Aditya Birla Sun Life Asset Management (MF)

About

Established in 1994, Aditya Birla Sun Life AMC Limited (ABSL AMC) is a joint venture between Aditya Birla Capital Limited (ABCL) owning 51% and Sun Life Financial Inc, a global financial services group headquartered in Canada. ABCL is listed on the Indian stock exchanges while Sun Life is listed on the Toronto and NYSE stock exchanges. 

ABSL AMC is ranked 6th largest AMC in India with a total AUM of over Rs. 2,862 billion (~$34.9 billion @82 INR per USD) for the quarter ending March 31, 2023 including mutual funds, portfolio management services, offshore and real estate offerings. It has about 8 million investor folios with a pan-India presence across over 290 locations.

Key details from financial statements for year FY 22-23 – 

YearTotal Income (INR crores)Total Expense (INR crores)EBIT (INR crores)EBIT MarginNet Profit (INR crores)Total Income (USD millions)Total Expense (USD millions)Net Profit (USD millions)
2021-221,408.52513.82894.7064%672.77187.8068.5189.70
2022-231,353.70559.84793.8659%596.37165.0968.2772.73

Source – https://mutualfund.adityabirlacapital.com/-/media/bsl/files/resources/financial-reports/birla-sun-life-mutual-fund/2022-2023/half-yearly-financial-31st-march-23.zip

Aditya Birla Capital Ltd. (ABCL) is a diversified financial solutions group with more than 34,000 employees across insurance, asset management and wealth management subsidiaries. ABCL is a universal financial solutions group. It is listed as NSE: ABCAPITAL.

Sun Life Financial Inc. is a Canadian financial services company. It is primarily known as a life insurance company. It has a presence in investment management with over CAD $1.3 trillion in assets under management operating in a number of countries. It has over $125 billion in assets under administration as of 2020. Sun Life ranks number 235 on the Forbes Global 2000 list for 2022.

Key staff

Vishakha Mulye, Chief Executive Officer Aditya Birla Capital Limited (ABCL) – the holding company of all the financial services businesses of the Aditya Birla Group. Vishakha took the lead of the company effective 1st July 2022. She is also a director on the board of Aditya Birla Management Corporation Private Limited, the apex decision-making body of the Aditya Birla Group. Before joining the Aditya Birla Group, Vishakha, a career banker, was an Executive Director on the Board of ICICI Bank and a commerce graduate from Mumbai’s H.R. College.

A. Balasubramaniam, Managing Director & Chief Executive Officer, Aditya Birla Sun Life AMC – he has over thirty years of experience in the mutual fund industry. Prior to assuming the role of the CEO in 2009, he served as the CIO from 2006-2009. He joined the AMC in 1994. Between 1989 to 1994, he worked with GIC Mutual Fund, Can Bank Financial Services, and Pandit & Co. He has completed advanced management programs from Indian Institute of Management, Bangalore and Harvard Business School. He also holds a bachelor’s degree in science (mathematics) and a master’s degree in business administration from GlobalNxt University.

Mahesh Patil, Chief Investment Officer, CIO – he has over thirty years of experience. He personally managed funds such as ABSL Frontline Equity, ABSL Focused Equity and ABSL Multi-Cap Fund, having joined in October 2005. He has previously worked at CMC Limited, Tata Economic Consultancy Services, Parag Parikh Financial Advisory Services Limited, Motilal Oswal Securities Limited and at Reliance Infocom Limited. He holds a Bachelor’s Degree in Engineering from the University of Bombay and a Master’s degree in Management Studies from University of Bombay. He has also qualified the Chartered Financial Analysts examination from the Institute of Chartered Financial Analysts of India (ICFAI), Hyderabad.

Anil Shah, Co – Head Equity – has thirty years experience. He executes and regularly reviews the investment strategy for equity portfolios. Prior to joining ABSLAMC in 2012, Anil was a part of RBS Equities (formerly known as ABN AMRO) for around 15 years. He is a CA and Cost Accountant by qualification.

Investment philosophy (for firm)

Aditya Birla Sun Life AMC Limited follows a long-term, fundamental research-based approach to investment. The approach is to identify companies, which have excellent growth prospects and strong fundamentals. The fundamentals include the quality of the company’s management, sustainability of its business model and its competitive position, amongst other factors.

Media

ICICI Direct Securities report on quarterly result, https://www.icicidirect.com/stocks/aditya-birla-sun-life-amc-ltd-share-price

Key figures from the report are summarised here –

March 2023Dec 2022Sep 2022June 2022March 2022
Sales291.85308.74305.63299.01317.1
Operating profit156.87181.81180.52179.99192.69
Profit after tax134.42165.01189.99101.52155.56

Aditya Birla Capital, Nippon Life merger discussions fail, 14 November 2022

https://www.livemint.com/companies/news/aditya-birla-capital-nippon-life-merger-discussions-fail-11668441114840.html

Mint reported on 14 Nov, 2022, the merger discussions between Aditya Birla Capital and Nippon Life have failed. Nippon Life, the owner of a 49% stake in Reliance Nippon, a life insurance venture backed by Reliance Capital, has reportedly refused to reduce its stake. This development is significant as it impacts the proposed merger between Aditya Birla Capital and Nippon Life. The article also mentions that Reliance Capital and its subsidiaries are currently undergoing insolvency resolution. The failure of the merger could have implications for the future plans and strategies of both Aditya Birla Capital and Reliance Capital.

