Insider Alert: Promoters are increasing their stake in these five companies

The ultimate owner or promoter of a listed business and senior management in the US and Europe differ.

However, in India, management and ownership are often married. So, when promoters increase their stake in a firm, there is a lot of curiosity to know why this happened.

Promoters may have a hundred reasons to sell, but usually they have only one compelling reason to buy. The market feels that the promoters know something that they do not know.

Promoters also increase or decrease their stake to comply with the norms of the market regulator.

The case for investing in a stock in which the promoter has increased its ownership is straightforward but powerful.

When controlling owners learn that their company’s stock is trading at a discount to their estimate intrinsic value, they can acquire more shares to expand their holding.

Promoters use various methods to increase their stake 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 have been increasing their stake in the last few quarters.

United Breweries

United Breweries is primarily engaged in the manufacturing, buying and selling of beer and non-alcoholic beverages.

For the June quarter, Heineken International BV, one of the company’s promoters, increased its stake to 24.27% from the 9.28% reported in the March 2021 quarter.

Heineken International BV operates as a financial holding company, with interests in the distribution of beer and other beverages. It owns breweries, brews and specialty beers. The firms’ brands include Cruzcampo, Starbruno, Zagorka, Birra Moretti, Ochota and Heineken Pilsner. The headquarter of the company is in Amsterdam, Netherlands.

Overall, the promoter’s stake in the company stood at 72.71% at the end of September quarter, as against 57.72% in the March 2021 quarter.

In the past one year, the share price has risen by 75.5% ₹From 1,709 on 14 October 2021 ₹907 as of 28 October 2020. However, the company has given poor sales growth of -2.6% in the last five years.

Vedanta

Vedanta is a global diversified natural resources company operating in sectors such as copper, aluminum, iron ore, electricity, zinc, lead and silver, oil and gas, and other natural resources.

Back in April, Vedanta Resources said it had acquired 374.2 million shares of Vedanta Ltd through a voluntary open offer. After the acquisition, the promoter’s stake in Vedanta increased from 55.1% to 65.2%.

Vedanta Resources launches open offer to buy 65.1 crore shares (or 17.5% equity) ₹235 per share but received bids from its shareholders for only 58%.

On the other hand, Vedanta Holdings Mauritius Limited, a promoter group company, bought 185 million shares at an average price. ₹160.

Meanwhile, the promoters have pledged their 99.99% stake and have ₹380.7 billion contingent liabilities.

Lux Industries

Lux Industries was incorporated in 1995 and has emerged as one of the largest players in the hosiery business, with a market share of 14% in the organized industry.

The promoter holding of the company has increased by 4.88% in the June 2021 quarter. With this the promoter’s stake has increased from 69.51% in the March 2021 quarter to 74.39% in the September 2021 quarter.

Holyfield Traders Pvt. Promoters Group Company Limited bought 5.77% stake in Lux Industries.

Shares of Lux Industries have consolidated in the last one year multibagger Because it has managed to give a return of 168% to its shareholders.

Further, the company is virtually debt free and has delivered decent profit growth of 39.79% Compound Annual Growth Rate (CAGR) over the last five years.

tonal platform

Tanla Platforms (formerly Tanla Solutions) is a telecommunications products and solutions company engaged in the business of telecommunications infrastructure and related services.

The company is one of the world’s largest CPaaS (communication platform as a service) players, it processes over 800 billion interactions annually and accounts for about 70% of India’s application-to-person (A2P) SMS traffic. It is processed through a distributed ledger platform – TrueBlock, making it the largest blockchain use case in the world.

Promoter holding for the September 2021 quarter has grown by 0.22% over the previous quarter. Meanwhile, during the June 2021 quarter, the promoters’ stake improved by 1.07% as compared to the March quarter.

Overall, the promoters of the company hold 42.51% stake in the company as of 30 September 2021.

The company’s share price has performed very well over the last one year period. Shares of Tanla Platforms have gained over 221%.

Godrej Agrovet

Godrej Agrovet is a diversified, research and 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 a leading market position in the various businesses in which it operates- animal feed, crop protection, oil palm, dairy and poultry and processed foods.

Promoter holding during the June 2021 quarter has grown by 0.95% over the previous quarter. Overall, the promoters’ stake in the company is around 71.65% as compared to 70.70% in the 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 weak returns to its investors in the past one year due to poor sales growth.

What does increasing promoter’s stake in a company represent?

It is often considered beneficial when promoters increase their ownership in their firm. This shows that the promoter is optimistic about the future prospects of the company.

An ever-increasing promoter stake could be an early sign of improvement in fundamentals and could certainly lead to a sharp rise in the stock prices.

It is seldom that promoters’ holdings continue to grow on a consistent basis. They usually buy after a dramatic fall in the market to increase their share.

They do not increase their investment in a growing market quarter by quarter. If they did, it would demonstrate that they not only trust their businesses, but that they are overly optimistic. Exactly the same could have happened for the above shares.

In addition, promoters can also buy shares of their companies as their major stake is pledged.

Pledging shares often goes unnoticed in the first place, but there are many reasons why high pledged stocks can be negative in the long run.

While promoter holding alone cannot indicate whether a company is a smart investment, it is certainly one of the elements to consider.

Furthermore, it is more important to look at the decrease and increase in promoter holding than looking at the actual promoter holding.

Happy investment!

This article is syndicated from equitymaster.com