AXIS – Brand Equity Strategy - PMS - An insight into the key process

What is brand?

The name which can “flash-out” of the mind of a Common man, as soon as you talk about a product, is a brand. Topping the list, are the products popular with their brand-names, while the common man imagines it is THE name of the product itself.

One of the best fitting example is “Xerox” , you can observe even the educated(and well informed) humans, state “take four Xerox of your mark-sheet”, while the “photo-copy” is the right word it is very common the brand name “Xerox” has struck to the process. That is the Value of brand.

There are other brands, where competitors have evolved and succeeded partly to share the product with their brands. We observed recently in a village shop, a common man, asking “Give me a Close-up Colgate”, it took few seconds for me to understand, in the man’s vocabulary “Colgate” means “tooth-paste”. To-day Pepsodent is another brand name in the same product range.

We find many established and favourite brands of the consumers, have maintained their “illusive-first-impression” till date. How many of us know “Peter-England/Louis philippe/Allen Solly” , are Indian brands owned by a subsidy of the Aditya Birla Group?

Does "Brand" have any Value?

Brand value is assessed through various parameters and complicated methodologies to calculate. As it would be too cumbersome to explain the valuation methods (and beyond the purview of the purpose of this article), suffice is to say there are establishments world-wide, which specialize in valuing the Brands. A Sample valuation of Brands is tabulate ...

Indian Brands are currently valued using the same methodology. The top-20 Indian Brand value is appended:

1 Tata Group Brand Value: Rs 742.18 billion
2 Airtel Brand Value: Rs 350.44 billion
3 Reliance Industries - Brand Value: Rs 349.24 billion
4 HDFC Bank Brand Value: Rs 240.06 billion
5 LIC Brand Value: Rs 236.05 billion
6 The State Bank of India (SBI) Brand Value: Rs 232.21 billion
7 Infosys Brand Value: Rs 230.64 billion
8 ICICI Brand Value: Rs 166.59 billion
9 Mahindra Brand Value: Rs 156.78 billion
10 Godrej Brand Value: Rs 153.88 billion
11 Wipro Brand Value: Rs 139.69 billion
12 Larsen & Toubro Brand Value: Rs 134.89 billion
13 Bajaj Auto Brand Value: Rs 121.78 billion
14 Maruti Suzuki Brand Value: Rs 115.63 billion
15 Axis Bank Brand Value: Rs 101.32 billion
16 ITC Brand Value: Rs 86.85 billion
17 HCL Brand Value: Rs 83.33 billion
18 Hero Brand Value: Rs 82.53 billion
19 ONGC Brand Value: Rs 66.08 billion
20 Asian Paints Brand Value: Rs 58.14 billion

Can a Brand fail?

There are hundreds of brands, survived decades, driving through many cycles, adding more and more value to the share-holders. However, there are few (very few) brands that failed. One such example is “Kodak”. When the electronic based storage started replacing the “film-technology”, the company had collapsed. An excerpt from the Forbes on the failure of Kodak is appended:

Immensely successful companies can become myopic and product oriented instead of focusing on consumers’ needs. Kodak did not fail because it missed the digital age. It actually invented the first digital camera in 1975. However, instead of marketing the new technology, the company held back for fear of hurting its lucrative film business, even after digital products were reshaping the market.

Another example, is the failure to act in time by Microsoft, when the smart-phones gaining momentum. Apple’s i-phone and Google’s Android were way ahead when Microsoft launched its Window-phone. However, Microsoft, brand has not failed due to various other innovations and Management capabilities.

The Strategy of Axis-PMS – "Axis-Brand-equity"

Our PMS-Bazaar team visited the Axis-PMS and interacted with the staff and the portfolio Manager of the strategy “Axis-Brand-Equity”, Mr. Trideep Bhattacharya.

