Radhakishan Damani pares 1% stake in Avenue Supermarket(D-Mart)..Seems routine but what a Masterstroke!!!

Radhakishan Damani pares 1% stake in Avenue Supermarts(D-Mart)

May 28, 20188:23 am

Recently Radhakishan Damani (RKD) was in news for paring away with his 1% stake in Avenue Supermarts or selling off 62.4 lakhs shares.
Radhakishan Damani is an investment legend for the Indian stock market investor community. As for every of his step, there goes a lot of thinking, the same can be said about this move as well.

Radhakishan Damani pares 1% stake in Avenue Supermart(D-Mart)

Let’s dig up some details from the listing last year.

Radhakishan Damani listed his venture Avenue Supermarts Ltd the parent of retail chain D-Mart on March 22, 2017. The issue price was set at ₹299 but listed at ₹604.4, a premium of 102% in a day.

Post listing, Radhakishan Damani & others in the promoter group held 82.2% stake in the company. There is a hitch here that SEBI listing agreement points to 25% of the shareholding of the company to be with the public.

So why didnt the Damani’s reduce or pare away his stake at the time of listing?

Because with every hitch there is a loophole. There is a provision that allows companies to dilute less than 25 percent post an IPO to be diluted in three years to comply with the minimum public shareholding norms.

Now, suppose if Promoter group had sold the same number of shares at the time of listing they would have made: 62.4lakh*299=₹ 186 crores. But selling at a current price of ₹1360, he made ₹848cr.

While other companies also list but almost all of them reduce the promoter group shareholding to less than 75%.

What made Radhakishan Damani not to sell the stake at the time of IPO:

1. SEBI’s rule allows the promoter to reduce the shareholding in 3 years
2. Confidence in the business that the performance is going to get better and hence the valuation

The decision already made him an additional ₹662 cr. On top of that, there are more of thousands of crore that can be made in the coming 22 months.

Before paring up with the stake, the promoter group held 82.2%. Now, they hold 81.2% which means additional 6.2% more stake to be sold that’s roughly ₹3.9cr of shares left.
If that is converted at the time of IPO would have garnered ₹1157cr but if converted at ₹1500 it would be ₹5807cr. A whopping difference of ₹4650 cr in little over a year since public listing.

The way share price is moving up the promoter group will make use of the maximum time to which they liquidate. Viewing from the 3 year timeframe from March 2017, they have time till March 2022.

The company already has given a return of 2.5X  of the listing price of 604 in just a matter of 14 months. Given the performance of the company, the shareholders are assured of similar returns continuing in the future.

By, 

Shekhar Yadav

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Shekhar Yadav

I am a full time stock market investor. The blog is an extension of my research, thoughts & opinion. Please don't consider anything on this website to be an investment advise.

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