alchemy leaders of tomorrow · • the investment allocation will be multi-cap & sector...

Alchemy Leaders of Tomorrow

Open Ended Category III Alternative Investment Fund

Mar 2020

Content

Investment Manager - Alchemy Capital Management Pvt. Ltd

Alchemy Leaders of Tomorrow - Investment Premise

Alchemy Leaders of Tomorrow - Fund Details

Investment Manager - Approach to Investing

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Investment Manager Credentials

Founders and Investment Team

» Bring over 100 years of cumulative Indian equity market experience.

» Have excellent market standing built on integrity.

» Co-founder, Hiren Ved, as Chief Investment Officer brings investment philosophy consistency.

» Have a stable and experienced team of investment professionals who have stayed and imbibed the firms investment philosophy.

Disciplined Investment Process

» Pioneers in Bottom Up stock picking.

» Ability to pick trends early.

» Focus on Primary Research.

» Long term approach to investing in listed companies with continuous review.

» Consistent performance track record since inception in 2002.

» Bespoke approach to individual client’s portfolio.

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Investment Manager Credentials

Past performance data is not indicative of future performance

Track Record

» 17 years of Investment management track record

» INR 1 crore invested in May 2002 in Alchemy High Growth could have grown to over 35.4 crores today*

» Alchemy High Growth , the flagship strategy of Alchemy India, has been managed through bull and bear cycles and out performed its benchmark 14 out of 18 calendar years

Vintage & Size

» One of the few Portfolio Managers in India to have been in existence since 2002

» Manages/advices over USD 1.05 billion of assets onshore and offshore*

Strong Emphasis on Compliance and Risk Management

» With an ethical Code of Conduct in place

» With transparency in business, client service and reporting

Quality of Clients

» Sophisticated Institutional investors, Sovereign funds

» Ultra HNIs (Limited universe of over 1000 exclusive families and includes eminent individuals across business families and professionals)

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*As on 29th Feb 2020

Investment Manager - Investment Team

Hiren Ved CIO Experience: 25 years Year of Joining Alchemy:1999

Vikas Kumar Portfolio Manager Experience : 19 years Year of Joining Alchemy: 2016

Amit Nadekar Portfolio Manager Experience : 16years Year of Joining Alchemy: 2005

Darshan Engineer Analyst Experience: 8 years Year of joining Alchemy: 2011

Seshadri Sen Head of Research Experience: 25 years Year of joining Alchemy: 2018

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For Further Details Visit https://www.alchemycapital.com/people-and-culture.aspx

https://www.alchemycapital.com/people-and-culture.aspx





Alchemy Founders

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Rakesh Jhunjhunwala Co-Founder Experience: Over 30 years

Lashit Sanghvi Co-Founder, CEO Experience: Over two decades

Hiren Ved Co-Founder, CIO Experience: Over two decades

Ashwin Kedia Co-Founder Experience: Over two decades

For Further Details Visit https://www.alchemycapital.com/people-and-culture.aspx






Content





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Major Changes in Indian Economy (2013-17)

Investment Premise

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‘Aadhar’ (Biometric Identification)

Direct Benefit Transfer (DBT)

Goods and Services Tax (GST)

Demonetization

Real Estate Regulatory Authority (RERA )

Online Commerce

Bankruptcy Code

Cumulative Impact = Large Near Term Demand Destruction and resulting in lack of earnings growth

Impact of these disruptions:

• Businesses which thrive on lack of transparency, lower costs, and tax avoidance face serious survival challenge as price-to-quality perception gap against larger players erode

• Changes behaviour and curtails demand for discretionary / luxury goods, erstwhile paid in cash

• Reroutes savings to more transparent, liquid and tax efficient financial assets

• Suppresses demand for physical assets like real estate and gold

Investment Premise

Source : CLSA 9

Aadhar Will Lead Financial Inclusion & Open Newer Opportunities

Aadhar & Direct Benefit Transfer (UID) – Giving an Identity…Building The Trust

• Before UID, lack of identity prevented economic inclusion of poorer sections of society • No Proper Identification => Financial Exclusion => Usurious Interest Rates • Corruption => Subsidy Leakages => Waste of capital => Continuous vicious circle

• Post Aadhar implementation – JAM Trinity Jan Dhan (Banking) + Aadhar (UID) + Mobile (Transaction & Communication)

• Proper identity linked to bank account and mobile no => Financial inclusion => Access to cheaper credit => Sustainable Positive Virtuous Cycle

