ITUS Capital

ITUS Capital Fundamental Value Fund


Key Attributes

Mr. Naveen Chandramohan

Inception Date: 01 Jan 2017

Number of Stocks: 15 - 20

Founder & Portfolio Manager: Mr. Naveen Chandramohan

Portfolio Manager's Qualification: BE, BITS Pilani ; MBA From IIM Bangalore. Naveen was awarded the best fund manager award by Asia Hedge for three years in a row (2012-2014) for his performance.

Portfolio Manager's Experience: 15+ years

Investment Objective

The objective of the multi-cap ITUS Capital Fundamental Value Fund is to build and manage a portfolio of growth-oriented companies to compound capital by achieving an alpha of 5-8% over the index. The team at ITUS are growth investors who are prudent about the price they pay to own businesses.

The portfolio looks for companies that are growing their Free Cash generated from the Operations. This is done with thorough research and fundamental analysis of the company and its growth cycle.

Investment Strategy

ITUS Capital Fundamental Value Fund is a concentrated PMS of 15-20 companies across market cap. It is a focused strategy with an active risk management discipline, and does not follow a model portfolio approach.

The portfolio, with a DCF Valuation approach, invests in a portfolio of around 20 companies. The investment style is a bottom-up with an investment horizon of over 3 years. The fund invests across market capitalization with a focus on free cash flow growth. Understanding the business model and breaking down the unit economics of the business is an essential part of the due diligence done by the fund. There are businesses that the fund manager and the investment team do not understand, and such companies would never be part of the fund.

With an average churn of ~20%, the maximum exposure to any sector would be 35%, and the maximum exposure to any stock would be 10% of the total portfolio.

At ITUS, they follow the GPCG Framework: Growth, Price, and Corporate Governance. The aim is to buy businesses with a competitive advantage operating in industries with a large headroom for growth.

The investment approach is top-down (global & thematic) and fundamental research driven bottom-up approach. To put it differently, the four steps to investment include: Macro analysis, Thematic analysis, Bottom-up a analysis, Portfolio construction & risk.

Macro Analysis

• Top Down Analysis to create list of preferred sectors (if an) to overweight
• Guides sector specific weighting and gross exposures
• Generates set of assumptions (if any) for bottom up analysis

Thematic Analysis

• Identifying themes at an early stage
• Analysis on whether they are longer term and sustainable
• Independent research working on if they are investable

Bottom-Up Analysis

• Research and fundamental analysis of the company and its growth cycle
• Invest with a margin of safety where upside on growth is not priced
• Company edge in one of i) brand ii) network effect iii) operating leverage iv) growth

Portfolio Construction & Risk

• Work on Sector level and company level exposure limits

Investment Parameters

ITUS Capital Fundamental Value Fund follows a list of investment parameter checks before investing into any business.

Quantitative Parameters

• Shareholder Returns
• Capital structure
• Ownership structure
• Accounting Gimmicks

Qualitative Parameters

• Competitive Advantage
• Management
• Alignment with Partners
• Pricing

Investment Philosophy

The pride is in the framework of portfolio construction and the adherence to basic guidelines as an investment firm. Portfolio Manager is looking for well-managed, scalable business models, and the valuation framework within this is governed by intrinsic cash flow calculations.

It prefers not to use extended forecast based modeling for projections. Follows a basic checklist for businesses and risks it does not want to take in the portfolio. Finally, it’s important for the portfolio manager to evaluate the net free cash flow the business generates, net of reinvestment cost of capital.

The nature of businesses that are avoided matters and following is a guide to that:

• Siphoning of cash
• Poor returns on incremental capital (state-owned enterprises, conglomerates, airlines)
• Businesses with existential threats ( print media, wind energy businesses, etc.)
• Related party investments into other businesses

Basic assessment checklist that is followed:

• Too many related third party transactions
• Differing ownership in ‘ventures’
• Promoter pledged stocks
• Aggressive accounting policies – increasing accounts receivables with an increasing sales trendline
• Auditor change frequency
• Capitalizing expenses

What does ITUS Fundamental Value PMS look for in growth?

The nature of the businesses that enter the growth portfolio bucket would need to demonstrate FCF growth of 10%+ over the last 5 years preferably with an increasing EBIT margin, and with growth coming in without adversely impacting the balance sheet in the form of additional debt. Such companies are rarely available cheap, but they do not mind paying a premium selectively depending on the industry nature, and if the ROCE > 20% (For Banks, we would look at ROA as a measure).

When they look at companies less than 10,000 Market cap, it’s important to expect a higher return profile as the investors are sacrificing on liquidity. If the estimate of return does not compensate for the liquidity loss, the team would be weary of investing in smaller market cap companies.

