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Insiders Are Buying Into These 5 Stocks Aggressively. More Details Here...The other day, I was out shoe shopping with my mother. We ignored famous brands such as Bata India or Relaxo Footwears and went to a local vendor who manufactures shoes.
There was a particular pair of shoes that I really liked. However, after a lot of discussions with the manufacturer about price and quality, my mom said we should look for better options.
Once we were out of the unit, I asked her why she rejected those shoes. Here's her reply,
“Did you see the hesitation on his face when I asked if these shoes are sturdy? When he himself does not believe in his product why should we trust him?”
We ended up buying shoes from another vendor.
An owner's faith in their own product is very important. Because it is an owner's confidence that attracts other people's faith in the product.
You may have seen some episodes of Shark Tank India and realized in some cases, the sharks are betting on the person and not the product.
That is why promoter's stake in the company indicates their faith in the company. Many investors often track promoter buying and selling activity to get a gist of what the company promoters are up to and whether they're confident of the company's growth.
Today, let's take a look at five Indian companies that have seen buying from insiders for consecutive quarters.
These companies have seen promoters increase their stake for a minimum of four quarters.
#1 Maharashtra Seamless
First on the list is Maharashtra Seamless.
Maharashtra Seamless is the flagship company of the well-diversified DP Jindal Group.
It is engaged in the manufacturing of seamless and ERW steel pipes & tubes. The company has diversified its business portfolio in renewable power generation too.
Shareholding pattern of Maharashtra Seamless shows that the insiders or promoters of the company have increased their stake for six consecutive quarters.
In June 2021, they held a 63.73% stake which has increased to 67.63% for the quarter that ended on 31 December 2022.
Maharashtra Seamless Shareholding Pattern
Promoters' increased faith in the company could be attributed to a number of reasons.
Maharashtra Seamless owns a 55% market share in the segment of seamless pipes with manufacturing facilities at Nagothane & Mangaon in Maharashtra and Narketpally in Telangana. The company derives a majority of its revenues and profit from this segment.
Operational and Finance Performance
Data Source: Investor Presentation
The outlook of the seamless segment is bright. The global seamless pipes market is expected to witness strong growth in demand for OCTG pipes, driven by a resurgence in exploration & production activity in the oil & gas sector and greater emphasis on horizontal and directional drilling operations.
Another key driver for the seamless pipes market growth is the growing demand from the sugar and chemical industries where the usage of boilers and other chemical processes is frequent.
Various initiatives taken by the government of India to boost the oil and gas sector are a blessing in disguise for the company.
Demand from Oil and Gas Industry a key driver for Maharashtra Seamless
The government of India has also announced specific policies for pipe manufacturers. The seamless & ERW pipes sector is getting a major boost from Make in India and Aatmanirbhar Bharat policy.
Under this policy, for any purchases made by public sector undertakings (PSUs), there must be a minimum 35% local value addition in the supply of pipes which benefits domestic manufacturers.
Going forward, ramp up in exports is likely to be an important growth engine for the company.
In 2022, the company also issues bonus shares in the ratio of 1:1.
#2 GNA Axles
Incorporated in 1993, GNA Axles is a Punjab-based manufacturer of rear axle shafts, other shafts and spindles used in on-highway and off-highway vehicular segments in India.
The company mainly engaged in manufacturing and selling auto components for the four-wheeler industry.
Shareholding pattern of GNA Axles shows that the insiders or promoters have increased their stake in this auto ancillary company for four consecutive quarters.
In December 2021, they held a 67.52% stake which has increased to 68.08% for the quarter that ended on 31 December 2022.
GNA Axles Shareholding Pattern
So why are insiders picking up stake in GNA Axles? Could be for various reasons…
First reason being the demand for auto components to remain buoyant, despite weakening exports.
Here's what we wrote in a recent article:
The company may see a surge in sales of Class 8 trucks. In September 2022, these truck variants had huge orders in North America. But the next two months were weak.