• Direct Benefit Transfer to Bank Accounts => Reduction in Leakages & Waste • Savings invested in social schemes benefiting bottom of Pyramid (poor and rural)

• Scale up done successfully • Enrolment has crossed 1 bn • Significant annual reduction in leakages and substantial savings of INR 60000+ cr • DBT being used for subsidy schemes across sectors and ministries

Investment Premise

Source : CLSA 10

GST Will Widen Tax Base & Lead To Massive Efficiency Gains

Goods & Service Tax – Formalisation of Economy

• Benefits in the long run • Unified and single country wide tax structure => No multiple tax authorities • Consolidation of logistics => Lowering of logistics cost • Breakdown of trade barriers => boost to economy • Tough to evade taxes => Boost to indirect tax collection

• Taxable Base Increases Post GST – Leading to higher Tax-To-GDP Ratio

Investment Premise

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Demonetization – Attack On Parallel Economy • One time blow to black money

• Rise in bank deposits => Lower cost of capital

• Fall in unproductive savings => lower prices of land & gold

• Shift in investments from physical to financial assets

• Faster adoption of digital payments

• Structural positive for inflation

Demonetization => Wealth Shock => Behavioral Change

Investment Premise

RERA – Disciplining The Real Estate Sector

• Transparency – All projects must be registered with all the projects details which

would be publicly available

• Cash-flow Discipline – 70% of project cash-flows to be used only for the same project construction activity

• Improved Quality – Builders will be held liable for shortcomings

• High Penalties – e.g. If not registered, penalty up to 10% of project cost or up to 3 years imprisonment

• Exit Options – If project is delayed, buyer can exit and recover back all the money along with interest as per the rules

• Timely Completion

Quality Product/Timely Delivery => High Buyer Confidence Transparency / Faster Turns / Improved RoCEs => Higher Capital Inflows

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Investment Premise

E-Commerce & Mobile Revolution

• Second largest country of internet users (450 mn)

• Highest share of mobile users to access the internet (340 mn)

• We believe that India is one of the world’s fastest growing E-commerce market • Thriving on pillars of

• Novelty • Value for money • Vast Choice • Convenience • Unique Service/Experience

Digital Channels Are Disrupting Traditional Business Models… …And Creating New Business Opportunities!

Source : Forrester Research 13

Investment Premise

Bankruptcy Code – Addressing Capital Allocation

• Banking sector is plagued with USD145bn of stressed assets equivalent to ~12% of

advances (~80% of net worth)*

• Age-old laws stifled any resolution/recovery, strangled the economy and choked the capital

• IBC, 2016 intends to break this logjam and kick start credit cum investment cycle

• Structurally, IBC ( Insolvency and Bankruptcy Code) 2016 will address the issues of • Revival Before Liquidation • Faster NPA resolution • Exit to Honest Entrepreneurs • Strict Punishment to Fraudulent Corporate

*Source : RBI 14

All These Changes Are Interlinked & Complimentary…

Changes

Aadhar

Demon

RERA

GST

DBT

Bankruptcy Code

Level Playing Field

Lower Fiscal

Improved Sovereign Rating Ease of Doing Business

Operational Efficiencies

Financial Inclusion

Higher Productive Savings

Building a positive Culture

Sharp rise in Bank Deposits

Acceleration to Digital Payment System

Boosts Confidence of Buyers & Providers of Capital

Lower Interest Rates

Lower Inflation

Lower prices for land and houses

Widened tax base

Higher tax collection

Higher Investments

Higher Capital to Real Estate sector

Lower Cost of Capital – affordable houses

Faster execution of projects – higher capital turns

Creation of National Market

Lowers Black Money Generation

Lowers Inflation & Hoarding of Capital

Favors efficient players in supply chain

Direct Benefit Transfer

Higher FDI - Boosts GDP

Every Adversity Also Brings In Opportunity

Investment Premise

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Disruption… Adaptability…

Resilience…

The New Normals

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Investment Premise

The Only Way to Survive is “To Adapt”

We believe these disruptions are on the back of many factors…

• Disruptive Technology

• Change in regulatory framework

• New trade equations

• Geopolitics

Winners of tomorrow…

• Understand the role of technology

• Adapt it to their advantage

• Shape consumer behaviour

• Service their consumer better

• Build a leaner business model

• Manage risks better

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Investment Premise

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Innovation & Ingenuity To Lead The Future

