Chanakya Fund Trust

Fund Snapshot

Fund Overview

The fund focuses on investing in listed small and medium-sized enterprises (SMEs) on the NSE EMERGE and BSE SME Exchange platforms. Its key objectives include:

• Attractive Valuations: Identifying undervalued stocks in the SME sector, particularly due to limited liquidity.
• Quality Investments: Targeting high-quality SMEs with potential for significant growth.
• Platform Creation: Establishing a platform for sourcing, investing in, and nurturing businesses to help them scale sustainably.
• Sustainable Growth: Contributing to the creation of scalable, long-term businesses.

The Chanakya Capital AIF aims to be a key medium for investing in the SME sector, supporting both growth and sustainability.

Investment Philosophy

Invest early in right growth opportunity businesses with a track record of generating revenues and a sound plan for expansion. At Chanakya Capital AIF, the focus is on SME companies looking to acquire the necessary equipment, property, personnel, and working capital to expand their businesses rapidly and sustain growth for the long term.

Fund Objective

• Act as medium for Investments in SME sector
• Attractive Valuations
• Create a platform to source, invest and nurture businesses
• Targets listed SMEs investment on NSE EMERGE and BSE SME Exchange
• Buy good quality Under-valued stocks because of limited liquidity
• Contribute towards creation Of sustainable and scalable businesses

Why Invest In SME Exchange?

• Over the past decade, more BSE SME INDEX has shown growth of 10,000%.
• Recent IPOs have seen over 100 times of subscription, indicating a surge in demand for IPO subscriptions.
• There has been an increase in liquidity in SME exchanges.
• Major listing companies have seen a rise in trading volume
• The compliance governance for regulatory bodies has become easier.
• More than 50% of companies have migrated to main boards, indicating strong growth potential.
• Regulatory bodies are aggressively promoting growth and betterment in SME exchanges.
• Over 200 IPOs are projected to be listed annually on SME exchanges.

Why Choose Chanakya?

• Sponsor And Fund Managers “Skin In The Game”
• Deep Understanding Of Different Industries
• Experience In SME Stock Exchange
• Understanding Risk Appetites/Management
• Flexibility And Adaptability
• High Experience In Primary Markets

COMPANY

• Proven business model
• High growth
• Potential to be a segment leader
• Capital efficient

FOCUS SECTORS

• Auto-Component
• Light and Medium Engineering
• Pharma & Healthcare
• Technology & Business Services
• Chemical
• Logistics & Transportation
• Energy Efficiency
• Electric Equipment

MANAGEMENT

• Partnership approach
• Alignment of interest
• Strong management

GOVERNANCE

• Transparency
• Sustainability
• Culture of compliance

Investment Strategy

The Fund will be sector-agnostic. It will consider investments in both technology-enabled companies and a broader consumption theme that meet the following common characteristics:

• Up to 51%: Up to 51%: of the corpus will be invested in private companies that have the potential to get listed on SME exchange within the next 12–18 months.
• Up to 24%: Up to 24%: will be invested in companies that are already listed on SME exchange and have the potential to migrate to the main board of the stock exchange within 12–18 months.
• Up to 25%: Up to 25%: is invested in small-cap SME companies with low price-to-earnings ratio (p/e).

Focus on Fundamentals

Selection of investments is based on evaluation on the below fundamental elements

• High growth potential underpinned by structural underpenetration
• Higher growth in revenues and profits compared to peers and industry
• Low leverage, adequately diversified and structurally low-risk model
• Superior unit economics and high return ratios

Corporate Governance

Zero-tolerance approach in evaluation of corporate governance standards while selecting investments.

Depth & Quality of Management Team

Focus on partnering with high quality management teams that have both depth and breadth for quality execution and multiple centres of competence, backed by a track-record of delivering results.

Margin of Safety

• In order to ensure that value creation in company translates into investor returns, the Fund will focus on consistent discipline to secure adequate margin of safety in entry pricing, as a fundamental principle
• The Fund plans to invest at least 51% to 100% of the Investible Funds in private companies and the 0% to 49% in listed companies, which shall be identified by the Investment Manager based on market opportunities. The Fund may also invest in companies incorporated outside India as permitted under the AIF Regulations, at the discretion of the Investment Manager.

