Radhakishan Damani Trims Stake in High Yielding Dividend Stock

Everyone's got their reasons for diving into the stock market-whether it's pure curiosity or a burning desire for financial freedom.

But let's be real: investing isn't a walk in the park. Even if you had all the time in the world, it's tough to master the skills of consistently achieving extraordinary returns and outperforming the market.

Therefore, many people to achieve outstanding returns replicate the success of the top performers like Ashish Kacholia, Radhakishan Damani and Vijay Kedia by mimicking their portfolio holdings.

While this approach might seem promising, it's important to remember that past performance doesn't guarantee future results.

In this article, we delve into a recent market move by Radhakishan Damani. He has recently trimmed down his stake in this smallcap company.

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.

Damani is 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 Sell and Why?

The company in question is VST Industries.

The company is engaged in the manufacturing of cigarettes containing tobacco and unmanufactured tobacco.

As per the bulk deal data available with the stock exchanges, the ace investor Radhakishan Damani, through his entity Derive Trading, on 6 September 2024 sold a total of 129,600 equity shares of VST Industries, representing a 0.1% stake, at an average price of Rs 480.6 bringing the total deal value to nearly Rs 62.2 million (m).

Before this in July 2024, Damani sold about 2.62 lakh shares or about 1.7% stake in the company at Rs 4,102 apiece. This takes the transaction value to Rs 1.1 bn.

At the end of the June 2024 quarter, the investor had held about 34.7% stake in the company.

While we don't know why he sold shares of VST Industries, there are some reasons that we can guess.

#1 Profit Booking

One of the potential reasons behind Radhakishan Damani's stake sale could be profit booking, particularly following a significant surge in the company's stock.

On 6 September 2024, the shares of VST Industries saw an impressive rise of over 18%, a rally triggered by the record date for the company's much-anticipated bonus issue.

Earlier in July, VST Industries had announced a 10:1 bonus share issue, initially setting August 30 as the record date, but later revising it to 6 September.

Under the terms of this bonus issue, eligible shareholders will receive ten additional equity shares of Rs 10 each for every existing equity share of Rs 10 they hold.

This results in a 10:1 ratio, significantly increasing the number of shares held by investors. A total of 154,419,200 equity shares are set to be issued as part of this initiative.

The rationale behind the bonus issue was to improve liquidity in the stock, making it more accessible to a larger base of investors. By increasing the number of outstanding shares, the company aims to encourage broader participation from the market.

Additionally, this move is expected to support VST Industries' broader strategic restructuring efforts, as it seeks to strengthen its capital structure and boost investor confidence.

#2 Weak Quarterly Results

Another factor that could explain Radhakishan Damani's stake reduction is the company's weak earnings for the June 2024 quarter. VST Industries reported a 3.5% year-on-year decline in revenue, which stood at Rs 3.2 billion (bn), down from Rs 3.3 bn in the same quarter last year.

The company's EBITDA for the quarter took a significant hit, falling by 29.9% to Rs 823.6 million (m) from Rs 1.2 bn a year ago.

Net profit also saw a sharp decline, dropping by 35.9% to Rs 535.8 m, compared to Rs 837 m in the previous year's quarter.

These weak quarterly results may have prompted the seasoned investor to reduce his stake, possibly reflecting a cautious outlook on the company's near-term performance amid declining profitability.

A Close Look at the Financials

VST Industries has shown a consistent increase in its net sales over the last three years, with sales rising from Rs 7,957 million (m) in FY22 to Rs 10,034 m in FY24, at a compound annualised growth rate (CAGR) of 12.3%.

Despite the increase in sales, the operating profit has remained relatively stagnant, fluctuating slightly around Rs 4,583 m in FY22 to Rs 4,328 m in FY24.

This suggests that while the company has been able to increase its top line, it has struggled to translate this into proportional increases in operating profit.

Net profit has followed a similar trend as the operating profit, showing a slight increase from Rs 3,202 m in FY22 to Rs 3,270 m in FY23, followed by a decline to Rs 3,016 m in FY24. Over the past three years, the company's net profit showed a degrowth of CAGR of 3%.

The net profit margin has declined sharply from 40.2% in FY22 to 30.1% in FY24.

VST Industries Snapshot (FY22-24)

(Rs m, Consolidated)	FY22	FY23	FY24
Net Sales	7,957	9,124	10,034
Growth (%)	-	14.7	9.9
Operating Profit	4,583	4,591	4,328
Net Profit	3,202	3,270	3,016
Net Profit Margin (%)	40.2	35.8	30.1

Source: Equitymaster

What Next?

Looking ahead, VST Industries is well-positioned to continue its growth trajectory.

The cigarette industry in India is characterised by high entry barriers, which have allowed only a few players to dominate the organised market.

One significant barrier is the government's ban on FDI in the cigarette sector, effectively limiting competition from large foreign firms.

VST has strategically focused on a niche segment, catering primarily to rural consumers seeking affordable cigarettes.

This approach has helped the company avoid direct competition with giants like ITC and Godfrey Phillips, whose brands target premium urban consumers.

VST's portfolio, including brands like Charminar, Charms, Special, Moments, Total, and Editions, remains robust in rural markets. The company's stronghold in this segment has been a key driver of its sustained growth.

Additionally, the broader tobacco industry in India has consistently shown remarkable growth, with companies reaping substantial profits.

With the industry expected to grow at a compound annual growth rate (CAGR) of around 12% by 2028, VST is well-positioned to capitalise on this expansion and further strengthen its market position.

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. It's 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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