2QFY24 –

Dear Patron,

In India, Q2FY24 earnings season saw an overall in-line performance, with wide divergences across sectors and companies. Nifty posted strong 20% YoY earnings growth in 2QFY24. The key theme of the quarter was cost deflation in inputs, aiding companies in boosting profitability despite limited year-on-year revenue growth. This benefit from lower commodity costs is mostly exhausted, signaling that future earnings growth will rely on increased sales volumes. Earning growth of our portfolio companies saw healthy double digit growth with most of them outperforming their respective benchmarks. In this newsletter, we take a look at how each of the sectors performed, the winners/laggards in each of them, and what to expect going forward!

Exhibit 1: Healthy earnings across our portfolios during the quarter

	Net Sales YoY%			EBITDA YoY%			PAT YoY%
Coffee Can PMS	Q2FY24	Q1FY24	Q2FY23	Q2FY24	Q1FY24	Q2FY23	Q2FY24	Q1FY24	Q2FY23
Weighted avg	12%	13%	17%	20%	18%	10%	27%	25%	13%
Median	13%	13%	18%	21%	22%	11%	34%	32%	19%
Good & Clean PMS	Q2FY24	Q1FY24	Q2FY23	Q2FY24	Q1FY24	Q2FY23	Q2FY24	Q1FY24	Q2FY23
Weighted avg	14%	14%	46%	30%	17%	31%	35%	0%	14%
Median	14%	17%	21%	14%	16%	24%	25%	14%	22%
Emerging Giants PMS	Q2FY24	Q1FY24	Q2FY23	Q2FY24	Q1FY24	Q2FY23	Q2FY24	Q1FY24	Q2FY23
Weighted avg	9%	17%	28%	14%	28%	22%	10%	26%	27%
Median	11%	11%	28%	13%	20%	18%	12%	23%	18%
Ambit TenX PMS	Q2FY24	Q1FY24	Q2FY23	Q2FY24	Q1FY24	Q2FY23	Q2FY24	Q1FY24	Q2FY23
Weighted avg	13%	18%	26%	18%	22%	23%	16%	22%	20%
Median	17%	24%	31%	18%	22%	27%	12%	21%	19%
Nifty	5%	5%	20%	21%	22%	16%	28%	32%	20%
Nifty Midcap 100	14%	23%	17%	16%	27%	11%	20%	23%	14%
BSE smallcap	9%	22%	39%	10%	22%	26%	2%	21%	38%
BSE 400	33%	33%	17%	20%	10%	33%	11%	8%	34%
BSE 500	5%	7%	29%	41%	33%	13%	47%	46%	16%

