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3QFY23:– Seasonally strong quarter; Panned out well!


Dear Patron,

3QFY23 earnings season saw wide divergence across sectors as well as companies. (1) IT companies’ results were better than feared with hopes of easing macro and supply challenges heading into FY24. (2) Financials continue to report a strong quarter fuelled by healthy loan growth, (3) Auto OEMs benefitted from healthy volume growth (4) High inflation led to muted/low volume growth for companies in consumer universe. (5) Within the discretionary space, most sectors saw a sequential slowdown, given the lull post-festive season. The third quarter results have displayed that the pent up demand post COVID has started to normalize for the Indian economy. In this newsletter, we will cover broad sector specific performance in 3QFY23 and the expected outlook.

Exhibit 1: Moderate quarter, healthy earning across our portfolios during the quarter

Source: Ambit Asset Management

Performance of different sectors for the Q3FY23 quarter

1. Consumer – Staples

3QFY23 posted another quarter of soft performance for consumer companies. Key Sectorial highlights are:

  • Slowdown in Demand: Consumer staples universe posted another quarter of soft performance, with slowdown in rural consumption and high input prices affecting the sector’s earnings growth. Sustained high prices of certain RMs like agri-related RMs & high cost inventories led to continued margin pressure. A&P spends seem to have normalised; continued focus on cost optimisation; innovations / new launches have returned.
  • Price led growth for most consumer companies:  (1) Prolonged rains in the north, (2) delayed winter, and (3) weak rural demand driven by sticky food and fuel inflation have led to muted aggregate volume growth for the sector in Q3FY23 led by macro challenges particularly in rural segment. 3-year value growth, however, for most companies was still healthy aided by material price increases taken across categories.

Outlook: The management commentaries indicated that there were some green shoots with respect to rural consumption towards the end of the quarter that persisted in Jan’23. Good Rabi harvest along with a decline in CPI inflation would spur staples demand

Exhibit 2: Company-wise 3 year volume CAGR for Q3FY23 (%)

Source: Company, Ambit Asset Management

2. Consumer – Discretionary

3QFY23 exhibited normalcy in outlook for discretionary companies. Key trends observed during the quarter

  • Key Trends in Discretionary segment: Quarterly demand saw some sequential sluggishness due to inflation (hurting mass-end demand), seasonality (delayed winter and extended monsoon), and the split festive season sales in 2Q whereas on a 3-Year CAGR basis growth has still been good. This indicates that pent up demand has started to normalize. Further the increase in competitive intensity with the return of small and unorganized peers due to Supply Chain normalization
  • Squeeze in Margins: High cost inventory lying in the books of the Companies and resumption in media spend dented margins of most of the companies. Nearly all the firms in the sector are below pre-COVID levels and this pressure is likely to continue for at least one more quarter.

Outlook: Discretionary lifestyle categories may face growth headwinds for 1-2 more quarters. This could be owing to near term demand slowdown and high base effect, especially in travel and wedding related spend.

3. Auto & Auto Ancillaries

3QFY23 witnessed strong demand environment in Auto companies. Key trends observed during the quarter –

  • Healthy volumes: Improvement in the supply of semiconductor chips and healthy demand momentum in the domestic markets supported volume momentum across segments (except 2Ws) in the 3QFY23. PV demand sustained on the back of healthy order backlogs. Stable freight rates and government’s infrastructure push aided CV demand. The 2Ws industry is lagging due to weak performance of the entry-level segment.
  • EV expansion - New launches and variants launched by EV manufacturers in 3Q. Saw higher volume sales in the 2W scooter segments as companies expanded distribution in the quarter.
  • Auto-ancillary companies: have announced capex to cater to the rising demand for EV/Hybrid vehicles. Some have even received large orders from domestic and foreign OEMs for the same. Some companies reported good after- market revenue as mobility has picked up and service/maintenance related activity picked up. Softening commodity costs was visible in the 3Q which aided margin expansion.
  • Exports - North America CV and PV volumes continue to grow on the back of fleet replacement and strong demand for personal mobility. In 2W, retail sales were ahead of wholesales in some markets; there are some green shoots visible in 4Q (January month).