In its 2021-22 annual report, GNA Axles said it was expecting a double-digit growth within the next 18 months from the North American truck market.
The company enjoys a leading market share of over 50% in supplying rear axle shafts, spindles, and drive shaft to domestic tractor and CV segments. Over 50% of its revenue comes from exports.
The company also enjoys group synergies. GNA group which also includes GNA Gears was established in 1946 and has a long track record of operations.
Also, promoters are not the only ones bullish on the company…even mutual funds have consistently increased stake in the company.
#3 Sasken Technologies
Sasken Technologies is an Indian multinational technology company, based in Bangalore, India, which provides product engineering and digital transformation services to global customers in industries such as semiconductors, automotive, consumer electronics, enterprise-grade devices, smart devices and wearables, industrials, and telecommunication.
Shareholding pattern of Sasken Technologies shows that the insiders or promoters have increased their stake in this IT company for six consecutive quarters.
In June 2021, they held a 40.48% stake which has increased to 43.38% for the quarter that ended on 31 December 2022.
2022 was a nightmare for even the best IT stocks in India. Poor financial performance and high attrition rates among other reasons created havoc for investors in IT stocks. However, winds are slowly changing.
2023 might be the year of reset and revive for Indian IT stocks. The tech sector is set to undergo significant changes in 2023 as a result of new technologies, hiring strategies, and governmental reforms and the potential of the sector will be tested.
Globally, there is a keen understanding and acceptance of India being a favoured destination for IT services due to its access to talent, strong work ethics and more recently being thought of as innovation housing amongst the world's most successful crop of start-ups.
Therefore, the Indian engineering R&D market may witness a compounded annual growth rate of 12-14% for the next 2-3 years, according to reports.
After three decades and several cycles of disruption and change, Sasken Technologies has evolved to be a strong contender in the engineering R&D & digital services space by honing its ability to deepen existing competencies and build new ones in response to emerging market needs.
#4 Som Distilleries and Breweries
Som Distilleries and Breweries manufactures and sells spirits, beer, and alcopop in India and internationally. The company offers beer, whisky, rum, vodka, brandy, etc.
It also offers ready-to-drink products under the Cosmo Cranberry, Naughty Orange, Passion Fruit, and Tangy Lemon brand names.
Shareholding pattern of Som Distilleries and Breweries shows that the insiders or promoters have increased their stake in this beverage company for four consecutive quarters.
In December 2021, they held a 24.48% stake which has increased to 32.72% for the quarter that ended on 31 December 2022.
In a board meeting held on 9 December 2022, Som Distilleries and Breweries approved a proposal to set up a new canning facility and expand its existing utilities at Bhopal with an investment of Rs 1 bn.
The company's expansion plan also includes expanding the brewing facility in the Hasan Plant of Woodpecker Distilleries and Breweries The company hopes to complete the expansion plan in time to be ready for the summer season.
The board also approved a rights issue to fund the expansion plan. The company will issue fully paid-up equity shares of Rs 5 each, aggregating to Rs 490 m.
So capacity expansion could be one reason behind promoters' bullishness. Other reasons could be the company's strong market share and stellar Q3 numbers.
For the quarter that ended on 31 December 2022 net profit of the company stood at Rs 105.2 m in as against net loss of Rs 11.2 m reported during the year ago period. Sequentially this quarter's net profit is higher by 28%.
The company's total sales stood 101% higher at Rs 30.8 bn in the quarter ended December 2022 as against Rs 15.3 bn during the previous quarter ended December 2021. Sequentially December 2022's sales is 19% higher.
#5 NCL Industries
NCL Industries is one of the leading cement and building material manufacturers and suppliers in India. The company commenced production of cement under the brand name Nagarjuna and established a premium brand image, particularly in the coastal districts of Andhra Pradesh.
Shareholding pattern of NCL Industries shows that the insiders have increased their stake in NCL Industries for six consecutive quarters.