Quality companies adapt and demonstrate several traits…Some of them are…

Investment Premise

Ability to understand and adopt new technology

Tata Elxsi, L&T Technology Services

Use advanced and innovative management practices to build a lean organization

Bajaj Electricals, Ramco Cement

Understand consumer behavior Pidilite, Trent

Focus of R&D and innovation BASF, Syngene

Ability to identify & integrate Mergers & Acquisition

Motherson Sumi, Quess Corp

Access underserved consumer markets

V-Mart, TCNS, Delta Corp

Traits Examples of Cos Reflecting The Traits

Content





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Alchemy Leaders of Tomorrow Strategy*

• The Fund strategy** seeks to generate long term capital appreciation by investing in (i) listed Indian equities, (ii) Private Investment in Public Equity (“PIPES”) on listed Indian equities, and (iii) IPO and pre-IPO opportunities.

• The investment allocation will be Multi-Cap & Sector Agnostic, which allows flexibility in stock selection.

• Concentrated portfolio; generally may consist of +/- 15 stock ideas.

• Endeavour will be to focus on companies showing best traits of adaptability to the new economic normal, driven by innovation & ingenuity.

• Alchemy Investment Philosophy is “Growth at Reasonable Price”. The Approach is rooted in the Premise that India is a high growth economy and the best way to play this is to identify and invest in companies which are best equipped to take advantage of emerging domestic and global opportunities.

* Alchemy leaders of Tomorrow is a scheme of Alchemy Alternative Trust registered with SEBI as Category III Alternative Investment Fund. ** The Fund strategy is merely a target and there are no assurances that it would be achieved. This is not complete information on the Fund strategy. Please refer the Private Placement Memorandum and its Addendum for complete details

Alchemy Leaders of Tomorrow – Portfolio Composition & Performance*

Top 10 Stocks by Weight Weight (%)

TRENT 13.8%

BAJAJ FINANCE 10.0%

PIDILITE INDUSTRIES 9.9%

UNITED SPIRITS 9.0%

TITAN 8.2%

TATA ELXSI 7.9%

SYNGENE INTERNATIONAL 7.6%

BAJAJ ELECTRICALS 6.0%

INFO EDGE INDIA 5.3%

QUESS CORP 4.8%

• *All data as on 29th Feb 2020

• Inception Date – 3rd Jan 2018

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Period ALOT Open Ended S&P BSE 500

1 Month 0.4% -6.5%

3 Months 6.4% -6.0%

6 Months 6.8% 2.8%

1 Year 4.0% 3.0%

2 Years -2.3% -0.1%

Since Inception -2.8% -1.0%

• Returns are shown as net of all fees and expenses. Returns up to 1yr: Absolute, greater than 1yr: Compounded Annualized

• Past Performance is not indicative of future performance

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Fund Terms

Cr= Crore i.e. Rs 10 million ^Alchemy Leaders of Tomorrow is a scheme of Alchemy Alternative Trust registered with SEBI as Category III Alternative Investment Fund. * These are not the complete terms, please refer the Private Placement Memorandum and its Amendments for complete details.

Fund Terms*

Scheme Name Alchemy Leaders of Tomorrow^

Investment Managers Alchemy Capital Management Pvt Ltd.

Investment Horizon 3 to 5 yrs

Underlying Asset Class Listed equities, PIPES, Private placements, QIP’s, Debt instruments

Initial Contribution Minimum Rs 1 Cr

Redemption Windows 2 yrs Lock in. (Thereafter redemption Quarterly with prior notice of 15 days).

Risk Appetite High Risk

Subscription Period First of every month

Eligible Investors Resident Indians, NRI ,HNI, Hindu undivided Family (HUF), Banks, Bodies Corporate, Partnership Firms & Trusts

Initial Subscription Fee Up to 2.25% of the invested amount.

Fee Plan

Option I

Fixed Fee

Plan Management Fees

Investment Amount: 1 Cr to Less than 5 Cr- 2.5% per annum on Net Assets Value

Investment Amount: 5 Cr to Less than 10 Cr- 2.25% per annum on Net Assets Value

Investment Amount: more than 10 Cr- 2.0% per annum on Net Assets Value

Fee Plan

Option II

Variable

Fee Plan

Management Fees

Investment Amount: 1 Cr to Less than 5 Cr- 1.5% per annum on Net Assets Value before performance fee

Investment Amount: 5 Cr to Less than 10 Cr- 1.25% per annum on Net Assets Value before performance fee

Investment Amount: more than 10 Cr- 1.0% per annum on Net Assets Value before performance fee

Performance Fees 15% of returns charged at the end financial year with the hurdle of 10% and High watermark applies

