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Carnelian PMS

PMS Rating

IME PMS Rating

3 of 5 stars

Not a top recommendation (at this time) due to lacking long term credentials : While Carnelian has an impressive founding team, they lack actual fund management experience (even as they have strong research & investment business-building pedigrees). With Carnelian Capital yet to prove its longer-term investment credentials, we think it is better for investors to wait for the strategies to mature to get a clearer view of their longer-term performance.

The PMS/AIF AMC Rating is derived on the basis of our analysis on 5 key qualitative parameters that we use to analyse the quality of a PMS/AIF Provider. These include an assessment of the size of the AMC, the pedigree of the AMC, the pedigree of the team, the value of the investment philosophy & the level of differentiation. These insights of our central research team are documented in the IME RMS, and can be accessed during a consultation call with an IME PMS specialist.

PMS Background

Discretionary AUM (1549cr) | Promoter Category ()

PMS Background

Carnelian Capital PMS is a young PMS firm, that was jointly founded by Vikas Khemani, Sachin Jain, Manoj Bahety & Swati Khemani (all part of the senior management team at Edelweiss, prior to leaving to set up Carnelian Capital).

PMS Investment Philosophy

Investing in good growth businesses, managed by great management at fair valuations.

Investment Framework

  • Investing in good businesses: with traits such as profitable, robust cost leadership, opportunity and market size, free cash flow generation, the incremental return on capital, time test and easy to understand, and sustainable moat.
  • Great Management: evaluated based on integrity, modesty and capability, efficient capital allocation and a record of strong governance and risk management culture.
  • Favourable Risk Reward: upside potential with margin of safety (through business risk, balance sheet risk, and valuations)
  • Negative Screening: Avoid companies based on Aggressive accounting principles, High financial leverage, Low tax incidence, Management having misaligned objectives, Management with poor governance record and/or Management in hurry to create value.

Forensic Analysis based on CLEAR Framework

Carnelian’s forensic analysis involves a 2 step approach:

  1. Carnelian forensic check: An automated template screening last 10 years of historical data, highlighting potential minesweepers, which get rejected at this stage 
  2. Forensic deep dive:  CLEAR Framework  Their forensic team will deeply analyse the annual reports % financials which will be presented in a prescribed format to the investment committee. 

Portfolio Construction

The portfolio is built on their ‘MCO framework‘ – ‘M’agic, ‘C’ompounder, ‘O’pportunistic.

“MAGIC” (50-60%)

Invest in companies during the life cycle in growth & valuation re-rating: Invest in businesses that have a chance in acceleration in growth profile by looking at historic growth trajectory with the aim to capture re-rating that is driven by magic moments that are yet to be recognized by markets.

  • Regular tracking of corporate announcements, open offers to capture change in management, promoters 
  • Periodic meeting with corporates, channel checks & calls with industry experts 
  • Sudden spurt of revenues, operating profits, margins, improvement in working capital-running of screeners with identified parameters post quarterly and six-monthly results
  • End of capex cycle-running screeners for additions in gross block
“COMPOUNDERS” (40-50%)
Invest in stable and sustainable growth, capital-efficient businesses
  • Structural screeners covering Carnelian parameters based on 10 years of historic data such as revenues/EPS, CAGR, ROE, cash flow conversion and debt-equity levels above their threshold
  • Business should be non-cyclical, non-commoditized with no material regulatory headwinds and not complex either. 
Compounders are identified with the aim to capture smooth compounding with these traits (MRFG):
  • Moat- stable business, large opportunity size & sustainable moat
  • High ROE- efficient capital allocation 
  • Robust Free Cash Flows Generation- well-established business models tested across  cycles 
  • Growth & Governance 
“OPPORTUNISTIC” (0-10%)
Invest in Special Situations: IPOs, Mergers, Demergers, Open Offer, Buyback, Delisting, Potential takeover target, Valuation dislocations-Deep value with cashflows; all while maintaining risk-reward.