Outlook:  Domestic booking trends continue to be healthy as new launches have received positive responses. Rural uptick has been slower than that of urban. Green shoots were seen in rural geographies in states such as MP, UP, Bihar etc. Export markets may take another 2 quarters to return to normalcy.

Exhibit 3: Industry volumes increased by 13% yoy in 3QFY23 owing to strong order book in PV & CV segment

Source: Company, Ambit Asset Management.

4. Financials:

BFSI sector on the forefront again. Key highlights during the quarter:

  • Operating Performance: Operationally strong quarter due to higher NII growth leading & better treasury gains resulting in strong operating profit for the sector. Opex is elevated for most of the banks at 15.6% YoY, higher for the private banks, mainly on account of higher disbursement of loans QoQ, higher spending on digital & branch expansion and wage provisions especially at PSU banks end.
  • Advance growth: further improved sequentially by 2-5% & was at 18.3% on YoY basis. On YoY basis, however, PSU Banks grew 18.6% YoY & Private sector banks grew 18.1% YoY. Affordable Housing finance companies continue showing healthy signs of AUM & disbursement growth. Credit to large Industries has also improved to 7% YoY. Retail loan growth at 20% YoY. Within the retail side, unsecured loans led by credit card & PL continue to drive higher growth.

Exhibit 4: Consistent double digit loan growth maintained

Source: RBI, Ambit Asset Management

  • Deposits growth: 11% YoY deposit growth continues to lag advance growth during Q3FY23 leading to higher CD ratio. CASA mix continues to deteriorate for most banks but term deposits mix increased on account of higher rates. PSU banks stand with relatively lower CD ratio & hence better positioned on the liquidity front.
  • Profitability:  Banking sector reported healthy earnings growth, led by strong operating profit & declining provisions. RoE is reaching closer to long-term averages for larger banks.

Exhibit 5: NII growth aids margin expansion with moderation in slippages

Source: Company, Ambit Asset Management

  • Margins: NIM expanded for most of the players led by interest rate hike transmission, banks expect the same to continue for the next 1-2 quarters. Cost of deposits increased at a slower pace. NBFCs margins have expanded sequentially for most, reflecting recent lending rate hikes.
  • Asset Quality:  Credit cost came at multi-year low & there is further improvement in asset quality. GNPA at a 7-year low & NNPA at a 10-year low.  Restructured advances improved sequentially from 1.4% to 1.2% in Q3FY23. Asset Quality for HFCs & NBFCs improved sequentially but remains sub-par to the banks.

Exhibit 6: Benign credit cost and consistent improvement in asset quality

Source: Company, Ambit Asset Management

Outlook: The incremental focus is on policy rate movements that will determine further lending rate hikes & consequent impact on demand. The risk of NIM contraction or weaker loan growth is gaining traction. Credit cost has hit the bottom, it will continue to be at a benign level as most banks have created adequate buffers in terms of PCR.

5. Pharmaceuticals / Healthcare

Q3FY23 was a mixed-quarter for healthcare companies. We highlight the main themes observed

  • Strong momentum in US generics: US business of leading Indian exporters grew by a median of 22% YoY led by (1) Stabilizing price erosion in base business (2) Severe flu season (3) gRevlimid windfall. CY23 is expected to be a good year for US exporters on the back of easing price pressure, gRevlimid opportunity and new launches.
  • Steady recovery in API: API sales of leading companies recovered from the lows of Q4FY22 and were up 13% YoY – however, still below the COVID peak seen in Q2FY21.
  • Weak CDMO business – CRAMS/CDMO division of leading players – except Laurus Labs – saw a sharp decline YoY owing to normalization of COVID product revenue. Longer term outlook for this segment however remains strong.
  • Normalizing India business – India business sales for leading companies normalized from an erratic COVID base as patient footfalls returned to normal and acute therapies bounced back.

Outlook: Outlook for Indian Pharma seems positive on the back of easing input cost prices, stabilizing price erosion in US, resumption of Global ARV tenders. Resumption of client audits for CDMO players and encouraging client conversations lend confidence on a positive long term outlook and possible benefit from China +1. 

