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October 23, 2015

UTI Transportation & Logistics Fund: A Promising Bet in this vibrant market
A detailed analysis on UTI Transportation and Logistics Fund.

by iFAST Research Team

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UTI Transportation & Logistics Fund

A Promising Bet in this Vibrant Market


UTI Transportation & Logistics, a fund launched in 2004 went in a revamp mode in 2008 and since the last 1.5 years has become the topic of discussion among our investors. The AUM of this fund which was INR 39 crore in July 2005 grew to INR 81 crore by April 2014. The Indian markets got a new lease of life in May 2014 with the ascension of Team Modi in New Delhi. In the same way, this fund managed by Anoop Bhaskar since 2007 started to show a marked improvement in its corpus from INR 101 crore in May 2014 to INR 612 crore by September 2015. The fund is currently being co-managed by Daylynn Pinto. A thematic fund which invests into sectors, also considered to be the beneficiaries if the economy decides to get back in the growth momentum becomes our fund focus for the month.

Investment Strategy


As per the SID, the mandate of the fund is given as:
Transportation and Logistics Fund invests in stocks engaged in the following areas: Companies principally engaged in providing transportation services, companies principally engaged in the design, manufacture, distribution or sale of transportation equipment and companies in the logistics sector. The growth prospects of the 2 important sectors are also outlined in the document. 


Portfolio Analysis


The fund is managed like a multi cap fund as can be seen from the chart below.

A closer look at the portfolio shows that the fund has been gradually increasing the exposure into large caps. This is clear from the fact that in October 2012, the fund had 34% of the surplus invested in large caps which has gradually increased to 47%, as on September 2015.


For the purpose of analysis, we have taken the definition of market capitalization in this way.


Large Cap: Above INR 15,000 crore

Mid Cap: INR 15,000 - INR 5,500 crore

Small Cap: INR 5,500 - INR 3,000 crore

Micro Cap: Below INR 3,000 crore



The fund held 41 stocks in September 2015 out of which 21 have been a part of the portfolio during the period of analysis (October 2012 to September 2015). This in short means that ~50% of the stocks in the portfolio have been there since the last 36 months. An interesting observation here is that among these 21 stocks, 7 of them had an average allocation of less than 1% during this period of analysis.

Table 1: Stocks held for 36 months with the average allocation less than 1%

Company Name Sector / Industry Average for 36 Months
Great Eastern Shipping Company Ltd Shipping 0.99
Subros Ltd Auto Ancillaries 0.92
Timken India Ltd Bearings 0.83
Asahi India Glass Ltd Glass & Glass Products 0.57
Ashok Leyland Ltd Automobiles - LCVs / HCVs 0.56
HBL Power Systems Ltd Dry Cells 0.26
Vardhman Special Steels Ltd Steel - Medium / Small 0.22
Source: NAV India, iFAST Compilation

 

As far as the stocks go, Maruti Suzuki is the only stock which has not only been held for the entire 36 months but has been among the top 5 picks during this period of study.


Fund Manager Speaks:

Maruti Suzuki

"We like the company for its strong brand franchise in India’s small car market. Additionally, the company has been able to move up the pricing curve with their brands in the mid range vehicles also showing signs of traction resulting in the company’s improvement in the overall m1arket share over the last few years. This along with favorable currency movement has resulted in superior earnings growth, which we believe will continue in the medium term."                  


The other favorite picks of the Fund Manager includes names like Bosch, Eicher Motors, WABCO India, MRF and Hero MotoCorp. All these stocks have been a part of the portfolio during the 3 years of analysis. Since June 2014, Hero MotoCorp has been among the top 5 picks with an average allocation of 6.49% (June 2014 to September 2015).

The price movements of these stocks during the period of analysis are given below.

 


Sector Analysis

Bhaskar is positive on both these sectors on account of the number of opportunities emerging across the spectrum over the next 5 years.

 


Fund Manager Speaks:

The theme transportation & logistics includes “Auto Original Equipment Manufacturers (OEMs), Auto OEM suppliers, Auto replacement market suppliers, companies engaged in transportation infrastructure and logistics services."

                  


A detailed analysis of the sectoral trends shows that Auto Ancillaries, Tyres and Automobiles (LCVs/HCVS) have been the top sectoral picks during the 3 years of study.


Fund Manager Speaks:

Auto Ancillaries

We prefer to invest in auto ancillary companies where there is either a technology barrier or high market share among OEM customers. We believe that the auto ancillary space will continue to thrive on the overall growth of the Indian auto industry. Additionally, many companies are viewing export opportunities more seriously which would provide a further impetus to growth.

Tyres

We believe that the tyre space is trading at attractive valuations especially considering the improvement in balance sheets of tyre makers over the last few years. The structure of the industry continues to evolve away from MHCV towards consumer oriented sectors such as cars and 2 wheelers, which we believe is better for long term profitability of the sector. The key risk remains Chinese dumping, which would create a supply demand imbalance for the Indian tyre makers.

Automobile LCVs / HCVs

We continue to witness an uptick in MHCV over the last few quarters driven by replacement demand and pre buying ahead of change in regulatory norms. Overall industry volumes continue to be lower than the previous peak of FY2012, which leads us to believe that growth can continue for a couple of years.
In the LCV segment, lack of financing and low operator profitability has been the reasons for the decline in volumes over the last 8-10 quarters. We believe that this segment will return to growth in FY2017 as the hub and spoke model for distribution will continue to create demand for this category of vehicles.


Performance


As the benchmark is customized for this fund, we decided to compare the performance of the fund vis-à-vis the CNX Auto Index which is given below.


Our Take:


UTI Transportation & Logistics Fund plays in sectors that are completely dependent on the well being of the overall economy. We believe that an improving macro-economic framework along with a government that is serious about taking the economy back into the growth trajectory are the biggest positives for this fund. Bhaskar, a fund manager who is known to have strong conviction in his stock picks has been successfully anchoring the fund since 2007 and the outcome is there for all to see. We would advise our moderately aggressive and aggressive investors who have the risk appetite to deal with thematic funds to consider taking an exposure in the same for a time horizon of 5 years.

 

 

Disclaimer:
iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website.

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