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Fund Service Providers

Fund Service Providers

Trustee Amicorp Trustees (India) Pvt. Ltd

Fund Auditor BSR & Associates LLP (KPMG, Mumbai, India)

Fund Taxation Consultant BSR & Associates LLP (KPMG, Mumbai, India)

Fund Custodian Standard Chartered Bank, Mumbai, India

Fund Banker Standard Chartered Bank, Mumbai, India

Fund Administrator Standard Chartered Bank, Mumbai, India

Fund Investor Services Computer Age Management Services Pvt. Ltd (CAMS)

Content





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The Investment Philosophy

We believe that consistent and superior long term absolute returns can be made across market cycles by investing in growth companies with good management teams.

• We like businesses which address large and growing external opportunity, have a competitive advantage in effectively exploiting those opportunities and have a scalable business model with higher than average Return on Capital Employed (ROCE) over the Investment horizon.

• We believe management teams are key to business success. We look for managements which have aggression, are aligned to business outcomes while simultaneously having respect for governance and capital allocation

While growth companies form the core of our portfolio, we tactically also invest in deep value opportunities and special situations that may appear due to market cycles

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3 I - Matrix

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Investment Team Risk Management Investment Committee

Top

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Universal Tracker Network Inputs Ground Noises Active Tracker

Idea Generation

Research & Analysis

Investable Pool

Portfolio Construction

Review and Monitoring

Exit Strategy

Idea Generation

Universal Tracker Network Inputs

•Interdependent company/sector feedback

•Attending sector theme specific conferences

•Broker conferences and visits

•Interacting with peer group

Ground Noises

•Universe of top 500 companies by market cap

•Extensive company visits; we meet over 100 -150 companies annually

•Best performers basis financial metrics

•Best performers basis price

•Change in external/macro environment

•Interaction with our client base

•Interaction with business ecosystem i.e. outlets/dealers etc

Active Tracker

•Company filings

•Quarterly results

•Analysts calls

•Site/management visits

•Updating and revisiting models

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Investment Process

Idea Generation Research and

Analysis

•Quick research, if we like the company

•Detailed Model

•Meeting the management

•Final Model

Investable Pool Portfolio

construction

•Fund manager selects stocks basis fund mandates

•Fund manager does final selection

•CIO manages the process and has an overriding power over fund manager

Review and Monitoring

•Quarterly and annual update of the investment thesis

•Investee company meetings- at least bi-annual

•External broker and analyst networking

•Model updates every quarter

Exit

•Revolving review

•Trim over weights

•Risk return not in favor

•Better opportunities

•Hypothesis not playing out as initially planned

•Universal Tracker

•Active Tracker

•Network Inputs

•Ground Noise

•Pool of 80 to 100 companies

•New ideas and old ideas

•Active- proactive model updates and company meetings

•Passive- Quarterly model updates and meeting

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Intervention-Investment Team

Idea Generation Research and Analysis Investable Pool

VETO Power- CIO

Portfolio Construction

VETO Power- CIO

Portfolio Review Exit Strategy

VETO Power- CIO

Primary- CIO, FM and Analysts

Secondary- CIO

Primary- FM and Analyst

Secondary- Analyst

Primary- CIO and FM

Secondary- Analyst

Primary- FM and CIO

Secondary- CIO

Primary- Analyst and FM

Secondary- Analyst

Primary- FM and CIO

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Intervention-Risk Management

Firm Level Portfolio Level

Security Level • Daily monitoring by in-house

operations team basis the fund mandate

• Fund Manager evaluates performance of each strategy vis a vis the benchmark on a monthly basis

• CIO reviews the performance of each strategy with the respective fund manager every month.

• Contribution analysis conducted each month by investment team. Portfolio action on absolute and relative performance analysis and portfolio positioning are discussed every month

• Performance patterns analysis

• Dedicated pre and post trade checks, ongoing internal reviews

• Statutory and legal risk managed by the compliance and legal function which is monitored by the Group Compliance Head.

• Business Risk managed by the Group CEO.

• Sectoral limit based on mandate

• Individual stock limit based on mandate

• We also monitor the ownership in companies at Fund/Strategy level

• Investment positions - flags raised by operations team if a position is close to the maximum permissible limit weight-ages

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Major topics discussed in the Investment Committee meet • Macro view: the investment team presents their view on the changes global macro variables and what

can be expected in future.