Exhibit 7: Sharp uptick in US led by seasonality, gRevlimid contribution and stabilizing price erosion

Source: Company, Ambit Asset Management

6. Building Material

  • Key Sectorial trends: Q3FY23 was a moderate quarter for building material companies. Demand scenario affected by a higher base and demand slowdown was seen in the larger basket of building materials – particularly in ceramics, paints and adhesives led by sharp price hikes, rural slowdown and a higher base. As highlighted in our December newsletter, festive demand was weak led by an extended monsoon and general slowdown in economy. Green shoots were visible in plastic pipes and bath-ware space as demand remained robust (in-line with our expectations – Refer December Newsletter) especially after massive correction in PVC prices from start of Financial Year.
  • Delay in Margin recovery: Margins were still below normalized range for most players though we anticipate margins to recover sequentially with sharper margin recoveries seen in Adhesives, Tiles and Pipes segment on account of lower input costs and waning off of inventory losses.

Outlook: Overall, we remain optimistic on building material segment despite slight challenges both on growth and on the margin front and we anticipate sequential recovery in profitability for a majority of our portfolio companies

Exhibit 8: Astral and Supreme continued to lead the 3 Year Revenue and EBITDA growth due to higher share of value added products

Source: Company, Ambit Asset Management

7. Chemicals

Q3FY23 was a mixed-quarter for chemical companies. We highlight the main themes observed

  • Muted performance: The chemical industry continued to post a big contrast in operating performance with Agro-chemical players reporting healthy numbers while other pockets faced several headwinds, primarily companies catering to end user segments in dyes and pigments. These headwinds are expected to subside by Q1 FY24.
  • Export oriented Agro-chemical companies continued to scale up well on the exports front led by PI Industries. Challenges were seen in domestic businesses during the quarter owing to unseasonal rains however the outlook for Rabi remains optimistic.
  • Demand tailwinds remained robust with most chemical companies in the capacity expansion or utilization of expanded capacity phase. Cool-off in several raw material prices and drop in shipping rates will also provide an impetus to margin improvement going forward.

Outlook: Our portfolio companies in the chemical space remain on-track to deliver industry leading growth and we remain optimistic on the sector.

8. Information Technology

  • Better than feared: Seasonally weak quarter coupled with lower working days and higher furloughs implied -160bps QoQ lower CC growth for Tier-1 companies (2Q23: 3.8%; 3Q23: 2.2%). ER&D companies benefitted from strong.
  • Margin bounce-back: Almost all leading companies – barring Infosys and LTIM – saw QoQ margin expansion on the back of easing attrition, lower sub-contracting cost and better utilization. This improving trend is expected to continue up till the wage increase cycle starting 1Q24

Outlook: Guidance for 4Q was muted, however better than expected. There are pockets of slowdown such as Retail, Mortgage and Capital markets. While deal wins for 3Q were moderate indicating some delay in decision-making, the long-term Digital Transformation story remains intact. CY23 is expected to be a muted year YoY, however, most of that is currently priced in. Early indications on budgets of large banks signal 5-8% growth. 4Q management commentary around client budgets and the evolving macro-economic situation will be the key trigger to watch out for. Expect polarized performance from companies in the near term


This quarter witnessed (1) waning of domestic consumer spending and fading post-pandemic pent-up demand (2) high costs of borrowing and sticky core inflation further raising the risk of interest rate hikes, and (3) a global slowdown weighing on export demand. However, we anticipate these headwinds to dissipate given (1) capex oriented budget, (2) healthy credit growth, (3) an uptick in rural wages to revive rural consumption. The continued resilience shown by Indian Economy in the third quarter and Corporate India has stood out globally; with visible signs of ‘+1’ benefits.

Ambit Coffee Can Portfolio

At Coffee Can Portfolio, we do not attempt to time commodity/investment cycles or political outcomes and prefer resilient franchises in the retail and consumption-oriented sectors. The Coffee Can philosophy has unwavering commitment to companies that have consistently sustained their competitive advantages in core businesses despite being faced by disruptions at regular intervals. As the industry evolves or is faced by disruptions, these competitive advantages enable such companies to grow their market shares and deliver long-term earnings growth.

Exhibit 9: Ambit’s Coffee Can Portfolio point-to-point performance

Source: Ambit; Portfolio inception date is March 6, 2017; Returns as of February 28, 2023; All returns are post fees and expenses; Returns above 1-year are annualized; Note: Returns prior to Apr’19 are returns of all the Pool accounts excluding non-aligned portfolio, and returns post Apr’19 is based on TWRR returns of all the pool accounts.