Ajay Srinivasan steps down as Aditya Birla Capital CEO, and Vishakha Mulye to take charge, 23 April 2022

https://www.moneycontrol.com/news/business/companies/ajay-srinivasan-steps-down-from-aditya-birla-capital-8400631.html

Mulye will be joining the Company on 1st June 2022 and will operate as the Chief Executive Officer (Designate) with an overlap of one month with Mr. Ajay Srinivasan to ensure a smooth transition of leadership. Before joining the Aditya Birla Group, Vishakha, a career banker, was an Executive Director on the Board of ICICI Bank.

Insider trading rumours, Hindu Business Line, May 2022

https://www.thehindubusinessline.com/money-and-banking/aditya-birla-capital-denies-whistle-blowers-allegations/article65419846.ece/amp/

According to some news reports, the board of Aditya Birla Capital received a complaint against its mutual fund arm for insider trading by the former managing director Ajay Srinivasan. But as per the independent enquiry set up to investigate the matter didn’t find any wrongdoing. With that the board also clarified about the resignation of Ajay Srinivasan, as he is going to be appointed with a new post in the same company. Summary prepared by – Gaurav Jain, 19 May 2022

Maneesh Dangi resigns, Mint, April 2021

https://www.livemint.com/companies/news/aditya-birla-sun-life-mutual-fund-cio-fixed-income-maneesh-dangi-resigns-11617816436176.html

Mint reported on April 7, 2021, ABSL Mutual Fund’s Fixed income CIO, Maneesh Dangi, resigned to pursue his research interests and due to some family commitments. Dangi used to manage an AUM of around ₹1.7 lakh crore and had joined the fund house in 2006. Mahesh Patil, who was co-CIO Equity at ABSL Mutual Fund, will continue to exercise overall supervision over all its schemes. Kaustubh Gupta will take over as head of fixed income and Sunaina daCunha will take over as head of fixed income (credit).

Your Market Navigator – Expert Series – Mahesh Patil, CIO – Equity, Aditya Birla Sun Life AMC Ltd, Jan 2021

To summarize this presentation given as an outlook for 2021 by Mahesh Patil CIO, he firstly expects the economy go through multiple transition phases led by different factors like virus to vaccine, lockdown to reopening, recession to recovery, economic growth upgrades and market performance outlook which would be rally to broad based rotation. After that he analyzed the sector along with government policy overall and sector wise. Then goes on to analyze the market indices to get a feel of the customer sentiment. Then goes on to analyze global market performance and the factors, like US dollar and its effect on commodity market and cyclical. After that he turns his focus to sectors that will perform well owing to market sentiment and government policy support like low interest rate and rising RBI balance sheet (potential inflation hint) and other macro factors like BOP, Forex Reserves. After examining the Macro and Micro economic performance (global and India perspective) he then analyses the valuations, Starting with Nifty PAT Vs Quarterly GDP growth and Nifty earnings vs Nominal GDP. Nifty Consensus Momentum (which indicates the performance of earnings which the data indicates an upward momentum and indicating that overall earnings of the market can surprise going forward. In the equity market they try to spot trends / themes followed by sector and view on that sector. He then discusses key risks associated with the market view (both global macro and domestic) In the Q&A session he warns to be cautious about the valuation as they are inflated owing to favourable macro factors globally. So generally as an investor your margin of safety reduces while buying something expensive.

In addition, the AMC has also made changes to its style of picking stocks. They have become more flexible and are now comfortable going after high growth companies which are valued slightly higher and realigning their portfolio responsibilities and strengthening its portfolio review mechanism (via internal team meetings to act faster in terms of portfolio construction. To review the macro calls internal team meeting with the debt side is also been included and has been consistent with its method of spotting trend early in sectors

MMI Interview with Bala, dated 2014

A. Balasubramaniam, CEO, aims to maintain successful leadership based on AUM, market share, customer base, expansion of market including distribution. The emphasis is also on wallet-share i.e., their target is that every customer has 4-5 Birla products.

  • Product- Have a wide range of products to meet various investor needs. They have about 16 products in equities, after consolidation, where each fund serves a purpose. But he believes that only 3-4 products are building size. The rationale behind having so many products is market expansion, and curbing the under-penetration.
  • People- They have got people focused on one job and build their core competencies there instead of trying to do multiple things. Decision-making is driven by team participation, rather than being done individually. Performance metrics include 40% allocation to team performance and individual performance is rewarded on one- and three-year bases.
  • Overseas Partner- The decision to partner with an overseas company came from the Board of Directors. Although it doesn’t much affect the day-to-day operations of the AMC, it has helped bring in better governance through participation in the Board, the investment committee, the risk management committee, etc. It has further facilitated international market expansion.
  • Competitive advantage- Their key competitive advantage is that they have been in the industry for almost 30 years and have seen the ups and downs in the market and have been able to increase their AUM and customer base because of strong investment capability, ingenuity of people, and risk management (not only in investment, but also in operational risk).