Source: Bloomberg, Ambit Asset Management

PERFORMANCE OF DIFFERENT SECTORS OF OUR PORTFOLIO FOR THE 2QFY24 QUARTER

Sector	Positives	Negatives	Key Winners	Key Laggards
IT Services	1) Growth outperformance of Tier2/ERD companies (2-3.4% CC QoQ) vs Tier-1 peers (0.1% QoQ) 2) Margin beat across companies despite wage-hike headwinds for some 3)Strong deal wins, declining attrition	1) Sharp revenue miss for Tier-1 led by decline in BFS, CMT and Retail 2) -1% QoQ Median headcount decline across Tier-1 (1Q24: -2% QoQ) 3) Indications of higher than expected furloughs in 3Q	Persistent, LTIMindtree, Mastek	Mphasis, TCS
Healthcare	1) Median GM improvement of +300bps YoY owing to softening RM 2) Improvement in base US Gx portfolio led by stabilizing pricing erosion (mid-single digits) for most players	1) Slowdown in global biotech funding led to guidance D/G by Syngene 2) Soft domestic gr. owing to weak Acute season and NLEM impact 3) Diagnostics volume below pre-COVID growth rates	Syngene	Laurus Labs
Auto	1) Auto volumes across segments saw growth on the premiumization trend and improvement in chip supplies. 2) Softer raw material costs and higher premium mix supported Q2FY24 performance	1) Tractor volumes declined ~4% YoY in 1HFY24 due to festive mismatch, uneven distribution of rainfall, and elimination of subsidies in key states. 2) Recovery in rural demand and exports is awaited.	TVS Motors, Eicher Motors, Balkrishna Industries	Suprajit Engineering
FMCG	1) Easing Inflation across the RM basket has led to both gross & and EBITDA margin improvement. 2) Growth divergence seen across channels - with MT/ E-Commerce growing double-digits for most cos, while GT declined.	1) Volume pick-up saw 2Q seeing a slight QoQ volume slowdown. This was partly attributable to factors such as erratic rains and delayed festive. 2) Competition and media intensity have gone up across categories. Increased competition from smaller and regional players, who had retreated during the peak of inflationary pressures.	Nestle India, ITC Ltd	Amrutanjan Healthcare
Building Materials	1) Margin improvement for most players due to benign RM prices, most companies are at or above their mean margins.                                         2) Volume growth continues to be robust in Plastic pipes and Laminates.	1) Unseasonal rains along with a weak Q2 have resulted in tepid demand.                                                           2) End-user segments such as Tiles have not seen material demand pickup	Supreme, Astral, Greenlam	Kajaria Ceramics
Chemicals	1) Sequential recovery started seeing in some of end-user segments. 2) Dumping by China of key chemicals are behind	1) Ag-chem, textiles and other chemicals continue to see inventory and pricing pressures.                                              2) Most chemical companies have shown de-growth on profitability front	PI Industries
Consumer Discretionary & Retail	1) Discretionary/Retail excelled in revenue, growth is led by store additions/channel expansion 2) QSR: revenue growth aided by store addition; store expansion/better SSG to drive revenue/profitability	1)  Profitability is under pressure. 2) The retail/QSR segments were impacted by the negative operating leverage stemming from muted like-for-like growth, rapid store expansion & higher ad. exp.	Trent ltd., Metro Brands, Titan ltd.	La Opala Rg Ltd.
Consumer Durable	1) Pre-festive sales around Independence Day and Onam were strong 2) Softer commodity costs led to a healthy rise in gross margin by 200-250bps	1) Overall demand continued to remain weak as consumer spending remained low 2)Shift in the festive season to Q3 postponed consumer offtake and impacted YoY growth	KEI, Bluestar	Havells, Hawkins
Banks & Financials	1) Jewellery has done well and expect 20-25% growth in 3Q24. 2) Term deposits growth was encouraging	1) NIM compression on the back of rising funding cost. 2)  CASA remained sluggish	Axis Bank

 

As we transition into the third quarter, we conducted channel checks to evaluate the overall outlook for the festive season. During this period, there was a surge in purchasing across various sectors including consumer goods, electronics, clothing, jewelry, automobiles, and real estate. Retailers offer discounts, promotions, and special deals to attract customers, leading to a considerable rise in sales and revenue for businesses.

Building Material: Volume growth for Paints has been robust and tepid Q2 looks to be offset by a strong Q3. Other categories (Bathware, Pipes, Tiles, Adhesives) should post stronger numbers in H2 vs H1 owing to stronger demand both due to strong festival and the impact of seasonality.

Consumer Durable: Festive season outlook for large white goods has been strong particularly in premium segment due to K shaped recovery, home and kitchen small appliances continue to remain weak

Consumer staples: Companies are optimistic about better volume trends. They have highlighted a healthy demand for home care products while personal care products remain muted.

Autos: As per FADA, the retail data witnessed 20%/41%/10% growth for 2W/3W/PV respectively.

Consumer discretionary and Retail: Jewellery has done well and expect 20-25% growth in 3Q24. Discretionary sales were a mixed bag this festive. Apparel as a category has witnessed flat growth overall during the festive season. Premium continues to drive demand while mid/mass premium segments has taken a hit.

 

CONCLUSION:

Overall festive season were a mixed bag that stood better for autos, building material, consumer durables while muted for discretionary and retail sector. However in the backdrop of steadily improving Indian macroeconomic indicators, we anticipate that the peaks in inflation and interest rates are on the horizon. Our outlook is optimistic, driven by the government's emphasis on infrastructure development and the recent MSP hike, leading us to anticipate a healthy recovery in the rural economy over the next two quarters.

