Ace Investor Radhakishan Damani Adds Stake in this High Dividend Yield Stock

Indian share markets defied global headwinds and soared to unprecedented heights in 2023, scripting a remarkable tale of resilience and resurgence.

Buoyed by a wave of domestic demand, a revitalised capex cycle, and expectations of rate cuts, the Nifty and Sensex breached record highs, shrugging off concerns of overvaluation and global turmoil.

This remarkable performance stood in contrast to a tumultuous year across the globe, marked by the US banking crisis, the Middle East conflict, soaring interest rates, and plummeting consumer sentiment.

With the markets still on a tear, retail investors are now on the lookout for multibagger stocks, turning their attention towards the portfolios of ace investors.

For investors seeking such news, there is noteworthy stock market news: Radhakishan Damani, an ace investor, acquired over 2 lakh shares in a fundamentally strong company via block deal yesterday.

A Word About Radhakishan Damani

Radhakishan Damani is a Mumbai-based entrepreneur, businessman, and billionaire investor who founded India's mega-retail chain D-Mart.

Born on 15 March 1954 to an Indian Marwari family, born and brought up in Bikaner, Rajasthan, RK Damani is one of the few self-made billionaires in the country.

Damani is considered to be one of the Big Bulls in the Indian stock market. He manages his portfolio through his investment firms, Bright Star Investments and Derive Trading & Resorts.

Over the years, the veteran investor has invested in cement, technology, and retail sectors.

He is considered India's retail king after the March 2017 IPO of his supermarket chain Avenue Supermarts.

Which Stock Did Radhakishan Damani Buy And Why?

The veteran investor and owner of D-Mart chain of stores, Radhakishan Damani increased his stake in cigarette manufacturer VST Industries on Tuesday via a block deal.

On Tuesday, 2 January 2024, Radhakishan Damani bought 222,935 equity shares, representing 1.4% of the total equity of VST Industries through the open market.

According to BSE bulk deal data, Damani purchased shares of VST Industries at an average price of Rs 3,390 per share.

Damani is already the single largest shareholder in VST Industries. Based on the December 2023 quarter shareholding pattern, Derive Trading and Resorts and Bright Star Investments, entities owned by Damani, held 4.76% and 25.95% stakes in VST Industries, respectively.

Meanwhile, two mutual funds, HDFC Mutual Fund (200,000 shares) and DSP Mutual Fund (250,000 shares) collectively sold 450,000 shares or a 2.9% stake in VST Industries.

Here's an interesting data point... Back in 2001, Damani had accumulated a shade below 15% in VST Industries at an average price of Rs 88 per share.

He was willing to pay Rs 112 per share for an additional 20% of the company, a 26% premium to the market price on the day he announced the bid.

While we do not know the exact reason why the investing guru loves the stock and decided to buy additional stake in the counter, there are some explanations.

#1 Consistent Dividend Payments

VST Industries has had an impeccable dividend track record since 2003.

During 2014-2018, the company's dividend per share averaged Rs 70. In the next five years (2019-2023), the per share dividend averaged Rs 120.5.

VST Industries' Dividend Per Share Over the Years

Year End/Source Date	Dividend %	Dividend Yield %	Dividend per Share (Rs)
31-Mar-23	1500	4.5	150
31-Mar-22	1400	4.2	140
31-Mar-21	1140	3.4	114
31-Mar-20	1030	3.7	103
31-Mar-19	950	2.7	95
31-Mar-18	775	2.7	77.5
31-Mar-17	750	2.6	75
31-Mar-16	700	4.3	70
31-Mar-15	700	4.4	70
31-Mar-14	700	4.3	70
31-Mar-13	625	4.2	62.5

Data Source: Equitymaster

In the financial year 2023, VST Industries announced the highest-ever dividend of Rs 150 per share or 1,500% on the face value of Rs 10 per share.

VST Industries has declared 20 dividends since 2003.

Its end-of-the-year dividend yield is 3.6%, and the 5-year average dividend payout ratio stands at 62.3%.

In the dividend distribution policy (last updated in 2020), VST stated that its payout ratio was around 70% of the net profit. This could either increase or decrease based on certain factors.

A sign of a strong business shows up in its numbers. VST Industries had a cash balance of Rs 88.2 m at the end of FY23.

This consistent dividend payments can be one of the reasons why ace investor bought additional stake in the company.

#2 Sectoral Tailwinds

Despite ESG concerns, VST Industries has seen substantial growth over the years.

This is because the cigarette business has high barriers. There's a reason why only 3 players have captured a majority of the organised cigarette market.

The government banned FDI investments in cigarettes, which is another major entry barrier. It prevents competition from big foreign firms.

The company's focus on a niche segment helps it avoid competition with giants.

While the ITC and Godfrey Philips brands cater to the premium urban consumer, VST's main market is the rural consumer who is looking for a cheaper cigarette.

VST's main brands (Charminar, Charms, Special, Moments, Total and Editions) are strong in the rural market.

A Close Look at its Financials

In the September 2023 quarter, the company reported a 2.9% YoY increase in revenue to Rs 4.5 bn. While the net profit for the quarter declined 17.6% to Rs 759.5 m, with tepid growth in topline and lower pre-tax profit and other incomes.

However, over the past three years, the company has achieved a compound annual growth rate (CAGR) of 4.3% in revenue, with net profit also showing a CAGR of 2.1%.

This impressive growth can be attributed to the company's successful sales expansion efforts.

Particulars	21-Mar	22-Mar	23-Mar
Revenue (Rs bn)	14.7	15.6	16.7
Revenue Growth (%)	-	6.1	7
Net profit (Rs m)	3.1	3.2	3.3
Net Profit Margin (%)	21.1	20.5	19.5

Data Source: Equitymaster

While the quarterly performance indicates short-term challenges, the consistent long-term growth underscores the effectiveness of strategic initiatives in bolstering overall financial health and market presence.

Going forward, the company plans to introduce new products or variants to cater to evolving customer preferences and cater to new segments.

How VST Industries Shares have Performed Recently

In the past one year, shares of VST Industries have gained 24%. In the past five days, VST Industries is trading higher by 20%.

VST Industries has a 52-week high of Rs 4,324.7 touched on 3 January 2024 and a 52-week low of Rs 2,910 touched on 28 February 2023.

It is currently trading at a PE (Price to Earnings) multiple of 20.4x, while PB (Price to Book) ratio stands at 5.7x.

About VST Industries

VST Industries is engaged in manufacture of cigarettes containing tobacco and unmanufactured tobacco.

Founded in the year 1930, VST Industries got its name through its founder Vazir Sultan and now they are the third-largest player in the Indian cigarette market with over 90 years of operations.

The company has a portfolio of reputed brands and it sells cigarettes in India and abroad under different brands including Charminar, Charms, Special, Moments, Total, and Editions.

The market share of VST Industries stands at 9% in the legal cigarette market and 5% in the overall cigarette market in terms of value.

For more details about the company, you can have a look at VST Industries' factsheet and quarterly results on our website.

You can also compare VST Industries with its peers.

VST Industries vs Godfrey Phillips

VST Industries vs ITC

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