dec-20

ICICI Securities – Retail Equity Research

Countrywide PLFs for thermal power plants

Plant load factor (Coal & Lignite)

77.5 75.1
80.0 73.3
69.9
70.0 65.6 64.5 62.3 59.9 60.7 61.1
56.0
60.0 50.8
50.0

40.0

30.0

Source: BNEF.com Statista,CEA, ICICI Direct Research

March 24, 2021 ICICI Securities Ltd. | Retail Equity Research 9

Capital Compounders – Quality & Growth

Quality businesses with proven track record of consistent performance and top notch management pedigree is one of

MOMENTUM PICK
the key parameters that sets the base for our portfolio. Headroom for growth and capital efficiency are other key
aspects that we give significant importance to.

Quality businesses with industry leading products,

refined & efficient business models, robust balance
sheet and still having a large headroom for growth

In the second, phase focus on scale and

ICICI Securities – Retail Equity Research

profitable growth assumes centre stage
coupled with efficient allocation of capital
becoming a cornerstone for long term
structural growth

Capitalising on the first mover advantage by

identifying areas that provide huge scope of
growth and built around business across the
same

March 24, 2021 ICICI Securities Ltd. | Retail Equity Research 10

Key attributes which are common across Capital Compounders

Apart from capital efficiency and consistency of earnings growth, below are some other attributes of Capital Compounders

MOMENTUM PICK
Robust business model Large opportunity pie

Industry Leading products Top-notch management

Capital

ICICI Securities – Retail Equity Research

Compounders
Superior return ratios Proven historical track
record

Consistent growth in
Low risk earnings

March 24, 2021 ICICI Securities Ltd. | Retail Equity Research 11

About the portfolio

Investment Strategy

MOMENTUM PICK
The investment objective of the Capital Compounders portfolio is to achieve long term stable capital appreciation from a
portfolio that is predominantly invested in large cap companies. The recommended companies in the portfolio have an
established business model, a strong balance sheet, quality management and have delivered superior capital efficiency ratios
over a period of time, with the aim of minimising risks in the portfolio.

Some Examples of companies in our portfolio

Over the last ten years company has consistently grown revenue, PAT at a CAGR of 11%, 14%
respectively, overcoming several economic challenges such as Demon, GST etc. The company has
increased its manufacturing capacity by ~50% in the last three years without taking any debt. As a
result, company’s return ratios - RoE, RoCE has remained strong at 27% and 30%.

ICICI Securities – Retail Equity Research

HDFC Bank, largest bank in India by market capitalization, has delivered consistent performance across
parameters since more than a decade. Adopting focussed lending approach, advances growth
consistently remained ahead of industry at 20-22% CAGR in last decade. Continued branch addition
and investment in digital banking kept liabilities franchise to be superior with CASA ratio ahead of 40%.

Trent’s Westside division has delivered a healthy performance with consistent SSSG (8-10% over the
last seven years) and higher share of private label portfolio (99%) yielding superior gross margins.
Trent’s value fashion brand Zudio, has grown multi-fold from | 144 crore in FY18 to | 507 crore as on
FY20, translating into robust CAGR of 88%.

March 24, 2021 ICICI Securities Ltd. | Retail Equity Research 12

Our investment philosophy

Constructed applying bottom up style of investing methodology.

MOMENTUM PICK
Its key parameters include:

• Capital efficient businesses (subjective) with well defined path of higher return ratios in future. Expansion of sustainable
ROCE.
• Robust growth prospects
• Low on debt & leverage
• Sound Financials; healthy B/S, positive cash generating businesses
• Run exhaustive check in terms of management pedigree and other corporate governance parameters
• Time horizon – We believe stocks show reasonable performance over 3-5 years

ICICI Securities – Retail Equity Research

• Valuation - We do not follow necessarily a contrarian approach, so we do not aim to buy cheapest stock and sell expensive
stocks. Stocks are cheap and expensive for a reason
• Robust balance sheet, here the income growth should be faster than the balance sheet growth
• Other Criteria
a) Universe of 15-20 companies
b) No sector will be more than 35% of the portfolio
c) Individual stocks should not be more than 10% and less than 3% of portfolio while investing

March 24, 2021 ICICI Securities Ltd. | Retail Equity Research 13

Portfolio Composition

MOMENTUM PICK
Capital Compounders portfolio focuses on well-established businesses from diversified sectors

Portfolio composition Portfolio Sectoral Mix

4%
12%

4%
24%

47%

ICICI Securities – Retail Equity Research

13%
53%

4%
5%
4%
4%

9% 16%
Large-cap Midcap
Auto BFSI Cement
Chemicals Consumer Durables IT
Logistics Oil & Gas Pharma
Real Estate Retail

14
March 24, 2021 ICICI Securities Ltd. | Retail Equity Research
 MOMENTUM PICK
ICICI Securities – Retail Equity Research
Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC
Andheri (East)
Mumbai – 400 093
[email protected]
 Disclaimer

ANALYST CERTIFICATION

MOMENTUM PICK
I/We, Pankaj Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our
views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s)
or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in
the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial
products. ICICI Securities is Sebi registered stock broker, merchant banker, investment adviser, portfolio manager and Research Analyst. ICICI Securities is registered with
Insurance Regulatory Development Authority of India Limited (IRDAI) as a composite corporate agent and with PFRDA as a Point of Presence. ICICI Securities Limited Research
Analyst SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration is INZ000183631 for stock broker. ICICI Securities is a subsidiary of ICICI Bank
which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance,
venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might
have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities
generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the
analysts cover

ICICI Securities – Retail Equity Research

Recommendation in reports based on technical and derivative analysis centre on studying charts of a stock's price movement, outstanding positions, trading volume etc as
opposed to focusing on a company's fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com to view
the Fundamental and Technical Research Reports.

Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.

ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Retail Research. The
views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, and target price of the Institutional Research.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is
strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person
or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis,
ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities
from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.

16
 Disclaimer

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or
completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of

MOMENTUM PICK
offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this
report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal,
accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions
expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions
and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate
the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts
no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors
are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set
forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.
ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject
company for any other assignment in the past twelve months.
ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the
date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or
other advisory service in a merger or specific transaction.
ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates
or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research
report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.

ICICI Securities – Retail Equity Research

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report
as of the last day of the month preceding the publication of the research report.
Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies
including the subject company/companies mentioned in this report.
ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.
We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other
jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any
registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of
investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

17