ITUS Capital

ITUS Capital Fundamental Value Fund


Key Attributes

Mr. Naveen Chandramohan

Inception Date: 01 Jan 2017

Number of Stocks: 16 - 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: Mr. Naveen Chandramohan (Founder & CEO) With 14 years of experience.

Investment Objective

The objective 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.

Portfolio Strategy

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.

At ITUS, they follow the GPCG Framework: Growth, Price, and Corporate Governance. 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.

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 do we 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 we 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 we look at companies, less than 10,000 Market cap, it’s important for us to expect a higher return profile as we are sacrificing on liquidity. If our estimate of return does not compensate us for the liquidity loss, we 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
Portfolio3.6%4.8%5.5%-5.5%20.9%24.2%18.3%20.7%
Nifty 503.5%7.0%5.7%3.6%24.9%17.2%12.3%14.6%



QRC Report Card *




VIEW DETAILED QUALITY, RISK, CONSISTENCY ANALYSIS

Portfolio Holdings


Holding %
SUMITOMO CHEMICAL INDIA PRIVATE LIMITED 9.00
L AND T TECHNOLOGY SERVICES LIMITED 8.00
SYNGENE INTERNATIONAL LIMITED 7.00
INDIAN ENERGY EXCHANGE LIMITED 6.00
HDFC BANK LIMITED 5.00
AHLUWALIA CONTRACTS 4.50
BATA INDIA 4.10
HDFC LIFE INSURANCE COMPANY LTD 4.00
ICICI BANK LIMITED 4.00
INDOCO REMEDIES LIMITED 4.00
BALKRISHNA INDUSTRIES LIMITED 3.00
CAMS 3.00
CERA SANITARYWARE 3.00
DR LAL PATHLABS LIMITED 3.00
BOSCH LIMITED 3.00
TITAN COMPANY LIMITED 3.00
JUBILANT FOODWORKS 3.00
RACL GEARTECH LTD 2.50
FSN E-COMMERCE VENTURES PRIVATE LIMITED 2.00
INFOSYS LIMITED 2.00
ALKEM LABORATORIES LIMITED 1.50
NAZARA TECHNOLOGIES 1.50
C.E. INFO SYSTEMS LIMITED 1.00
ICICI LOMBARD GEN INSURANCE CO LTD 1.00
Top 23 Equity Holdings 87.10

Sector Allocation


Holding %
Financial Infrastructure 4.00
AUTO ANCILLARY 5.50
Non Lending Financials 5.50
Building Materials 7.00
Consumer Discretionary 7.50
Speciality Chem - Manufacturing 9.00
Private Sector Bank 11.00
Platform 11.50
IT Services 12.00
PHARMA 13.00
CASH AND CASH EQUIVALENTS 14.00

Market Cap Allocation


Allocations %
Large Cap 24.0
Mid Cap 44.6
Small Cap 19.5
Cash 11.9


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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 Aug 2022. Returns up to 1 Year are absolute, above 1 Year are CAGR.

*QRC Report Card data is updated quarterly. Current data is as of Jun 22.




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