Spice Route Advisors

Spice Route was one of the largest wealth-creation modes for centuries. Aspiring voyagers, initially from the Roman empire, Arab countries, China and finally from Europe, made the arduous journey to the Malabar coast to procure black pepper. For centuries, black pepper was so valuable in Europe that it was worth more than gold by weight and hence came to be called “Black Gold”. However, the journey was anything but easy - The voyagers had to depend on the vagaries of monsoon winds to carry them to the Malabar coast, risking death from storms, pirates or even starvation when lost. Indeed, the tiny pepper may have been the reason behind some of the most momentous events in the history of mankind, namely the colonization of India and the discovery of America’s. What does it have to do with investing though? Pretty much everything! Investing is a hazardous journey in itself; there will be successes and failures, there will be periods when one faces challenges but there will also be periods when one receives the rewards. Ultimately, what one requires is a robust, time-tested process to follow and some luck to reach your successful investment destination. We intend to help you reach that destination! Finally, we are based out of Kochi, close to the old port town of Muziris, the destination of the original Spice Route! Spice Route Advisors is an investment firm that aims for long term wealth generation by investing in publicly listed Indian stocks. As investment managers, our primary goal is to generate risk optimized returns that exceed benchmark returns over the long term. Spice Route Advisors LLP is a SEBI registered Portfolio Management Services (PMS) provider (vide registration number INP000008978).

INVEST WITH US Investment Philosophy Our investment objective is to achieve superior long term, risk-adjusted capital appreciation for our clients. Our primary investment focus will be in equities but based on market conditions we may also invest in liquid/money market funds approved by SEBI. We will follow a bottom-up strategy in picking stocks in our portfolio. Our objective will be to identify companies where we can be a part owner (vs. trader) for the long term and achieve above average returns. While we will make diligent efforts to realise the objectives of our approach, it is important to note that there is no assurance or guarantee that the investment objective will be met. We do not offer guaranteed returns. Basis of selection of such types of securities as part of the investment approach The Portfolio Manager will follow a bottom-up approach in identifying stocks for the portfolio. While there are 5000+ listed companies in NSE/BSE, we believe that actually investable companies are <~10%. Our first priority is to protect the investor capital. Therefore we will invest only in those companies where permanent loss of capital is extremely unlikely. Our investment approach is defined by the following five principles Competitive Moat Corporate Governance Balance Sheet Strength Valuation Sectors We believe that a strong competitive moat provides an opportunity for businesses to create long term shareholder value. Such moats include brands, distribution, low cost of production, IP and high switching costs. These businesses can be identified by their long term sales growth, margins and profitability across business cycles. They are also typically associated with low working capital requirements and strong operating cash flow Unlike developed markets, emerging markets such as India have majority of the listed companies controlled by Promoters, mostly with majority stake and occasionally even with low minority stake. This includes family owned companies, subsidiaries of global MNC’s as well as public sector companies where central/state govt is the promoter. As a minority shareholder, we will strictly avoid companies that have a record of mis-governance by the promoter group. Such behaviour can be identified by reviewing past governance track record, related party transactions, capital allocation (including dividends/buybacks) and succession planning. We attach utmost importance to the balance sheet strength of our portfolio companies. This is to ensure that the companies are able to survive (and even thrive) during periods of broad economic downturns or sectoral cycles. We prefer companies that are not over leveraged with debt (except in lending businesses), have low working capital requirements, high RoCE and are not prone to frequent equity dilution. Our valuation is not purely multiple based (P/E, P/B etc) but also encompasses our view of the company’s future revenue growth, profitability, moat and longevity. We will maintain valuation discipline by investing only at a discount to our derived intrinsic value of the company. This may lead to periods where we might stay significantly in cash when markets, in our opinion, are over-valued. This will also give us an opportunity to have cash in hand to invest during periods of distress in the markets. While we are sector agnostic, we prefer to invest in sectors that have good long term growth opportunities. We also prefer sectors that are not capital intensive (except BFSI) and generate strong cash flows. We avoid investing in highly regulated sectors (except BFSI), sectors prone to frequent govt policy interventions and sectors that are commoditized and highly cyclical. Â