Malabar Value Fund: A Guide To Investing Wisely

Malabar Investments is an India-focused boutique investment firm that was founded in 2008 and is headquartered in Mumbai, India. The firm focuses on investing in small to mid-size companies that are leaders in their respective niches, particularly those with strong management teams and long runways for growth. Malabar Investments has two funds: an alternative investment fund (AIF) called the Malabar Value Fund and a Sebi-approved FPI investment instrument called the Malabar India Fund. As of September 30, the two funds held a total of around Rs 1,300 crore in assets. The Malabar Value Fund seeks to identify and invest in high-quality companies with differentiated offerings and strong growth potential, holding them for the long term.

Malabar Value Fund's investment strategy

Malabar Investments is an India-focused boutique investment firm that seeks to identify and invest in small to mid-size companies that are leaders in their respective niches. The company was founded in 2008 and has since been recognised for its investment strategies, including being rated as the Best Single Country Fund by Asia Hedge in 2014.

Malabar's investment strategy is centred around the following key principles:

Long-term orientation and rationality

Malabar's approach to investing reflects its commitment to rationality and long-term decision-making. The company seeks to build long-lasting relationships with its investors and focuses on creating value for all stakeholders.

Primary research and information asymmetry

Malabar believes that the Indian small to mid-cap space is under-researched and has limited institutional presence, making it inefficient. By conducting thorough primary research, Malabar aims to identify exceptional companies with the potential to deliver significant long-term returns when purchased at reasonable valuations.

Sustainable competitive advantage

When building its portfolio, Malabar looks for companies with a sustainable competitive advantage, demonstrated pricing power, and a long runway for profitable growth. The company invests through both public and private markets to build a concentrated portfolio of these high-potential businesses.

Management team evaluation

A key focus of Malabar's research is evaluating the quality of a company's management team. The company assesses the team's drive, capability, integrity, and corporate governance practices to determine their ability to grow the business multifold.

Environmental, Social, and Governance (ESG) factors

Malabar recognises the importance of ESG factors in the long-term success of a business. The company has formalised its commitment to responsible investment by becoming one of the first India-focused public market funds to sign the United Nations Principles for Responsible Investment (UN PRI).

Moat or differentiated offering

Malabar looks for companies with a differentiated offering that cannot be easily replicated by competitors. This creates a barrier to entry and allows these companies to earn returns on equity far above the cost of capital.

Ability to widen and deepen

Malabar constantly seeks out companies that have the ability to widen and deepen over time, a trait often reflected in a strong moat. These companies can take advantage of superior economics and cash flows and reinvest them into core or adjacent businesses, ultimately leading to compounding returns.

Reasonable valuations

While Malabar prioritises investing in companies with outstanding qualities, it also recognises that these businesses may not always be available at cheap valuations. The company emphasises the importance of patience and waiting for the right opportunity to invest when valuations are reasonable relative to fundamentals.

Malabar Value Fund's portfolio

Malabar Investments is an India-focused boutique investment firm that was founded in 2008. The company focuses on identifying and investing in small to mid-size companies that are leaders in their respective niches. Their research and investment team seeks to create value through thoughtful, long-term investments in both public and private markets. They believe that the Indian small to mid-cap space is largely under-researched and has limited institutional presence, making it inefficient.

Malabar Investments' portfolio and holdings include a range of sectors such as speciality chemicals, computers, software, automobile, printing and stationery, finance, and glass products. As of December 2022, Malabar India Fund Limited held 19 company holdings.

As per the latest corporate shareholdings filed, Malabar Investments publicly holds 18 stocks with a net worth of over Rs. 5,700.7 Cr. Some of the companies in their portfolio include Aurionpro Solutions Ltd, Genesys International Corporation Ltd, Hatsun Agro Products Ltd, Neuland Laboratories Ltd, Shilpa Medicare Ltd, and Safari Industries (India) Ltd, among others.

The company's website also mentions that they have been recognised for their investment performance and have received awards such as the "Best Single Country Fund" by Asia Hedge in 2014 and the "Best Fund for Small-Cap Indian Investments Since Inception" at the Hedge Fund Awards.

Malabar Value Fund's exits

Malabar Investments is an India-focused boutique investment firm that was founded in 2008. The company focuses on identifying and investing in small to mid-size companies that are leaders in their respective niches. They believe that the Indian small to mid-cap space is under-researched and has limited institutional presence, making it inefficient.

Malabar Investments has made 8 investments and has had 3 portfolio exits. Their latest portfolio exit was ixigo, which occurred on June 18, 2024.