In June 2021, they held a 43.73% stake which has increased to 46.48% for the quarter that ended on 31 December 2022.
In September 2022 a news headline went viral:
"India overtakes the UK to become the fifth largest economy in the world"
This headline made every Indian swell with pride, even those who made zero contributions to the economy. Jokes apart, it is clear from the headline that India's economy is growing at a rapid pace.
When an economy is growing, people invest more in infrastructure because the living standard rises. Hence, a growing economy suggests a boom in the infrastructure sector. And a booming infrastructure sector suggests increasing demand for cement.
Demand for cement is strong and pricing is likely to remain stable with an upward bias in the near term.
Increasing demand of cement will be a big boost for NCL Industries as it sells a reputed brand of cement. Being one of the most popular brands in the southern region its sales may see a sharp rise which will ultimately lead to higher profits and better earnings per share.
Track promoter buying activity on Equitymaster's Stock Screener
You can track which stocks promoters are buying using Equitymaster's Indian stock screener.
This tool also keep track of what foreign investors are buying and selling and what domestic mutual funds are buying and selling.
A word of caution
When insiders are buying stake in their company through open market, it could mean two things… the promoters may be of the view that shares are undervalued or they believe something big is about to happen in the company. They might know something that the retail individuals don't.
However, one should note that promoter buying cannot be the only reason to invest in a stock. Sometimes insiders may keep on buying stake to boost its share price even when there is no reason to be bullish on the company.
Ace investor Peter Lynch has effectively put the dilemma of such stocks in a quote,
“When insiders are buying, it's a good sign, unless they happen to be New England bankers.”
The comment from New England refers to the foolishness of the promoters of Texas and New England banks. They had high stakes in their own banks even when they had no strategy for a turnaround of the share price. Ultimately, the bank had to close down.
Hence, high promoter holding should be an additional point in your list of finding a fundamentally strong company.
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
There was a particular pair of shoes that I really liked. However, after a lot of discussions with the manufacturer about price and quality, my mom said we should look for better options.
Once we were out of the unit, I asked her why she rejected those shoes. Here's her reply,
“Did you see the hesitation on his face when I asked if these shoes are sturdy? When he himself does not believe in his product why should we trust him?”
We ended up buying shoes from another vendor.
An owner's faith in their own product is very important. Because it is an owner's confidence that attracts other people's faith in the product.
You may have seen some episodes of Shark Tank India and realized in some cases, the sharks are betting on the person and not the product.
That is why promoter's stake in the company indicates their faith in the company. Many investors often track promoter buying and selling activity to get a gist of what the company promoters are up to and whether they're confident of the company's growth.
Today, let's take a look at five Indian companies that have seen buying from insiders for consecutive quarters.
These companies have seen promoters increase their stake for a minimum of four quarters.
#1 Maharashtra Seamless
First on the list is Maharashtra Seamless.
Maharashtra Seamless is the flagship company of the well-diversified DP Jindal Group.
It is engaged in the manufacturing of seamless and ERW steel pipes & tubes. The company has diversified its business portfolio in renewable power generation too.
Shareholding pattern of Maharashtra Seamless shows that the insiders or promoters of the company have increased their stake for six consecutive quarters.
In June 2021, they held a 63.73% stake which has increased to 67.63% for the quarter that ended on 31 December 2022.
Maharashtra Seamless Shareholding Pattern
Promoters' increased faith in the company could be attributed to a number of reasons.
Maharashtra Seamless owns a 55% market share in the segment of seamless pipes with manufacturing facilities at Nagothane & Mangaon in Maharashtra and Narketpally in Telangana. The company derives a majority of its revenues and profit from this segment.
Operational and Finance Performance
Data Source: Investor Presentation
The outlook of the seamless segment is bright. The global seamless pipes market is expected to witness strong growth in demand for OCTG pipes, driven by a resurgence in exploration & production activity in the oil & gas sector and greater emphasis on horizontal and directional drilling operations.
