Insider alert: Top 5 companies in which promoters are increasing their stake

Indian regulations allow promoters to buy up to 5% of their company's shares annually through the open market. (Image: Pixabay)
Indian regulations allow promoters to buy up to 5% of their company's shares annually through the open market. (Image: Pixabay)

Summary

  • Promoters of these companies are aggressively buying shares from the open market, showing skin in the game. What does it mean for investors?

When promoters buy shares in their own company, investors consider it positive.

Promoter buying usually indicates that the company may be undervalued or that promoters know something big is going to happen, so they lap up shares beforehand.

It means that the promoters, who built the company from the ground up, are once again putting their money on the line.

It’s a huge vote of confidence!

Indian regulations allow promoters to buy up to 5% of their company's shares annually through the open market.

In 2023, promoters across 100 companies went on a buying spree, investing a whopping $450 billion (bn).

Here’s the truly exciting part! In at least 20 companies, promoters increased their share by over 1%. This is a significant chunk, showing a deep commitment to the company's growth potential.

Promoters are leaving no stone unturned. The current fall in the Indian stock market is one such example.

Seeing the opportunity in the beaten-down share prices, BSE data shows that these promoters bought shares from the open market.

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With most of the companies having reported their December 2023 shareholding pattern, let’s look at the top 5 stocks which saw the maximum promoter buying.

In fact, these companies have now seen their promoter holding go up for the past 4 consecutive quarters.

Lakshmi Automation Loom Works

Founded in 1973, the company manufactures spares and accessories for weaving and knitting machines.

As the need for sophisticated and high-end weaving machines grew, the company expanded its portfolio to high-speed automatic C-type weaving machines, air-jet weaving machines, circular knitting machines, and more.

Apart from that, the company also provides warehousing rental and engineering services.

The company’s net profit for the December 2023 quarter surged by 21.7% as healthy demand aided sales.

The promoters of the company have been increasing their holding steadily since March 2021, and it currently stands at 35.58% as of December 2023, up from 32.7% in 2021.

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The company is actively expanding its warehousing space, signalling its commitment to growth.

It is also strategically increasing its supply of weaving and textile machine spares and accessories, catering to domestic and overseas customers.

This broadens its market reach and potential for revenue growth.

While there is always a risk of rising input costs impacting profit margins, the company has a strong management at helm and its focus on expansion looks promising.

To know more, check out Lakshmi Automation’s latest shareholding pattern.

⦁ Zydus Wellness

Zydus Wellness, previously known as Carnation Nutra-Analogue Foods, is a subsidiary of Zydus Lifesciences, founded in 1994.

Some of the company's well-known brands are Glucon-D, Sugar-Free, EverYuth, Complan, Nycil, Sugarlite, Nutralite, and Sugar-Free D'Lite.

While the company has posted weak quarterly earnings in recent quarters, it aims to double sales within the next few years.

Fuelling this growth is their focus on innovation. New product categories across their popular brands like Complan, Sugar-Free, Everyuth, and Nutralite are planned for launch in the coming quarters.

The company’s promoters are constantly increasing their stake. Their holdings have steadily grown from 64.8% in March 2022 to 69.15% as of December 2023.

 

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The company aims to expand its reach from 2.9 million retail outlets to 3.5 million, particularly focusing on smaller towns with lower population densities.

This 25-30% increase in reach will unlock significant sales potential.

Complan, a household name in India, is receiving renewed attention of late. Zydus is putting resources into enhancing this established brand alongside exciting new launches planned for the upcoming year.

In 2019, Zydus acquired the well-respected Heinz India business, further strengthening its brand portfolio.

Zydus is also exploring successful product lines like Sugar-Free chocolates, cookies, and spreads from international markets, with the potential to launch them in India.

R&D is a top priority for Zydus, ensuring a steady pipeline of innovative products.

They have the production capacity in place to meet the demands of their ambitious growth plans for the next 3-4 years.