Performance Table #


Trailing Returns (%) 1m return 3m return 6m return 1y return 2y return 3y return 5y return 10y return Since inception return
Itus Capital Fundamental Value Fund-0.84%1.15%9.00%31.95%12.53%15.36%18.65%20.04%
Nifty 50 TRI1.57%2.92%14.09%30.08%14.37%16.30%15.26%16.24%

QRC Report Card *




VIEW DETAILED QUALITY, RISK, CONSISTENCY ANALYSIS

Portfolio Holdings


Holding %
AHLUWALIA CONTRACTS 3.80
AIA Engineering 2.50
BALKRISHNA INDUSTRIES LIMITED 2.50
BATA INDIA LIMITED 2.00
BOSCH LIMITED 2.50
COMPUTER AGE MANAGEMENT SERVICES LIMITED 2.00
C.E. INFO SYSTEMS LIMITED 0.50
CERA SANITARYWARE LIMITED 3.50
CRAFTSMAN AUTOMATION 3.00
DR REDDYS LABORATORIES 3.00
HDFC BANK LIMITED 3.50
HDFC LIFE INSURANCE COMPANY LTD 1.50
INDUSIND BANK 4.50
ICICI LOMBARD GEN INSURANCE CO LTD 3.50
INDIAN ENERGY EXCHANGE LIMITED 3.50
INDOCO REMEDIES LIMITED 1.00
JUBILANT FOODWORKS 3.00
L AND T TECHNOLOGY SERVICES LIMITED 4.50
MARUTI SUZUKI 4.00
DIVGI TORQTRANSFER SYSTEMS LIMITED 2.50
RACL GEARTECH LTD 3.40
RHI Magnesita 3.00
SUPRAJIT ENGG 3.50
SUMITOMO CHEMICAL INDIA PRIVATE LIMITED 5.50
SYNGENE INTERNATIONAL LIMITED 6.50
TITAN COMPANY LIMITED 1.00
Cash 20.30

Sector Allocation


Holding %
Pharma 10.50
Auto Ancillary 17.40
Auto 4.00
Financial Infrastructure 2.00
Speciality Chem - Manufacturing 5.50
Non Lending Financials 5.00
Private Sector Bank 8.00
Platform 4.00
Capital Goods 2.50
IT Services 4.50
Building Materials 7.30
Refractories 3.00
Retail 1.00
Consumer Discretionary 5.00
CASH AND CASH EQUIVALENTS 20.30

Market Cap Allocation


Allocations %
Large Cap 52.00
Mid Cap 19.20
Small Cap 13.00
Cash 15.80

Do Not Simply Invest, Make Informed Decisions

WISH TO MAKE INFORMED INVESTMENTS FOR LONG TERM WEALTH CREATION

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From the Founders & Managers of Itus Capital PMS

What to expect from ITUS Capital’s Fundamental Value Fund PMS?

Itus runs a multi-cap fund with a focus on cash-flow growth in the public markets. The philosophy of Itus from an investment process is driven by 3 steps:

  1. Invest in businesses that generate cash flows
  2. Monitor the promoter and management’s ability to reinvest cash flows into the business (Return on Incremental Capital)
  3. Do not pay up to own these businesses

Our Investment Strategy at the firm is governed by the GPCG framework – we look for ‘G’- Growth at a reasonable price ‘P’, where we never sacrifice the ‘CG’ – Corporate governance. The CG is measured through quantitative metrics (from the Balance sheet) eg : CA Fees as a % of revenue growth, Shares pledged, Related party transactions, holding company / operating company structure and Qualitative metrics where we do a background check on the management and promoters along with their interaction with their eco-system and partners.

 

Who should invest in this PMS?

Every client who is constructing or looking to construct a Core portfolio, with a focus on cashflow growth, stability and long-term vision to build significant wealth with smaller drawdowns. The clients of ITUS include business owners, partners of VC & PE funds, CEO’s of publicly listed & private companies in India & a large single-family office out of the US. The average(median) invested capital from, a single client stands at INR 3 Cr today, which is one of the largest in the country for any PMS.

Which is the best company through which an investor can invest in ITUS Capital Fundamental Value Fund?

We recommend PMS AIF WORLD, because, it is one unique platform that offers real knowledge driven investing with their highly meaningful data, reports, and content that is written very well. PMS AIF World is a team of highly articulate, educated, and experienced people.

Disclaimer

#Returns as of 31 Mar 2024. Returns up to 1 Year are absolute, above 1 Year are CAGR.

*QRC Report Card data is updated quarterly. Current data is as of Dec 23.


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