Purnartha Investment Advisors – PMS Portfolio

This highly concentrated multicap & sector agnostic portfolio of 6-7 businesses aims at generating long term returns by investing in equities across market capitalization. It looks to identify businesses that grow faster than India’s GDP. The portfolio follows a ‘Research First’ approach with investigative journalism.

• Companies that are likely to grow at 1.5x to 3x volume growth across all cycles (On a conservative side, India’s real GDP to grow at 6%)

• Companies with operating cash flow growth of 20% across cycles

• Net Cash companies (zero net debt) i.e. growth funded by clients & internal accruals rather than debt

• Companies with owners who have skin in the game

• Companies with lower drawdowns and potential to recover quick

Purnartha’s Investment Research Philosophy’ is an extra-ordinary outcome of Mr. Rahul Rathi’s years of hard work. Rahul is the founder and chairman of Purnartha and is a strong believer of “Vasudevam Kutabakam”, which expresses business integrity, and means what is not good for me and my family cannot be good for my clients.

Each of the following parts put together make Purnartha Investment Philosophy : –

Min 11 Years’ Operating History
Volume Growth of 10% + Sales Growth of 20%
Operating Cash Flow Growth of 20%
Debt Free Balance-sheet (for a non-financial company)
Promoters Skin in the Game

• A 11 years’ operating History
Why 11 years?11 years is a good enough time frame where we can see at least  2 economic cycles & 2 political cycles and some natural calamities. Its periods like these which shows the true character of the company and quality of its promoters behind the business. “It’s not about how hard you fall but how fast you recover”. I always say this to my existing and prospective who are looking to invest in equities. “We are all part of markets and we will also fall when markets fall, but we will recover much faster than markets when it recovers, because of the strength of our businesses”

• Volume growth of 10% (1.5x-3x of GDP growth)
Why volume growth?As the economy grows, Market expands. But the expansion supports only those businesses which have a strong underlying product addressing the need of the consumers at an acceptable price. All businesses grow Y-o-Y in spite of great markets and good sector growth. There are some companies which grow faster and hence identify these companies which grow faster than India’s GDP is what Y-o-Y volume growth tells us

• Sales Growth of 18-20%
Sales should grow by 20%?True, because with min 10% volumes growth + inflation, + brand premium  =  Sales value growth.

• Operating cash flow growth of 20%
Now Whats That?In the end, what matters is what comes in the bank account, after all, cash Is king. Also, this number is verified both by independent auditors and bank and is rarely manipulated. Purnartha looks for companies that not only show Y-o-Y volumes grows by 10% but also sales growth of 20% along with operating cash flow growth of 20%.

• Debt Free (for a non-financial company)
Debt Free?If a company’s Y-o-Y volumes grows by 10%, sales by 20% and operating cash flow by 20%, every four years you are doubling in terms of cash, why will a company need debt. Even if it wants to expand faster, Purnartha looks for those companies that rely on internal funds over raising debt. Purnartha believes that these companies are more agile and think more creatively without any burden. Even if it goes wrong, it can walk over the decision unlike a debt laden one which will have to serve the debt even after the wrong decision is over.

• Promoters skin in the Game
Now What Does That Mean?Should promoters hold more than 70%-80% of the company’s stake..Not really. Here, what Purnartha looks for is “how much time promoter is spending in the company”. We want our promoters to be focused and invest close to 100% of their professional bandwidth the company being picked for investment.

All the above parameters filter the listed space of approx. 6000 stocks to 45 stocks. It’s not the end. At Purnartha, life starts with these 45 stocks. The end objective is to build a very concentrated portfolio of 6-8 companies, so these companies become day in day out companions on which Purnartha does further research and keeps a unique watch both on financials and non-financial aspects.

Team comprises of Fundamental Analysts, and Investigative Journalists. Put together this team ensures that the Investee company keeps delivering on all parameters. While Fundamental Analysts immerse themselves in the financial statements, Investigative Journalists go on the ground to verify company’s financial facts and collected commentary. This is unique to Purnartha’s research philosophy as it takes the perspective beyond financial statements. This team meets with all the following stakeholders:-

• Bankers – How is company is dealing with the investments and other financial matters?

• Suppliers – Whether the suppliers have got orders in line with the growth plans of the company?

• Employees – How are employees treated and how positive and aggressive they are about company prospects?

• Competition – How high they talk about the company. Is there any threat worries them?

We at PMS AIF World do un-paralleled research before making our client invest, and hereby recognize Purnartha as one of best equity investment and advisory services for long term informed investors.