Mr. Trideep Bhattacharya is a doyen in portfolio Management, with more than 20 years of experience. He is an IIT, B.Tech, with MBA Finance and CFA (USA) qualifications, and has wide exposure to portfolio Management at various Levels world-wide (including UBS/State street Global before joining Axis-AMC).

During the interactions, we have realized that the strategy will suit for moderate risk-appetite investors, with investment horizon of 3+ years. The salient features of the strategy are appended:-

L to R - Mr.Pallavarajan R ( PMS Bazaar ,Mr.Trideep Bhattacharya (Fund Manager- Axis PMS),Daniel GM (PMS Bazaar)

  1. The strategy has evolved due to the strong and practical reasoning of the portfolio Manager, namely…
    1. Companies with brands create a distinct bargaining power – due to economies –of-scale, high-entry-barrier, strong-pricing-power, operating in under-penetrated markets.
    2. Due the reasons stated, brands create superior margins and growth.
    3. Brands generate higher investor returns across various Business-cycles.
  2. The strategy additionally ensures that, a “balanced-mix” of established brands with emerging brands, augurs well for a better return to the investors.
  3. The PMS Manager, believes that “bottom-up”, stock pick is better suited, rather than to lean on one-or-more “macro-driven” trends.
  4. The investors are cautioned that the equity markets will remain at elevated volatility in the short-term, hence advised to remain invested for medium-to-long-term.
  5. The strategy will allocate giving importance to “best-ideas” within the frame of “Strong-brand”.
  6. The diversification of investment is across various sectors and market-capitalization.
  7. It is heartening to note the portfolio Manager, believes that this strategy is an “elixir-of-ALPHA-creation”.

The RISK - ADJUSTED return principle of AXIS PMS

Axis PMS appears to believe in providing the best “risk-adjusted” return to its investors. On further scrutiny to know the process to achieve this factor, revealed few interesting observations …

  1. Rationale in all the actions the strategy executes; be it stock selection, % of allocation to the particular stock in the portfolio, or change in portfolio metrics.
  2. Logical, practical assessment of loss-making (or lesser profit offering) stocks in the portfolio, for reasons of loss, as well the possibility of recovery. For example, Kansai-Nerolac, Gruh-finance and Supreme Industries, were detractors during the month of June. The Strategy, team assessed this and concluded that, the EBITDA of these companies suffered due to “rising-commodity” prices, and this would be temporary, because, these brands have “pricing-Power” and hence the margins will improve in the next few quarters.
  3. The portfolio is well-diversified into (currently), eight various sectors and various stocks with top-10 stocks total holding at 61.98%.
  4. On an average, many stocks are held between 5-to-7% value of the total portfolio, currently only one stock HDFC-Bank is 10.23% (as on 30-June-2018)

The Stock Selection Process of AXIS-Brand-Equity:

Axis PMS appears to believe in providing the best “risk-adjusted” return to its investors. On further scrutiny to know the process to achieve this factor, revealed few interesting observations …

The RISK - ADJUSTED return principle of AXIS PMS

  1. Screening
    1. Only the companies with significant “brand-building-investment” are selected. This will include, advertisement/royalty/R&D and marketing costs
    2. Companies growing better than GDP are only selected, thus selecting the better bargain power.
    3. Companies with returns greater than the cost of capital are selected, thus eliminating the cyclical.
  2. Screening

    The PMS team does ongoing research on Management and analyses competition, margin safety etc.

  3. Time Frame

    The companies are selected are based on 3-5 years prospective, and the strategy aims at stable-low-churn-portfolio.

Our PMS-Bazaar team has opined that the Risk Management/analytical skills/and methodology to assess the Management policies of the invested company by the PMS Manager is capable of identifying the “Kodak-style” failures and trim the portfolio accordingly.

Inception date = 27th Jan 2017

 

We at PMS-Bazaar, believe that the “Axis-brand-Equity” strategy is suitable for investors with moderate-risk-appetite and with more than 3 years investment horizon.

For further details and suitability of matching individual’s risk profile, please feel free to contact info@pmsbazaar.com

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