Insider alert: Promoters are increasing their stakes in these five companies5 min read . Updated: 20 Oct 2021, 10:44 AM IST
- Promoters of many small and mid-cap companies are raising their stakes since the last few quarters
One of the key differences between western markets and India is the way management and owner(s) work.
The ultimate owner, or promoter, of a listed business and senior management are different in the US and Europe.
However, in India, management and ownership are often married. So, when promoters increase their stake in a firm, there is a lot of curiosity in knowing why that happened.
Promoters may have a hundred reasons to sell, but they generally only have one compelling reason to buy. The market thinks promoters know something that it doesn't.
Promoters also increase or decrease their stake just to comply with market regulator's norms.
The case for investing in a stock in which the promoter has increased their ownership is straightforward yet powerful.
When controlling owners discover that their company's stock is trading at a considerable discount to its estimated intrinsic value, they may acquire more shares to expand their holdings.
Promoters use different methods to boost their holdings in the company such as buyback of shares, rights issue, direct acquisition through markets, preferential share issue, and warrants.
Let's take a look at the list of stocks where promoters are increasing their stake in the last few quarters.
United Breweries is primarily engaged in the manufacture, purchase and sale of beer and non-alcoholic beverages.
For the June quarter, one of the company's promoter Heineken International B.V. increased their stake to 24.27% from 9.28% reported in the March 2021 quarter.
Heineken International BV operates as a financial holding company with interests in the distribution beer and other beverages. It owns breweries, brews and specialty beers. The firms' brands include Cruzcampo, Starbrno, Zagorka, Birra Moretti, Ochota, and Heineken Pilsener. The company is headquartered in Amsterdam, the Netherlands.
In total, the promoter holding in the company stood at 72.71% at the end of September quarter, compared with 57.72% in the March 2021 quarter.
In the last one year, the stock price has risen 75.5% to ₹1,709 as on 14 October 2021 from ₹907 as on 28 October 2020. However, the company has delivered a poor sales growth of -2.6% over past five years.
Vedanta is a global diversified natural resource company operating across segments which are copper, aluminum, iron ore, power, zinc, lead and silver, oil and gas, and other natural resources.
Back in April, Vedanta Resources said it has acquired 374.2 million shares of Vedanta Ltd through the voluntary open offer. Post the acquisition, promoter's shareholding in Vedanta increased from 55.1% to 65.2%.
Vedanta Resources had launched an open offer to buy up to 651 million shares (or 17.5% equity) at ₹235 a share but received bids for only 58% from its shareholders.
On the other hand, the promoter group company Vedanta Holdings Mauritius Ltd bought 185 million shares at an average price of ₹160.
Meanwhile, promoters have pledged 99.99% of their holding and has ₹380.7 billion of contingent liabilities.
Lux Industries was incorporated in 1995 and has emerged as one of the largest players in the hosiery business having a market share of 14% of the organized industry.
The company's promoter holding has shot up by 4.88% in the June 2021 quarter. This has led to increased promoter stake from 69.51% in March 2021 quarter to 74.39% in September 2021 quarter.
Hollyfield Traders Pvt. Ltd, one of the promoters group company, bought 5.77% stake in Lux Industries.
Over the last one year, shares of Lux Industries have turned out to be a multibagger as it has managed to give a return of 168% to its shareholders.
Also, the company is almost debt free and has delivered good profit growth of 39.79% compound annual growth rate (CAGR) over last five years.
Tanla Platforms (formerly Tanla Solutions) is a telecom products and solutions company engaged in telecom infrastructure and related services business.
The company is one of the world’s largest CPaaS (communications platform as a service) players, it processes more than 800 billion interactions annually and about 70% of India’s application-to-person (A2P) SMS traffic is processed through its distributed ledger platform-Trubloq, making it the world’s largest Blockchain use case.
For the September 2021 quarter, promoter holding has increased by 0.22% over last quarter. Meanwhile, during the June 2021 quarter, promoters stake improved by 1.07% compared with March quarter.
Overall, the company promoters hold 42.51% stake in the company as of 30 September 2021.
The company's share price has performed very well over a period of last one year. Tanla Platforms shares have surged over 221%.
Godrej Agrovet is a diversified, research & development focused agri-business company, dedicated to improving the productivity of Indian farmers by innovating products and services that sustainably increase crop and livestock yields.
It holds leading market positions in the different businesses in which it operates—animal feed, crop protection, oil palm, dairy and poultry and processed foods.
During the June 2021 quarter, promoter holding has increased by 0.95% over last quarter. In total, promoters of the company hold around 71.65% stake compared to 70.70% in March quarter.
Godrej Industries bought 4.6 million shares at an average price of ₹603 per share in the June 2021 quarter. The total transaction amount stood at ₹2.8 billion.
However, the company's shares have given tepid returns to its investors over the last one year due to poor sales growth.
What does promoter increasing stake in a company indicate?
It is often regarded as beneficial when promoters raise their ownership in their firm. It shows that the promoter is optimistic about the company's future potential.
Continuously rising promoter stake can lead to an early signal of improving fundamentals and, of course, a sharp rise in stock prices.
It is rare to see promoters' holdings grow on a consistent basis. They generally purchase to shore up their holdings following a dramatic market fall.
They don't keep increasing their investment in a rising market quarter after quarter. If they did, it would demonstrate that they are not just confident in their businesses, but also that they are highly bullish. This is precisely what could have occurred for the above stocks.
Also, promoters could also be buying shares of their companies because a large percentage of their holdings are pledged.
Share pledging often goes unnoticed in the first place but there are multiple reasons why high pledged shares can be negative in the long run.
While promoter holding alone cannot indicate whether or not a company is a smart investment, it’s certainly one of the elements to consider.
Also, looking at the decrease and increase in promoter holding is more important than observing the actual promoter holding.
This article is syndicated from Equitymaster.com
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