⦁ Incap

Incap is a subsidiary of Incap Corporation. Three development companies were merged to form Incap India. It grew to become a contract manufacturer of electronics and furniture.

The company’s Tumkur factory is popular for its power electronics manufacturing capability.

Incap reported a revenue degrowth of 46% YoY in the December 2023 quarter. Consequently, the net profit also declined.

Increased inventory levels were a common problem for the whole market, which resulted in pricing pressure.

Incap faced the full brunt of this impact during 2023’s final months.

The company’s largest customer reduced inventory levels. The lower utilisation ratio of the Indian plant also affected its profitability.

However, the company made a lot of new investments in 2023, which could turn to fruition soon. In India, it started production in the third factory.

While the increase in promoter holdings is small, promoters have consistently added stake for the past six quarters.

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Since establishing its full-fledged production facility in Tumkur, the company is tapping into the growing market with cost efficiency and competitive pricing.

With a total floor space of 26,500 sq m across its three factories, Incap demonstrates its ability to scale production while adhering to lean manufacturing principles for optimal efficiency.

⦁ Laffans Petrochemicals

Next on this list is Laffans Petrochemicals.

Laffans Petrochemicals trades in chemicals and active pharmaceutical ingredients (APIs), and commodities arbitrage. It was established in Gujarat in 1992.

The company specialises in ethylene oxide derivatives. The chemical products derived from petroleum are used for several consumer products like plastics, rubber, paints, fertilisers, etc.

After facing a loss of 17 million (m) in 2022, Laffans Petrochemicals managed to swing into profitability in 2023 with a profit of 79.4 m.

The company is actively leveraging its industry experience to explore new opportunities for indenting and trading chemicals.

It has also begun strategically importing chemicals from Dubai in the last financial year, diversifying its sourcing strategy.

Promoters of the company have been steadily increasing their stake, with holdings rising from 59.87% to 60.35% in the December 2023 quarter.

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While import challenges like pricing fluctuations and transit times exist, the company is capitalising on the rising demand for speciality chemicals and favourable government policies.

⦁ NRB Bearings

Founded in 1965 in Mumbai, NRB Bearings is the first company in India to manufacture needle roller bearings.

The company now offers a wide range of bearings, including a new generation of lightweight drawn cup bearings.

They also provide a complete friction solutions package and customised bearings catering to industrial users.

NRB Bearings delivered impressive results in the December 2023 quarter.

Its consolidated net sales grew by 2.9% YoY, reaching 2.6 bn.

But the real story lies in its net profit, which skyrocketed a staggering 622.8% YoY to 1.7 bn!

NRB Bearings' promoters are demonstrating confidence in the company’s future by steadily increasing their stake. Their holdings have grown from 50.63% to 50.67% in the December 2023 quarter.

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The company is taking steps to de-risk its business by reducing dependence on domestic sales.

They're actively restructuring their international business for future growth.

The recent sale of a 6.4-acre land parcel in Thane to Oberoi Realty for 2 bn demonstrates their ability to monetise non-core assets.

A fire at their Waluj plant did impact their topline by 5%, but with new machinery arriving, they expect supplies to normalise in the next quarter.

The company also successfully navigated challenges like material input shortages and rising prices.

NRB Bearings is experiencing growth in both the commercial and passenger vehicle segments, indicating a strong market fit for their products.

Snapshot of Companies with Rising Promoter Holding

Here’s a snapshot showing the above companies and more, with their important parameters.

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Please note that these parameters can be changed according to your needs. Check out our powerful screener for more such screens.

In Conclusion

The trend of promoter buying is typically associated with a positive outlook, driven by various factors such as strong financial results, anticipated growth, new product launches, or favourable industry trends.

Despite these tempting signals, it is crucial for investors to approach such situations with careful consideration and conduct comprehensive research.

Promoter buying is just one aspect of the overall investment landscape, and a thorough analysis of market conditions, company fundamentals, and industry trends remains essential for making informed decisions.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

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