MMI interview with Mahesh Patil, 2014

Mahesh Patil, CIO, believes that the Indian market is a growth market which has its ups and downs and that decent alpha can still be generated through active management. He looks for the following characteristics for selecting a stock/ company – 

  • Businesses that are scalable;
  • Growing faster than the nominal GDP or their industry average;
  • Generating free cash flows over the business cycle
  • Having a reasonable ROCE (ideally above 15%)
  • Strong competitive advantage (in terms of brand, technology, distribution, cost, etc.)
  • Credible management
  • Availability at fair valuation

Other points from the interview – 

Good management– In 2012, he developed a management evaluation scorecard which ranked the company’s management on about six parameters to arrive at a composite score. This exercise was done on an annual basis by several analysts and soon became an integral part of the investment process for identifying new companies and evaluating existing investments. Usually, the management score is compared to companies in the same sector, and a certain threshold was set to stay away from poorly managed names. A company with high management and a key competitive advantage give it a “right to win” that sector.

Research- They largely rely on internal research, have a team of 12 analysts and they maintain an investable universe of about 360 stocksFor a company to enter the universe, they gauge its management, track record and growth prospects, valuations may not play a significant role for this. While they rely on sell side research to keep providing inputs to their research analysts, they believe that the calls have to be made by internal analysts. The former may, say, provide research on 100-130 stocks of the universe, the rest are taken care of by internal analysts.

The 40-60 balance– They use a blend of both macro and micro outlooks for stock selection: 40% top-down and 60% bottom-up. They have a predominant philosophy of a bottom-up approach and believe that it’s their strength, but bottom-up plays out over a period of time and not necessarily in shorter time frames.

The team routinely meets with the senior portfolio managers and an internal economist to dwell on some key global and domestic macro data and debate to arrive at the macro call that would influence their investment decisions, it also helps them to manage a beta based on the market view that they have. The macro analysis is at the market level and the sector level. After this top-down research process, they blend it with the bottom-up approach and that helps research analysts to build the portfolio.

Growth and Value- Starting off as a typical growth investor, he later began to give equal importance to value. He has adopted the mantra of “growth at a reasonable price” (GARP) i.e., one must not pay too much for growth companies, but at the same time, there must be enough on the table so that the benefits of compounding can accrue to investors. In India, there are several high growth companies and sectors – across industries. For Mahesh, it’s here where the biggest money or value creation can happen, but “only” at the right price.

A combination of high growth and sustainability of that growth leads to a re-rating in terms of multiples. Earnings growth and a gain in P/E levels result in a “multi-bagger”.

The valuation is standardized with tools like P/E, EV/EBITDA, price to book multiples, etc., and there can be some additional metrics for specific sectors.

Risk Management- With an evolved risk management framework after rigorous back-testing of data, they use risk assessment parameters like active bets, liquidity and overlap with the benchmark, etc., to ensure appropriate diversification.  Portfolios are constructed keeping in mind the index constituents. The maximum active weights at the stock and sector levels are clearly defined. Certain very large index stocks (more than 5% weightage) like HDFC Bank, for instance, need to have a certain minimum holding in the portfolio at all times irrespective of the view on the stock. This discipline is necessary to reduce the risk of large underperformance when the call goes wrong.

Consistency- Mahesh firmly believes in this philosophy, “Investors are coming in the fund at various points in time. Their experience relative to the market should be consistent irrespective when they enter the fund.” The idea is to reduce the risk and keep the fund volatility not too away from the benchmark to smoothen the investor returns. ABSLMF’s flagship “Frontline Equity Fund”, managed by Mahesh, has consistently beaten the benchmark in every calendar year in the past 12 years.

Portfolio Construction- The fund managers test analysts’ high conviction ideas based on their own experience and knowledge, and then build portfolios. There might be inconsistencies between the two but not too often. They don’t have tracking error targets, but do look at risk in terms of deviations from the benchmark. They have done research on how big these tilts need to be to generate enough outperformance to be in the top quartile in the long run.

Interview with Mahesh Patil – extract from book ‘Brightest Investment Minds’ by Anuj Shah

https://docs.google.com/viewerng/viewer?url=https://www.moneymanagementindia.net/wp-content/uploads/Mahesh-Patil-Brightest-Minds.pdf&hl=en

Prepared by Sarath Chandra, July 2021, Bhavna Mundhra, May 2021, Updated by Jigyasu Bhan Singh Aug 2022

Updated by Ganesh Hulke, June 2023 

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