Target Companies

Bridging gap between India and Bharat by focusing on Tier II and Tier III cities & Businesses with potential to operate in an organized manner

• Primary companies – IPO/Listing bound companies with Turnover OF Rs. 25 Cr. and above
• SME listed profitable companies with high potential opportunities in unorganized sectors
• Ideal company – Focused on solving some scalable real life problem
• Up-scaling potential: 3 to 5 times in 5 to 7 years
• Successful and growing franchise business companies.
• Strong position in non-cyclical niche market segments
• Market with resilient, long-term growth drivers
• Diverse, global customer base Technical or application know-how and intellectual property businesses
• Essential, non-discretionary products and services with pricing power
• Cash generating, low capital intensive, good profit margins, high return on capital employed/Equity businesses
• Entrepreneurial managers with integrity, energy and intelligence
• No invest in any turn-around, start-up, pre-revenue business

The investment under Chanakya Capital AIF shall be made in Indian manufacturing and services companies engaged in the following segments:

• Auto-Component
• Chemical
• FMCG products
• Pharmaceutical
• IT & ITeS
• Healthcare
• Petro-chemicals
• Light and Medium Engineering
• Electronics & EMSD
• Food Processing & Agro products
• Logistics & transportation
• Energy efficiency
• Electric Equipment

When a sponsor and Fund Manager contributes 20% in an AIF fund, it provides several benefits to the investors, including:

Increased confidence

When a sponsor and fund manager itself invests a significant amount in the fund, it shows that they have a high level of confidence in the fund’s success. This can boost investor confidence in the fund, making them more likely to invest.

Alignment of interest

The sponsor and fund managers’ investment creates alignment of interest between them and the investors. This means that the sponsor and fund manager has a vested interest in the success of the fund and will work to ensure that the fund performs well.

Reduced risk

When a sponsor and fund manager invests a significant amount in the fund, they are taking on a portion of the risk. This can help to reduce the overall risk for investors.

Improved returns

If the fund performs well, the sponsor’s investment can contribute to higher returns for investors. Overall, a sponsor and fund managers’ contribution of 25% in an AIF fund can provide several benefits for investors, including increased confidence, alignment of interest, reduced risk, and improved returns.

Chanakya Investment Framework

Well-being Business PROFITS

• P – Profitable
• R – Robust Cost Leadership
• O – Opportunity & market size
• F – Free cash flow generation
• I – Incremental return on capital
• T – Time tested and easy to understand
• S – Sustainable moat

Considerable Management IMPRESS

I – Integrity

M – Modesty & capability

P – Passionate & driven

R – Realistic but aggressive

E – Efficient capital allocator

S – Skin in the game

S – Strong governance & risk management culture

Investment Process

Core focus on right business, right promoter and right valuation

DEAL SOURCING

• Proprietary deal flow
• Network of investment bankers, advisors, practising chartered accountants, company secretaries and SME promotors
• Strong ties with VCs and Investment Banks
• Listed SME companies on exchange.

ACTIVE PORTFOLIO MONITORING

• Leverage expertise to provide strategic and operational advice to portfolio companies
• Active Monitoring/guidance/support
• Strengthen governance

DEAL EXECUTION

• Evaluation by the Investment Manager against selective investment/criteria
• Approval of the prospective investment by the Investment Committee
• Due diligence to cover commercial, accounting and legal matters
• Deep focus on strong corporate governance

EXIT

• Exit through sale to strategic/ financial investors
• Exit by way of sale through primary markets.
• Exit by the way of sale through secondary markets.

Risk Management

Managing risk associated with SME investments is a critical aspect of any SME-focused fund, including Chanakya Opportunities Fund. Chanakya Capital AIF employs a range of strategies at the portfolio level to address and mitigate these risks effectively. Here’s how Chanakya addresses risk associated with SME investments:

Diversification

Chanakya Opportunities Fund maintains a well-diversified portfolio of SME companies across various industries and sectors. By spreading investments across multiple companies, industries, and geographical locations, the fund reduces the impact of individual company-specific risks and overall market volatility.

Thorough Due Diligence

Before including any SME company in the portfolio, Chanakya conducts extensive due diligence and rigorous research. This process involves analysing financials, assessing business models, evaluating management teams, and understanding potential risks specific to each company.

Active Management

Chanakya Opportunities Fund employs active portfolio management. This approach involves continuous monitoring and evaluation of investments. If any SME company’s risk profile changes significantly or if new risks emerge, the fund’s management team takes prompt actions to reevaluate the position’s suitability in the portfolio.

Experienced Management Team

The Chanakya Opportunities Fund is managed by an experienced team with a proven track record in the SME sector. Their expertise in identifying, analysing, and managing risks associated with SME investments adds a layer of confidence for investors.