Exhibit 10: Ambit’s Coffee Can Portfolio calendar year performance

Source: Ambit; Portfolio inception date is March 6, 2017; Returns as of February 28, 2023; All returns are post fees and expenses. Note: Returns prior to Apr’19 are returns of all the Pool accounts excluding non-aligned portfolio, and returns post Apr’19 is based on TWRR returns of all the pool accounts.

Ambit Good & Clean Midcap Portfolio         

Ambit's Good & Clean strategy provides long-only equity exposure to Indian businesses that have an impeccable track record of clean accounting, good governance, and efficient capital allocation. Ambit’s proprietary ‘forensic accounting’ framework helps weed out firms with poor quality accounts, while our proprietary ‘greatness’ framework helps identify efficient capital allocators with a holistic approach for consistent growth. Our focus has been to deliver superior risk-adjusted returns with as much focus on lower portfolio drawdown as on return generation. Some salient features of the Good & Clean strategy are as follows:      

  • Process-oriented approach to investing: Typically starting at the largest 500 Indian companies, Ambit's proprietary frameworks for assessing accounting quality and efficacy of capital allocation help narrow down the investible universe to a much smaller subset. This shorter universe is then evaluated on bottom-up fundamentals to create a concentrated portfolio of no more than 20 companies at any time.
  • Long-term horizon and low churn: Our holding horizons for investee companies are 3-5 years and even longer with annual churn not exceeding 15-20% in a year. The long-term orientation essentially means investing in companies that have the potential to sustainably compound earnings, with this compounding earnings acting as the primary driver of investment returns over long periods.
  • Low drawdowns: The focus on clean accounting and governance, prudent capital allocation, and structural earnings compounding allow participation in long-term return generation while also ensuring low drawdowns in periods of equity market declines.

Exhibit 11: Ambit’s Good & Clean Midcap Portfolio point-to-point performance   

Source: Ambit; Portfolio inception date is March 12, 2015; Returns as of February 28, 2023; All returns above 1 year are annualized. Returns are net of all fees and expenses

Exhibit 12: Ambit’s Good & Clean Midcap Portfolio calendar year performance

Source: Ambit; Portfolio inception date is March 12, 2015; Returns as of February 28, 2023. Returns are net of all fees and expenses


Ambit Emerging Giants Portfolio

Small caps with secular growth, superior return ratios and no leverage –Ambit's Emerging Giants portfolio aims to invest in small-cap companies with market-dominating franchises and a track record of clean accounting, governance and capital allocation. The fund typically invests in companies with market caps less than Rs4,000cr. These companies have excellent financial track records, superior underlying fundamentals (high RoCE, low debt) and ability to deliver healthy earnings growth over long periods of time. However, given their smaller sizes, these companies are not well discovered, owing to lower institutional holdings and lower analyst coverage. Rigorous framework-based screening coupled with extensive bottom-up due diligence lead us to a concentrated portfolio of 15-16 emerging giants.


Exhibit 13: Ambit Emerging Giants Portfolio point-to-point performance

Source: Ambit; Portfolio inception date is December 1, 2017; Returns as of February 28, 2023; All returns above 1 year are annualized. Returns are net of all fees and expenses


Exhibit 14: Ambit Emerging Giants Portfolio calendar year performance

Source: Ambit; Portfolio inception date is December 1, 2017; Returns as of February 28, 2023. Returns are net of all fees and expenses

Ambit TenX Portfolio

Ambit TenX Portfolio gives investors an opportunity to participate in the India growth story as the Indian GDP heads towards a US$10tn mark over the next 12-15 years. Mid and Small corporates are expected to be the key beneficiaries of this growth. The portfolio intends to capitalize on this opportunity by identifying and investing in primarily mid & small cap companies that can grow their earnings 10x over the same period implying 18-21% CAGR. Key features of this portfolio would be as follow:

