The annual results of Ashoka India Equity Investment Trust have been published, covering the 12 months to 30 June 2022. The NAV return was 9.6% over the period and the share price return 7.7%. These compare to a return for the benchmark index, the MSCI India IMI, which returned 7.2% (in sterling terms). There is no dividend.
Since the end of the financial year, both the NAV and the share price have been strong; as at 3 October 2022, the latest practicable date before publication of this Report, the NAV was 204.59p and the share price stood at 215p.
As the shares tended to trade at or above asset value, the company was able to issue 22,590,042 new ordinary shares (including 4,239,763 related to payment of the performance fee for the three-year period ended 30 June 2021). As at the year end there were 107,567,672 shares in issue.
No annual management fee is paid; the manager, Acorn Asset Management, is remunerated solely by means of a performance fee, based on the level of performance relative to the benchmark index over three-year periods. The current period ends on 30 June 2024.
Extract from the manager’s report
The MSCI India Investable Market Index was up by 7.2% during the year to 30 June 2022, outperforming both the developed as well as emerging markets. In the same period the S&P 500 returned 0.9%, the MSCI World Index was down by 2.9%, and the MSCI Emerging Markets Index was down by 15.3% (all in sterling terms). Crude oil prices increased by 77.1% and the Indian rupee depreciated by 5.8%. Amongst sectors, utilities, energy, and real estate outperformed whilst healthcare, materials and financials underperformed.
KEY CONTRIBUTORS & DETRACTORS
Contributors
Laxmi Organic Industries is a specialty chemicals company and amongst the largest and lowest cost manufacturers of Ethyl Acetate, with approximately 30% market share in India. It is now venturing into high value-added businesses such as niche products and chemistries. After the acquisition of Clariant’s business unit in 2010, it is the only manufacturer of diketene derivatives in India. Additionally, the company is expanding into another platform by acquiring Miteni in Italy, a niche fluorochemical manufacturer with a unique portfolio of products. The profit contribution from value-added, high margin business is expected to increase materially from 55% in 2020 to 80% in 2025. The stock appreciated during the year due to the company’s expanding profit margins and robust operating performance.
Persistent Systems is a mid-sized IT services company with deep domain expertise in healthcare, life sciences and financial services verticals, and a niche positioning in adjacent areas such as health-tech and fin-tech. The company has forged strong partnerships with leading enterprise software ecosystems such as Salesforce, Appian, and Snowflake. It also has strong capabilities in product engineering services with the likes of IBM, CISCO, Intuit and Dassault Systems as key customers. The business has de-risked its revenue base, lowered client concentration and increased the number of its large accounts. The stock has outperformed due to strong growth outlook with several margin levers which will drive healthy free cash flow growth over the coming years.
ICICI Bank is one of the leading private sector banks in India. Given the under-penetration of credit, the Indian banking sector offers a long runway for growth. Well run private sector banks, like ICICI Bank, are gaining market share from poorly run government owned banks, which account for two thirds of the industry. Following a leadership change in 2018, the new management team is leveraging on the wide distribution franchise, a new risk-based pricing approach and digital offerings to accelerate market share and return ratios. ICICI Bank continues to improve its margin and core profitability whilst decreasing the Non-Performing Assets. The stock outperformed on the back of this continued strong operating performance.
Detractors
Truecaller is a leading technology company that provides consumer and business identity verification services. It has built a dominant market share of approximately 80% in India over the past decade on the back of sustained strong growth and has become a category-defining brand in the process. It also has leadership positions in other emerging markets such as Egypt and Nigeria, and is a challenger in Indonesia and Malaysia. The company has started monetizing its highly engaged user base by ramping up ad-impressions, which has significant headroom for expansion. Innovative products such as value-add premium subscriptions for consumers, and enterprise verification solutions for businesses are driving rapid growth in core geographies, even as it gains market share in newer countries. It is a highly profitable business run by credible technology entrepreneurs from Sweden. It was one of the best performing stocks in the portfolio in 2021, but its share price declined sharply in 2022 amidst the global sell-off in technology stocks.
Metropolis Healthcare is one of the leading players in the diagnostic space with a dominant presence in key cities such as Mumbai, Pune, and Bangalore. The company offers a comprehensive range of over 4,000 clinical laboratory tests and profiles. It also has a wide network of 64 Satellite labs, capable of conducting routine and semi-specialized tests, and 47 express labs for conducting routine tests. Over the last few years, the company has increased its focus on the more profitable Business to Consumer segment, whilst expanding its collection centre network nearly ten-fold to 2,500. The recent underperformance was led by lower-than-expected Covid testing volumes and slower execution in a key government contract.
Cartrade is the leader in Business to Business (“B2B”) auctions of used vehicles and the number two player in online auto classifieds in India. The B2B auctions segment is driven by a shift towards organised technology led platforms offering an omnichannel experience and expansion in the share of used vehicles within the installed base. Growth in the online auto classifieds segment is driven by under-penetration of digital advertisement spends, market share gains from offline advertising mediums and a structural increase in car ownership. A profitable duopoly market structure presents scope for good operating leverage and margin expansion. The company’s leadership team has decades of experience in the automotive and technology sectors. CarTrade has several growth options, including cross-selling insurance & loans products and providing repair & maintenance services. The stock underperformed during the year due to concerns around increased competitive intensity.
AIE : Ashoka India Equity outperforms buoyant Indian market