---

Source: Ambit; Portfolio inception date is March 6, 2017; Returns as of November 30^th 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.

* Nifty 50 TRI is the selected benchmark for the Ambit Coffee Can Portfolio and the same is reported to SEBI.

Exhibit 3: Ambit’s Coffee Can Portfolio calendar year performance

Source: Ambit; Portfolio inception date is March 6, 2017; Returns as of November 30^th 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.* Nifty 50 TRI is the selected benchmark for the Ambit Coffee Can Portfolio and the same is reported to SEBI.

---

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 these 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 4: Ambit’s Good & Clean Midcap Portfolio point-to-point performance

Source: Ambit; Portfolio inception date is March 12, 2015; Returns as of November 30^th 2023; All returns above 1 year are annualized. Returns are net of all fees and expenses. *BSE 500 TRI is the selected benchmark for the Ambit Good & Clean Midcap strategy and the same is reported to SEBI.

Exhibit 5: Ambit’s Good & Clean Midcap Portfolio calendar year performance

Source: Ambit; Portfolio inception date is December 1, 2017; Returns as of November 30^th 2023; All returns above 1 year are annualized. Returns are net of all fees and expenses. *BSE 500 TRI is the selected benchmark for the Ambit Emerging Giants strategy and the same is reported to SEBI.

Exhibit 7: Ambit Emerging Giants Portfolio calendar year performance

Exhibit 8: Ambit TenX Portfolio point-to-point performance

Source: Ambit; Portfolio inception date is December 13, 2021; Returns as of November 30^th 2023; Returns are net of all fees and expenses. *BSE 500 TRI is the selected benchmark for the Ambit TenX Portfolio and the same is reported to SEBI.

Exhibit 9: Ambit TenX Portfolio calendar year performance

Source: Ambit; Portfolio inception date is December 13, 2021; Returns as of November 30^th 2023. Returns are net of all fees and expenses. *BSE 500 TRI is the selected benchmark for the Ambit TenX Portfolio and the same is reported to SEBI.

---

For any queries, please contact:

Umang Shah - Phone: +91 22 6623 3281, Email - aiapms@ambit.co | Registered Address: Ambit Investment Advisors Private Limited - Ambit House, 449, Senapati Bapat Marg,  Lower Parel, Mumbai - 400 013 | Corporate Address: Ambit Investment Advisors Private Limited -  2103/2104, 21^st Floor, One Lodha Place, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013

Risk Disclosure & Disclaimer

Ambit Investment Advisors Private Limited (“Ambit”), is a registered Portfolio Manager with Securities and Exchange Board of India vide registration number INP000005059.

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. Returns are calculated using TWRR method as prescribed under revised SEBI (Portfolio Managers) Regulations, 2020. Performance is net of all fees and expenses. Past performance is not a reliable indicator of future results. Please note that performance of your portfolio may vary from that of other investors and that generated by the Investment Approach across all investors because of 1) the timing of inflows and outflows of funds; and 2) differences in the portfolio composition because of restrictions and other constraints. For comparative Performance relative to other Portfolio Managers within the selected Strategy, please visit: bit.ly/APMI_PMS

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.

Neither Ambit nor any of their respective affiliates or representatives make any express or implied representation or warranty as to the adequacy or accuracy of the statistical data or factual statement concerning India or its economy or make any representation as to the accuracy, completeness, reasonableness or sufficiency of any of the information contained in the presentation / newsletter / report herein, or in the case of projections, as to their attainability or the accuracy or completeness of the assumptions from which they are derived, and it is expected each prospective investor will pursue its own independent due diligence. In preparing this presentation / newsletter / report, Ambit has relied upon and assumed, without independent verification, the accuracy and completeness of information available from public sources. Accordingly, neither Ambit nor any of its affiliates, shareholders, directors, employees, agents or advisors shall be liable for any loss or damage (direct or indirect) suffered as a result of reliance upon any statements contained in, or any omission from this presentation / newsletter / report and any such liability is expressly disclaimed. Further, the information contained in this presentation / newsletter / report has not been verified by SEBI.

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.

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

You may contact your Relationship Manager for any queries.