Risk Management

  • Single stock exposure: 10%
  • Sector Exposure limit: 40%
  • Single promoter group exposure: 20%
  • Liquidity: 70% of portfolio can be liquidated in 5 trading sessions
  • Re-evaluation: Any portfolio stock falling >20% against benchmark required PM to revisit and re-evaluate investment hypothesis and present to IC within 7 days.
  • Investment Committee Veto: Any fresh buying of stock is allowed after the approval of IC. Stocks sold if IC not convinced with re-evaluation finding.

Sell Strategy

  • When there is a material change in the investment hypothesis
  • Error in initial investment hypothesis
  • Valuation stretching significantly outside fundamental valuation
  • Other lucrative investment opportunities offering better risk-reward metrics

Inv Team

Investment Team

Vikas Khemani | 3-star rated FM

Co-Founder | 28 yrs Experience | 6 yrs at current firm

Past Experience: President (Edelweiss Capital), AVP (ICICI Securities)

Vikas Khemani has over 2 decades of experience of which he spent 17 years incubating and building several businesses to leadership positions including Institutional Equities and Equity Research as a CEO at Edelweiss Securities. He is associated with several industry bodies and committees including the CII National Council on Corporate Governance, FICCI Capital Markets Committee, Executive Council of Bombay Management Association. Vikas Khemani comes with strong business acumen and a deep understanding of the capital markets along with strong relationships with Corporate India.

Manoj Bahety | 3-star rated FM

Co-Founder | 27 yrs Experience | 5 yrs at current firm

Past Experience: Managing Partner (Omniscient Capital Advisors), Deputy Head Research (Edelweiss Securities), Sr. Manager (Morgan Stanley), Manager (Reliance Industries)

Manoj Bahety is a CA and CFA Charter holder with 20 years of rich and diverse financial services with marquee institutions. Manoj spent 11 years at Edelweiss Securities as Dy. Head – Institutional Equity Research, Head – forensic, thematic & mid-cap research. He is known for his “Analysis Beyond Consensus” forensic research approach which helped in avoiding pitfalls and identifying several multi-bagger ideas.

Swati Khemani | 4-star rated FM

Partner | 23 yrs Experience | 5 yrs at current firm

Past Experience: Edelweiss

Swati Khemani one of the Partners at Carnelian AMC. She brings over 13 years of experience in the financial services industry, with her previous stints at Edelweiss and her own venture Newedge Consulting. She is a CA and did her graduations in BCom.

PMS/AIF Schemes

PMS & Listed Equity AIF Schemes

Scheme Category Style 1 yr 3 yr 5 yr Since Inc
Carnelian Compounder Large & Midcap GARP 56.9 23.5 21.2

Returns as of 28-Feb-24.

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Note: PMS AMC & Scheme Reviews and Ratings are based on IME Capital’s Proprietary Review and Rating Methodology (read more here: AMC Rating & Scheme Ratings). These reflect the unbiased views of our central research team, based on our assessment of the investment value of these PMS/AIF strategies for our investors. We follow a highly stringent rating-criteria, where approximately 50% of PMS AMC’s & strategies would be rated 2-star or below (this is not meant to indicate that these funds are not investment-worthy, but that they do not currently fulfill the requirements we focus on for recommending funds to our investors — based on our internal views on the merit of the AMC/strategy relative to peers). Reviews & Ratings are primarily based on research of publicly available information (SEBI disclosures, PMS websites, PMS-aggregation platforms, webinar recording, media interviews etc.) and no explicit consent is required from AMCs for the same. While we endeavour to do further due-diligence via direct interactions with the investment teams of AMCs, this is typically restricted to AMC’s that meet our foundational fund selection criteria (reviews on lower-rated AMCs are often based solely on publicly available information). The views reflected in our Reviews & Ratings, are our independent views and may not be shared by the AMC’s and the investment teams. Please read detailed disclaimer for more.