Ashoka India Equity has published results for the 12 month period ending 30 June 2024. The trust delivered great absolute returns but actually underperformed over this period, returning 35.5% in NAV terms and 35.9% in share price terms as compared to 37.7% for the MSCI India IMI Index. There is no dividend.
The trust’s shares finished the period on a 1.7% premium. 43,084,585 new shares were issued during the year under review, raising a total of £107.5m.
The trust’s three-year numbers to end June 2024 were good enough to earn the manager a performance fee of £2.3m (remember there is no base management fee on the trust).
Extracts from the manager’s report
Contributors
Azad Engineering Limited manufactures highly engineered precision and machined components that are mission and life-critical. Hence, quite a few of the company’s products have to meet stringent quality requirements. The company has a significant cost advantage compared to other global players and a large runway for growth. Its customers include global OEMs across the aerospace & defence, energy, and oil & gas industries, such as General Electric, Honeywell International, and Mitsubishi Heavy Industries. The industry has significant barriers to entry where a new entrant must obtain part-by-part qualifications, the time taken for which can extend up to four years. The stock has outperformed as the company has signed multiple agreements with new customers as well increasing its wallet share with existing customers. The company continues to move up the value chain with a recent contract for end-to-end manufacturing.
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, such as ICICI Bank are gaining market share from poorly run government owned banks, which account for two-thirds of the industry. The management team has been leveraging ICICI’s wide distribution franchise, a new risk-based pricing approach, and digital offerings to accelerate market share and enhance the return ratios. The bank’s asset quality has also remained robust. The stock has outperformed its peers on the back of continued strong business performance.
CG Power and Industrial Solutions, a part of the Murugappa Group (a leading industrial conglomerate), manufactures industrial, railways, and power transmission and distribution products. It is India’s largest motor manufacturing company, with ~38% market share, and supplies a complete range of efficiency motors. The company also caters to the power transmission and distribution sector through its diversified transformers and switchgear product portfolio. It has recently launched a range of Fast-Moving Electrical Goods (FMEG) products such as fans and pumps. In addition, the company is developing motors for electric vehicles. The company has recently signed a joint venture agreement with global companies to enter the semiconductor value chain has made an acquisition in the railway domain. The above factors coupled with the strong operating performance delivered by the company over the last few quarters has led to the stock outperformance.
Detractors
Aether Industries, based in Surat (Gujarat, India), manufactures advanced intermediates and specialty chemicals involving complex and differentiated chemistry. The company’s products find numerous applications across the pharmaceuticals, agrochemicals, material science, coating, high-performance photography, additive, and oil & gas segments of the chemical industry. Although long-term fundamentals remain strong, the near-term operating performance has been sluggish owing to prolonged slowdown in the global agrochemicals markets.
Navin Fluorine (NFIL) is a specialty chemicals company focusing on fluorine chemistry. It is present across the fluorine value chain, from inorganic fluorides to specialty chemicals and Contract Research and Manufacturing Services (CRAMS). The company is now focusing on high-end sustainable segments like CRAMS and specialty chemicals while simultaneously leveraging its other segments captively to achieve full integration. The company works closely with innovators and has a robust pipeline of molecules. The company has also been focusing on new value-added segments to cater to high-end customers with highly complex product needs. The near-term operating performance has been sluggish due to the global slowdown in the agro-chem industry due to channel overstocking coupled with demand slowdown. The decline in contribution from high value added segments such as Specialty chemicals has resulted in the stock’s underperformance.
Onward Technologies is a technology services company focusing on ER&D services and digital technologies. When the current Managing Director of the company took over, the company had primarily a legacy business with resources largely deployed with Indian customers in a low billing rate environment. To prioritize the high-margin business, the company had let go of non-strategic clients and shifted its focus towards partnering with larger original equipment manufacturers (OEMs) with the goal of securing $10m accounts. The company also hired key sales leaders from leading peer companies like Tata Elxsi and L&T Technology Services, a step that has helped it acquire marquee global customers. The company was expected to increase its wallet share within these marquee accounts, which would have been likely to lead to robust free cashflow growth over the next few years. The stock, however, underperformed due to unexpected furloughs during late 2023, leading to weaker-than-expected operating performance.
AIE : Another great year for Ashoka India but returns lag benchmark index
