Axis Core & Satellite Portfolio

Product proposition

Investment thesis

• Core allocation: Based on the concept of Brand investing (50%-70%)

• Identifying businesses which have strong BRAND presence

• Core allocation looks to identify steady compounders which are held for the long term (5 years+)

• Core part provides stability to the portfolio as the stocks are relatively low beta in nature

• Satellite allocation: Based on the concept of Efficient Capital Allocators (30%-50%)

• Identifies companies which have a track record of superior capital allocation

• Satellite allocation looks to identify stocks which have an element of cyclicality in earnings and are currently mispriced opportunities

• Satellite allocation can act as a return “kicker” and stocks are held with a medium term (18-24 months) view

Why invest in Brands?

Brand Attributes

Frameworks in Investment Approach - ValueTrack

• Axis Alternatives Equities proprietary framework of ValueTrack has data and studies of the past 21 years, recording and understanding fundamental factors that cause stock outperformances
• It’s comprehensively updated every quarter, viz, the fundamentals, stock performances and attributions of about (>1,000) companies

Evolution of a Capital Allocator

Identifying an efficient Capital Allocator

Capital Allocators: Change in Management Focus

• Reliance Industries is India's largest private-sector company with interests in oil & Gas, textiles, retail/telecom, and infrastructure

• Its petrochemicals business is vertically integrated with an output of more than 20mn tons. It also operates the worlds largest single location refinery

• Reliance is moving to new age businesses leveraging its large telecom base and digital platform in these sectors

• B2C businesses (Telecom & Retail) are typically more stable as compared to B2B businesses (oil & gas) thus limiting the impact of commodity cycle volatility

• Working capital requirements for such verticals are typically lower as compared to traditional Oil & gas sector

Capital Allocators: Change in Management

• Founded in 1938, Larsen & Toubro (L&T) is India's largest E&C company. With its diversified business portfolio there is no single company that competes with L&T across all its business segments

• The company has nine major business segments including infrastructure, power, metallurgical and material handling, heavy engineering, electrical and automation, hydrocarbon, developmental projects, IT and technology services and financial services

• Given its foray into diverse business operations, the element of earnings cyclicality is likely to reduce materially

• Investing in high ROE businesses will positively impact the overall ROE of the company

• The company also has many special purpose vehicles (SPVs) under its concessions business portfolio, which it is in process of restructuring as a part of its asset-light model.

Capital Allocators: Sector Consolidation

• Mahindra Finance began as a captive financier of Mahindra Utility Vehicles in the early 90s. Today, the company has diversified into a financial services provider with a complete suite of financial solutions for the under-penetrated rural markets

• The company operates in over 3.6 lakh villages and has a diverse book across vehicle finance (Utilities, Tractors, Cars & SME)

• Mahindra Finance has a differentiated business model, with a strong semi-urban and rural distribution network and is amongst the early adapters of a predominantly rural business model

• Sharper product focus in auto/ tractors/ cars and market share gains in commercial vehicles, used vehicles, housing finance and SME funding are likely to drive disbursements and AUM growth over FY18-21

Capital Allocators: Regulatory changes

• Brigade Enterprises, with over three decades of experience in real estate, is one of the leading property developers in South India primarily in the Bengaluru market.

• The company operates across the real estate space with a cross budget residential profile as well as a large Grade-A commercial portfolio.

• Currently, its business portfolio comprises of real estate business (50.6 msf), leasing portfolio (8.9 msf) and hospitality business (1788 keys).

• Changes in RE sector regulations and dynamics aid large companies with strong balance sheets.

• Sector consolidation to aid market share and operating leverage.

• The company, with its diversified real estate portfolio, strong brand value as well as market leadership in the south, is ideally placed to benefit from the changing regulatory environment.

Performance (31st Mar 2024)

Portfolio details as on 31st Mar 2024

Portfolio Features

Fee Structure

• Fixed Management fee
  • Investment type: Lump sum (50 Lakhs or more at a PAN level)
  • Fixed Management fee: 2.5% (charged on a quarterly basis)
• Fixed Management fee with STO option
  • Investment type: STO with 5/10 instalments (50 Lakhs or more at a PAN level)
  • Fixed Management fee: 2.5% (charged on a quarterly basis)
• Fixed + Variable Management fee
  • Investment type: Lump sum (50 Lakhs or more at a PAN level)
  • Fixed Management fee: 1.5% (charged on a quarterly basis)
  • Variable fee: 20% over the hurdle rate of 12%
• Fixed + Variable Management fee with STO option
  • Investment type: STO with 5/10 instalments (50 Lakhs or more at a PAN level)
  • Fixed Management fee: 1.5% (charged on a quarterly basis)
  • Variable fee: 20% over the hurdle rate of 12%

Investment Approach

• Investment Objective: To generate long term capital appreciation by investing in a diversified portfolio of equity and equity related instruments across market capitalization.
• Investment Strategy (Basis of selection of securities)
• Axis Core & Satellite Portfolio is a compact portfolio investing in equity and equity related instruments. The portfolio construction follows a core & satellite approach with an aim is to build a cycle agnostic portfolio of companies geared towards sustainable alpha generation. The Portfolio comprises two parts viz. "Core" and "Satellite". The Core part comprises of fundamentally strong businesses with "Strong Brand Presence". The ‘Satellite’ part comprises of companies with cyclical business models and a track record superior capital allocation policy.
• Strategy: Equity
• Benchmark: Nifty 50 Index TRI. The portfolio’s strategy is to invest in a diversified portfolio of companies across sectors. Fund manager finds it Most suitable as per the strategy and is the closest benchmark among the APMI circular list of Benchmark.
• Asset Allocation and type of securities: Equity & Equity Related Instruments: 80%-100%; Debt & Money Market Instruments: 0%-20%
• Strategy-Specific Risk Factors:
  • Risks associated with investments in Equities
  • Risks associated with investments in Fixed IncomeInstruments
  • General Risks associated with investments To know more details and other risk factors associated with the investment approach, please refer to the Disclosure Document on our website – www.axisamc.com and Contribution Agreement.