As of today, I have shifted my 2% allocation from ICICI Lombard to Sundaram Finance Ltd.
Rationale: FY22 was an interesting year in insurance, where health insurance industry surpassed auto. ICICI Lombard has been struggling to gain market share in health insurance (regulatory arbitrage + more focused SAHI cos) and are guiding for 18% kind of ROEs. For an 18% ROE profile, I will prefer HDFC Bank and avoid paying a 6.5x P/B multiple for ICICI Lombard.
Sundaram Finance is coming out of a CV downcycle and should benefit from a cyclical uptick. They are one of the most conservative lenders with one of the highest ROA (due to lower credit cost) for the longest amount of time (last dilution was decades ago!). Their valuations have taken a hit and now they are valued at ~15x P/E and ~2x P/B (which is at cyclical low levels).
I am getting a prudent lender at reasonable valuations at a probable cusp of a CV upcycle. Lets see if the CV cycle plays out, I am also contemplating increasing position size in Ashok Leyland as they have filled their product gap and should also benefit from CV upcycle. Cash level stays at zero and portfolio is below
Core compounder (44%)
| Companies | Weightage |
|---|---|
| I T C Ltd. | 8.00% |
| Housing Development Finance Corporation Ltd. | 4.00% |
| NESCO Ltd. | 4.00% |
| Eris Lifesciences Ltd. | 4.00% |
| Ajanta Pharmaceuticals Ltd. | 4.00% |
| HDFC Asset Management Company Ltd | 4.00% |
| Aegis Logistics Ltd. | 4.00% |
| Gufic Biosciences | 4.00% |
| HDFC Bank Ltd. | 2.00% |
| PI Industries Ltd. | 2.00% |
| Shri Jagdamba Poly | 2.00% |
| LINCOLN PHARMACEUTICALS LTD. | 2.00% |
Cyclical (40%)
| Companies | Weightage |
|---|---|
| Kolte-Patil Developers Ltd. | 4.00% |
| Sharda Cropchem Ltd. | 4.00% |
| Avanti Feeds Ltd. | 4.00% |
| Aditya Birla Sun Life AMC Ltd | 4.00% |
| Manappuram Finance Ltd. | 4.00% |
| Alembic Pharmaceuticals Ltd. | 4.00% |
| Amara Raja Batteries Ltd. | 4.00% |
| Ashiana Housing Ltd. | 2.00% |
| Ashok Leyland Ltd. | 2.00% |
| Heranba Industries | 2.00% |
| Kaveri Seed Company Ltd. | 2.00% |
| Control Print Limited | 2.00% |
| Sundaram Finance Ltd. | 2.00% |
Slow grower (4%)
| Companies | Weightage |
|---|---|
| Cochin Shipyard Ltd. | 4.00% |
Turnaround (6%)
| Companies | Weightage |
|---|---|
| CARE Ratings Ltd. | 4.00% |
| Punjab Chem. & Corp | 2.00% |
Deep value (6%)
| Companies | Weightage |
|---|---|
| ATUL AUTO LTD. | 1.00% |
| Jagran Prakashan Ltd. | 1.00% |
| D.B.Corp Ltd. | 1.00% |
| Time Technoplast Ltd. | 1.00% |
| RACL Geartech Ltd | 1.00% |
| Shemaroo Entertainment Ltd. | 1.00% |