Carnelian Compounder Fund

Firm Overview

• A boutique investment management firm founded by industry veterans in April 2019 with an aspiration to create a best-in-class asset management platform known for its values, expertise and best practices
• Specialize in Indian equity investments for HNI’s, family offices, institutions & partners’ own capital, across different strategies and caps & sectors
• Founding team of three motivated, passionate professionals with complementary skill sets & strong track record of building leadership businesses in the capital market domain and enduring research platform
• Supported by an equally motivated and passionate team of 44 professionals
• 100% founder owned – reinforcing trust and value for all stakeholders; skin in the game
• Technology, risk & compliance and process driven DNA
• We believe in investing in “quality growth at a reasonable price” and “risk diversification through forensic analysis”\

Founder’s Profiles

Board of Advisors

Carnelian Competitive Advantage

• Unique Approach, Unique Insights
• Independent, entrepreneurial boutique with a reputed board of advisors Long-term approach with high active share (differentiated portfolio)
• Concentrated QGARP portfolio - Quality Growth companies (Business & Management) at a Reasonable Price
• Offers a unique blend of companies with accelerated and sustainable growth
• Proprietary forensic analysis
• Known for identifying larger themes, trends /stocks early

Capital Compounder Fund-1 (CAT-III AIF)

• Long only, multi-cap, sector agnostic strategy focusing on capturing the “trillion-dollar India opportunity”
• Concentrated QGARP (quality growth companies at a reasonable price) portfolio focusing on
• Blend of large, mid & small cap (50:30:20) listed companies with niche core competence & large opportunity size, proven track record & impeccable management capabilities
• Portfolio of 20-25 stocks; benchmarked against BSE 200
• Available in PMS only

Investment Framework

Quality Growth at a Reasonable Price

Investment Framework - Quality

Quality Business

• Profitable
• Free cash flow generation
• Incremental return on capital
• Opportunity & market size
• Sustainable moat
• Environment & socially conscious

Quality Management

• Integrity
• Passionate & driven
• Efficient capital allocator
• Skin in the game
• Strong risk management culture
• Strong governance

Investment Framework - Growth

Magic (Accelerated Growth) Aims at capturing earnings growth & valuation re-rating

• Management/CEO change
• Industry structure change
• New growth catalyst
• Product innovation
• Completion of capex phase

Compounder (Sustainable Growth) Aims at capturing sustainable earnings growth

• Large & growing opportunity size
• Sustainable moat
• Robust free cash flow generation

Investment Framework - Forensic Analysis – “CLEAR”

No matter what your investing style is, forensic analysis can help avoid some of the pitfalls inherent in human misjudgment.

• Cash flow analysis
• Earnings conversion; reported vs sustainable cash flows

Liability analysis

• True debt vs reported debt, contingent liability & likely impact on future earnings; payables vs acceptances

Earnings quality analysis

• True economic profit vs reported profit, discretionary vs non-discretionary profit, expense capitalization policy

Asset quality analysis

• Core vs non-core assets; intangible creation policy

Related party & governance issues

• Related party transaction, complex structures (JVs/subs), off BS arrangement – connecting the dots

Investment Framework - Valuation

Multi-Faceted Valuation Approach

• P/E multiple
• P/B
• EV/EBITDA
• DCF

Identify companies with reasonable valuations in relation to growth prospects

Pay a reasonable price, avoid overvalued companies

Risk Approach

We believe knowing the source of risk is the key to risk management. We classify risk into 3 types based on the source of risk. Type A - Capital Loss risk

• Inferior quality of management
• Disruption prone businesses

Type B - Volatility risk

• Temporary market dislocation
• Macro factors
• Geo-political/political issues
• Liquidity

Type C - Opportunity cost risk

• Lack of knowledge
• Human biases

Red Flags we avoid

• Aggressive accounting practices
• High financial leverage
• Low tax incidence
• Management having
• no skin in the game / misaligned objective
• a poor governance track record
• hurry to create value

Performance

Faster, Stronger, Cheaper

Holdings

What our investors say..

Farah Malik Bhanji, MD – Metro Brands Vikas, Swati and the Carnelian team have done an excellent job managing our money. They have been one of the top performing funds in our portfolio for the year. Having been invested with them since inception, we have seen their strategy play out through the Covid period with great success. Carnelian’s clarity and fidelity to their thesis and process inspires a lot of confidence and the results speak for themselves. I wish them all the best for their future endeavours and look forward to being a part of their journey.

Gopal Srinivasan, Chairman & Managing Director - TVS Capital Funds Find a great manager like Vikas. I have invested in his funds and I think give people like him money because this requires a very strong navigation, break, clutch, acceleration and steering system to manage so that would be my advise to most people that there is alpha in the market and alpha can be best sought out in the hands of professionals like Vikas.

Abhishek Dalmia, Chairman – Renaissance Group In investing, big money is made by being a contrarian. Humans derive comfort from being part of a crowd (group think). It is rare to find someone who has the conviction to stand apart from the crowd and is willing to bet money on his conviction. Vikas is that sort of guy. He bet on revival of Indian manufacturing at the peak of the first covid lockdown when he launched the Shift Strategy. The performance of the fund demonstrates that he got it right.

Chaitanya Desai, MD - Apar Industries Carnelian tries to achieve an absolute long term consistent return with substantial alpha keeping in mind the risk reward ratio. They are pretty much modern in their investments but also traditional when it comes to capital protection utilizing their expertise in Forensic Accounts. Their culture is such that fiduciary duty to the clients is at the heart of all their actions and processes. We are definitely IMPRESS'ed by their approach to their investments.

Apurva Parekh, Executive Director - Pidilite Industries I am impressed by the fund’s vision, investment philosophy, diligence process and long term approach. I have known Vikas Khemani for many years. He has deep domain knowledge and sound understanding of Indian businesses and economy. This has allowed Vikas to consistently identify superior businesses and trends ahead of the market.

Russell Mehta, MD – Rosy Blue India Have known Vikas for many years now and I love/admire his enthusiasm, passion and aggression to invest which is very well and equally balanced with deep and meaningful research, level headedness and receptiveness. He has canny ability to foresee trends!

Yogesh Agrawal, MD – Ajanta Pharma I was confident of Vikas’ s ground up experience in investing which earned him sharp acumen in spotting the businesses that have potential to provide above index returns. Today, I can confidently say that Carnelian has lived up to the promise and delivered me sound and much above index returns so far. I am fully assured about the long term performance of Carnelian fund and would strongly recommend them to others. I wish team Carnelian all the best and healthy growth in future.

Yogesh Mahansaria, MD – Mahansaria Tyres India Vikas and his team have a great passion for investing, clarity of thinking, and deep research capabilities - all of this gave us lot of confidence to be an early investor in Carnelian Funds. Their performance over time has validated our confidence, leading us to enhance our investments with them over time; one of the best performing funds in our portfolio.

Sohil Chand, Senior Advisor, NVP India I have known Vikas for a while & been an investor since early days. It has been the best performing PMS in my portfolio over 20 PMSes!