• Fund performance: Performance of all funds is analyzed. Each fund manager has to present his portfolio positioning and the impact of change in macro and micro variables that have affected or may affect the portfolio in the future. In case of consistently under performing positions, triggers of events are defined. If these triggers are not achieved, then the position is revised by the investment committee.

• Risk monitoring: An in-depth contribution analysis is presented to understand under-performers and out-performance and plan of action for the same.

Intervention – Investment Committee

Investment Committee Intervention

CIO,CEO and COO Fund Managers Business Heads

Monthly Reviews

Forming and reviewing macro view, Performance Tracking, Contribution Analysis,

Outlier Management and decisions Exception Reporting and Priority Actions

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Risk Factors & Disclaimers

General Risk factors

• An investment in the Fund is speculative and involves a high degree of risk. Opportunities for withdrawal and transferability of interest are restricted, so investors e access to capital when it is needed. There is no secondary market for the interests and none is expected to develop.

• Investments in financial instruments or other products carry significant risk, including the possible loss of the principal amount invested. Financial instruments or other products denominated in a foreign currency are subject to exchange rate fluctuations, which may have an adverse effect on the price or value of an investment in such products.

• Please read Offer Documents (includes Private Placement Memorandum and Contribution Agreement)/ Investment Agreement carefully before investing. Investors are expected to understand the risk factors associated with investment & act on the information solely at their own risk.

• As a condition for providing this information, you agree that Alchemy Capital Management Pvt Ltd., its Group or affiliates (collectively, “Alchemy”) do not accept any liability in any way arising to them for any loss or damage (whether direct, indirect or consequential), from any use of this document or the information contained herein.

General Disclaimers

• Information and opinions contained in the document are disseminated for the information of authorized recipients only and are not to be relied upon as advisory or authoritative or take in substitution for the exercise of due diligence and judgment by any recipient. This document and its contents has not been approved or sanctioned by any government authority or regulator.

• This document does not constitute an offer to sell or a solicitation of an offer to buy any securities. Any such offer or solicitation will be made only by means of the appropriate confidential Offering Documents/ Investment Agreement that will be furnished to prospective investors. Before making an investment decision, investors are advised to review the confidential Offering Documents/ Investment Agreement carefully and consult with their tax, financial and legal advisors. This document contains depiction of the activities of Alchemy and the advisory services that it provides. This depiction does not purport to be complete and is qualified in its entirety by the more detailed discussion contained in the confidential Offering Documents/ Investment Agreement. Any reproduction or distribution of this document, as a whole or in part, or the disclosure of the contents hereof, without the prior written consent of Alchemy, is prohibited.

• Performance estimates contained herein are without benefit of audit and subject to revision. Past performance does not guarantee future results. Future returns will likely vary and investment results will fluctuate. In considering any performance data contained herein, prospective investors should bear in mind that past performance is not indicative of future results, and there can be no assurance that the Fund will achieve comparable results or that the Fund will be able to implement their investment strategy or achieve their investment objectives will achieve comparable results.

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Risk Factors & Disclaimers

General Disclaimers (cont’d)

• The information and opinions contained in this document may contain “forward-looking statements”, which can be identified by the use of forward-looking terminology such as “may”, “will”, “seek”, “should”, “expect”, “anticipate”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, including those set forth under the Private Placement Memorandum/ Investment Agreement actual events or results or the actual performance of the Fund may differ materially from those reflected or contemplated in such forward-looking statements.

• Index performance and yield data are shown for illustrative purposes only and have limitations when used for comparison or for other purposes due to, among other matters, volatility, creditor other factors (such as number and types of securities) An index does not account for the fees and expenses generally associated with investable products. The S&P BSE 500 Index serves as a comprehensive representation of the Indian economy, covering all 20 major sectors in the country. The index comprises of the top 500 companies listed on the Bombay Stock Exchange, with selection based on a combination of average float-adjusted market capitalization, average value traded, and average total market capitalization. Rebalancing occurs semi-annually on the third Friday of June and December, after the markets close.

Investor(s) are invited to ask questions and obtain additional information, concerning the contents of this document or any other relevant matters, which shall be provided, to the extent the Investment Manager possesses such information or can acquire it without unreasonable effort or expense.

Queries:

If you have any queries or questions, you can contact us directly on Email ID: [email protected] or reach out to;

Alchemy Capital Management Pvt Ltd

B-4, Amerchand Mansion|16 Madame Cama Road| Mumbai 400 001

Dir: - 022 - 66171700

Fax: - 022 - 66171701

www.alchemycapital.com

mailto:[email protected]



https://www.alchemycapital.com/