The company's founder, Sumeet Nagar, is a graduate of IIT Bombay and holds an MBA in finance and entrepreneurial management from the Wharton School, University of Pennsylvania. He previously worked as a consultant with McKinsey and was a founding member of McKinsey's dedicated private equity group.

Nagar's investment strategy focuses on finding companies with differentiated offerings that are difficult for others to replicate. He also looks for companies with strong management teams that have integrity, knowledge, and capital allocation capabilities.

In terms of generating multibagger returns, Nagar advises staying invested in high-conviction bets even if short-term gains are achieved. He also recommends finding the right buy price by evaluating the intrinsic value of a business and comparing it to its market cap.

Nagar provides four triggers for selling a stock:

• If the stock's price has appreciated significantly ahead of its fundamentals, and you anticipate low incremental returns over the next 3-5 years.
• If one or more assumptions underlying your investment thesis are proven wrong or are no longer valid.
• If you are fully invested but find a new, amazing investment opportunity or want to invest more in your best idea.
• If you invest in cyclical industries, it is generally a good idea to sell before the cycle peaks.

Malabar Value Fund's management team

Malabar Value Funds Management Team

The Malabar Value Fund was founded by Sumeet Nagar, who serves as the fund's Portfolio Manager and head of the Investment team. Before founding Malabar, Sumeet worked as a consultant at McKinsey & Company, where he was a founding member of their dedicated private equity group. He holds a degree in finance and entrepreneurial management from the Wharton School, University of Pennsylvania.

Akshay Mansukhani heads both Business Development and Risk Management at Malabar. Prior to joining the company in 2009, he worked at UBS Investment Bank in New York, focusing on structured products. Akshay is a graduate of the Wharton School, University of Pennsylvania, and a Chartered Alternative Investment Analyst.

Ashish Gulati is a Partner at Malabar and has been with the firm since its inception. As Head of Research, he has played a key role in creating investment processes and setting up the research team. Before joining Malabar, Ashish was responsible for analysing investment opportunities at SBI Capital Markets.

Ketan Shah is the Chief Operating Officer at Malabar, overseeing Operations, Back Office, Audit, Compliance, General Administration, IT, and HR-related activities. Prior to joining Malabar in March 2019, Ketan was an Executive Director and member of the India Management Committee of Morgan Stanley Fund Services.

The Malabar Value Fund also includes several other key members, such as Rajat Mahajan, Dhruva Mukherjee, Bhavesh Dalal, Rohan Rai, and Gauri Pande Chanchani, who joined the company in 2016, 2017, 2023, 2015, and 2021, respectively. Each of these individuals brings a wealth of experience and expertise to the fund, contributing to its success and growth over the years.

Malabar Value Fund's investment criteria

Malabar Value Fund is an India-focused boutique investment firm that concentrates on identifying and investing in small to mid-size companies that are leaders in their respective niches. Their investment criteria are based on a few key principles:

Focus on Small to Mid-Size Companies:

Malabar targets small to mid-cap companies, as they believe this segment is under-researched and has limited institutional presence, making it inefficient. By investing in this space, they aim to discover opportunities that other market participants might overlook.

Long-Term Investment Approach:

The firm takes a long-term approach to investing, seeking to build long-lasting relationships with businesses that create value for all stakeholders. They focus on companies with a sustainable competitive advantage, demonstrated pricing power, and a long runway for profitable growth.

Emphasis on Management Quality:

Malabar places significant emphasis on evaluating the quality of a company's management team. They look for drive, capability, integrity, and corporate governance practices that indicate the potential to grow the business multifold from its current size.

Integration of ESG Factors:

They believe that a focus on environmental, social, and corporate governance (ESG) factors contributes to the long-term success of a business and enhances the value of their investments. Responsible investment principles are embedded in their investment philosophy, and they were one of the first India-focused public market funds to become signatories to the United Nations Principles for Responsible Investment (UN PRI).

Differentiated Offering:

Malabar looks for companies with a differentiated offering that others cannot easily replicate. This allows these companies to earn returns on equity far above the cost of capital and provides a competitive advantage.

Valuation and Patience:

While they focus on high-quality companies, Malabar also considers valuation relative to fundamentals. They understand that exceptional companies may not always trade cheap, so they emphasize the importance of patience and waiting for the right opportunity to invest.

Overall, Malabar Value Fund's investment criteria centre around identifying high-quality, differentiated businesses with strong management and long-term growth potential, while also integrating ESG factors and considering valuations to make informed investment decisions.

Frequently asked questions