  • Longer-term approach with a concentrated portfolio: Ideal investment duration of >5 years with 15-20 stocks.
  • Key driving factors: Low penetration, strong leadership, light  balance sheet
  • Forward-looking approach: Relying less on historical performance and more on future potential while not deviating away from the Good & Clean philosophy.
  • No Key-man risk: Process is the Fund Manager

Exhibit 15: Ambit TenX Portfolio point-to-point performance

Source: Ambit; Portfolio inception date is December 13, 2021; Returns as of February 28, 2023; Returns are net of all fees and expenses


Exhibit 16: Ambit TenX Portfolio calendar year performance

 Source: Ambit; Portfolio inception date is December 13, 2021; Returns as of February 28, 2023. Returns are net of all fees and expenses

For any queries, please contact:

Umang Shah- Phone: +91 22 6623 3281, Email - | Ambit Investment Advisors Private Limited - Ambit House, 449, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013

Risk Disclosure & Disclaimer

The performance of the Portfolio Manager has not been approved or recommended by SEBI nor SEBI certifies the accuracy or adequacy of the performance related information contained therein.

Ambit Investment Advisors Private Limited (“Ambit”), is a registered Portfolio Manager with Securities and Exchange Board of India vide registration number INP000005059.This presentation / newsletter / report is strictly for information and illustrative purposes only and should not be considered to be an offer, or solicitation of an offer, to buy or sell any securities or to enter into any Portfolio Management agreements. This presentation / newsletter / report  is prepared by Ambit strictly for the specified audience and is not intended for distribution to public and is not to be disseminated or circulated to any other party outside of the intended purpose. This presentation / newsletter / report may contain confidential or proprietary information and no part of this presentation / newsletter / report may be reproduced in any form without its prior written consent to Ambit. All opinions, figures, charts/graphs, estimates and data included in this presentation / newsletter / report is subject to change without notice. This document is not for public distribution and if you receive a copy of this presentation / newsletter / report and you are not the intended recipient, you should destroy this immediately. Any dissemination, copying or circulation of this communication in any form is strictly prohibited. This material should not be circulated in countries where restrictions exist on soliciting business from potential clients residing in such countries. Recipients of this material should inform themselves about and observe any such restrictions. Recipients shall be solely liable for any liability incurred by them in this regard and will indemnify Ambit for any liability it may incur in this respect.

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You are expected to take into consideration all the risk factors including financial conditions, risk-return profile, tax consequences, etc. You understand that the past performance or name of the portfolio or any similar product do not in any manner indicate surety of performance of such product or portfolio in future. You further understand that all such products are subject to various market risks, settlement risks, economical risks, political risks, business risks, and financial risks etc. and there is no assurance or guarantee that the objectives of any of the strategies of such product or portfolio will be achieved.  You are expected to thoroughly go through the terms of the arrangements / agreements and understand in detail the risk-return profile of any security or product of Ambit or any other service provider before making any investment. You should also take professional / legal /tax advice before making any decision of investing or disinvesting. The investment relating to any products of Ambit may not be suited to all categories of investors. Ambit or Ambit associates may have financial or other business interests that may adversely affect the objectivity of the views contained in this presentation / newsletter / report.

Ambit does not guarantee the future performance or any level of performance relating to any products of Ambit or any other third party service provider. Investment in any product including mutual fund or in the product of third party service provider does not provide any assurance or guarantee that the objectives of the product are specifically achieved. Ambit shall not be liable for any losses that you may suffer on account of any investment or disinvestment decision based on the communication or information or recommendation received from Ambit on any product. Further Ambit shall not be liable for any loss which may have arisen by wrong or misleading instructions given by you whether orally or in writing. The name of the product does not in any manner indicate their prospects or return.

The product ‘Ambit Coffee Can Portfolio’ has been migrated from Ambit Capital Private Limited to Ambit Investments Advisors Private Limited. Hence some of the information in this presentation may belong to the period when this product was managed by Ambit Capital Private Limited.

You may contact your Relationship Manager for any queries.

The performance data for coffee can product between 6th march 2017 - 19th June 2017 represents model portfolio returns. First client was onboarded on 20th June 2017. The performance data for G&C product between 1st June 2016 to 1st April 2018 also includes returns for funds managed for an advisory offshore client. Returns are calculated using TWRR method as prescribed under revised SEBI (Portfolio Managers) Regulations, 2020.