Net Asset Value(s)

RNS Number : 8084J

India Capital Growth Fund Limited

07 April 2010

 



India Capital Growth Fund Limited

07 April 2010

India Capital Growth Fund Limited (the "Company" or "ICGF")

31 March 2010 NAV Statement

Net Asset Values

The Company announces its net asset values per share as at 31 March 2010:

Net asset value per share - undiluted                           67.73p

Net asset value per share - fully diluted                       67.73p

Portfolio Update

March has been an excellent month for ICGF with the net asset value per share rising 12.75% in Sterling. Whilst the NAV benefitted from further weakness in Sterling, in Indian Rupees the value of the fund rose 8.7% (9.9% if the "drag" from the high cash component is stripped out) compared to the BSE Mid Cap Index which rose 6.4%. The better performance came substantially from two stocks, both long term portfolio holdings. S Kumars Nationwide, ICGF's largest holding, rose 33% on the back of announced plans to restructure through the listing of its subsidiary Reid and Taylor and the planned partial sale of its Belmont brand to a private equity investor. We still see substantial value in the stock (3.5x 1 year forward earnings since the spike) and are delighted that the company is taking steps to unlock some value. The company is not well known by the foreign investor community currently and these initiatives might be the catalyst for interest to be awakened. That said the stock's performance has resulted in the portfolio weighting rising to levels not compatible with the concentration parameters of the fund, so action here will be necessary. In addition, the long expected takeover of MSK Projects was announced.  At a discount to book value it is felt that the offer is too low to accept, and the market shares this view as the stock is trading 30% above the offer price. The prospective takeover should, however, be positive for MSK's road building projects and the company's business prospects generally. Elsewhere positive performance was generated in healthcare and telecoms whilst the interest sensitive sectors, notably real estate and financials, struggled following the surprise early move by the Reserve Bank of India to raise interest rates.

The restructuring of the portfolio continues in earnest with four new holdings being added to the portfolio this month in real estate, agrochemicals and energy.  A steady flow of exciting new ideas is being generated. The invested position has risen to 85% and that trend is expected to continue in the short term.

Outlook.

The news headlines for the month were grabbed by the Reserve Bank who raised both the repo and reserve repo rates by a quarter of one percent ahead of their scheduled meeting on 20th April.  The surprise was in the timing rather than the amount, as the market has long been expecting the tightening cycle to begin. Non food inflation is now the driver of the Reserve Bank's concerns as the economic recovery continues to be stronger than expectations.

This is evidenced by the continued strong performance of industrial production and more recently the encouraging performance of the capital goods sub sector. As yet there is no evidence that capital expenditure at the corporate level has picked up, hence the belief that the improvement in industrial production is driven by better utilisation levels rather than growth in capacity. We remain convinced that private sector investment will show through in the data shortly which will go some way to easing inflationary pressures further down the line.  Both the RBI's intra-meeting rate rise and the market's reaction to it are very telling. The fact that the Reserve Bank took the market by surprise increases the perception that they are responsive to changes in the economic climate.  The fact that the market's response was so benign implies confidence in the policy makers and confidence in the recovery. It is not a clear picture ahead, but it seems a good deal clearer than in many other places around the world currently. As always, though, concerns are raised about the valuation premium India commands over other emerging economies.  21.5x one year forward price/earnings* for the BSE30 (large cap) is no give-away in anyone's book, but the BSE Mid Cap Index is still keenly priced at 14.5x one year forward price/earnings,  falling to 11.8x in FY12 (from March 2011). It is here you will find the real engine room of the "Indian story".

* price/earnings data calculated using Bloomberg consensus estimates.

7 April 2010

Analysis of holdings at 31 March 2010

Sector Summary	No. of Companies	% of Portfolio
Textiles	2	16.2%
Financial Services	4	13.3%
Engineering / Manufacturing	3	10.5%
Housing & Construction	5	9.6%
Pharma	1	9.0%
Transport	2	8.9%
Media	2	7.5%
Metals	1	3.1%
Telecom	1	3.0%
Energy	1	1.9%
Other	3	2.0%
Total Investment	25	85.0%
Net Cash and Debt Mutual Funds		15.0%
Total Portfolio		100.0%

Top 10 equity holdings at 31 March 2010

Holding	Sector	% of Portfolio
S. Kumars Nationwide	Textiles	14.7%
Marwadi Shares and Finance	Financial Services	9.3%
Bilcare	Pharmaceuticals	9.0%
Prime Focus	Media	6.4%
Varun Shipping Co	Shipping	5.6%
ICSA India	Engineering / Manufacturing	5.1%
MSK Projects India	Housing and Construction	3.9%
Spicejet	Airlines	3.4%
Hindustan Dorr-Oliver	Engineering / Manufacturing	3.2%
Sterlite Industries	Metals	3.1%

Portfolio breakdown by size at 31 March 2010  

Size	No. of Companies	% of Portfolio
Small Cap	9	30.2%
Mid Cap	4	29.0%
Large Cap	10	16.5%
Unlisted	2	9.3%
Cash/Cash Equivalent		15.0%
Total	25	100.0%

 

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