Another key driver for the seamless pipes market growth is the growing demand from the sugar and chemical industries where the usage of boilers and other chemical processes is frequent.
Various initiatives taken by the government of India to boost the oil and gas sector are a blessing in disguise for the company.
Demand from Oil and Gas Industry a key driver for Maharashtra Seamless
The government of India has also announced specific policies for pipe manufacturers. The seamless & ERW pipes sector is getting a major boost from Make in India and Aatmanirbhar Bharat policy.
Under this policy, for any purchases made by public sector undertakings (PSUs), there must be a minimum 35% local value addition in the supply of pipes which benefits domestic manufacturers.
Going forward, ramp up in exports is likely to be an important growth engine for the company.
In 2022, the company also issues bonus shares in the ratio of 1:1.
#2 GNA Axles
Incorporated in 1993, GNA Axles is a Punjab-based manufacturer of rear axle shafts, other shafts and spindles used in on-highway and off-highway vehicular segments in India.
The company mainly engaged in manufacturing and selling auto components for the four-wheeler industry.
Shareholding pattern of GNA Axles shows that the insiders or promoters have increased their stake in this auto ancillary company for four consecutive quarters.
In December 2021, they held a 67.52% stake which has increased to 68.08% for the quarter that ended on 31 December 2022.
GNA Axles Shareholding Pattern
So why are insiders picking up stake in GNA Axles? Could be for various reasons…
First reason being the demand for auto components to remain buoyant, despite weakening exports.
Here's what we wrote in a recent article:
The company may see a surge in sales of Class 8 trucks. In September 2022, these truck variants had huge orders in North America. But the next two months were weak.
In its 2021-22 annual report, GNA Axles said it was expecting a double-digit growth within the next 18 months from the North American truck market.
The company enjoys a leading market share of over 50% in supplying rear axle shafts, spindles, and drive shaft to domestic tractor and CV segments. Over 50% of its revenue comes from exports.
The company also enjoys group synergies. GNA group which also includes GNA Gears was established in 1946 and has a long track record of operations.
Also, promoters are not the only ones bullish on the company…even mutual funds have consistently increased stake in the company.
#3 Sasken Technologies
Sasken Technologies is an Indian multinational technology company, based in Bangalore, India, which provides product engineering and digital transformation services to global customers in industries such as semiconductors, automotive, consumer electronics, enterprise-grade devices, smart devices and wearables, industrials, and telecommunication.
Shareholding pattern of Sasken Technologies shows that the insiders or promoters have increased their stake in this IT company for six consecutive quarters.
In June 2021, they held a 40.48% stake which has increased to 43.38% for the quarter that ended on 31 December 2022.
2022 was a nightmare for even the best IT stocks in India. Poor financial performance and high attrition rates among other reasons created havoc for investors in IT stocks. However, winds are slowly changing.
2023 might be the year of reset and revive for Indian IT stocks. The tech sector is set to undergo significant changes in 2023 as a result of new technologies, hiring strategies, and governmental reforms and the potential of the sector will be tested.
Globally, there is a keen understanding and acceptance of India being a favoured destination for IT services due to its access to talent, strong work ethics and more recently being thought of as innovation housing amongst the world's most successful crop of start-ups.
Therefore, the Indian engineering R&D market may witness a compounded annual growth rate of 12-14% for the next 2-3 years, according to reports.
After three decades and several cycles of disruption and change, Sasken Technologies has evolved to be a strong contender in the engineering R&D & digital services space by honing its ability to deepen existing competencies and build new ones in response to emerging market needs.
#4 Som Distilleries and Breweries
Som Distilleries and Breweries manufactures and sells spirits, beer, and alcopop in India and internationally. The company offers beer, whisky, rum, vodka, brandy, etc.
It also offers ready-to-drink products under the Cosmo Cranberry, Naughty Orange, Passion Fruit, and Tangy Lemon brand names.
Shareholding pattern of Som Distilleries and Breweries shows that the insiders or promoters have increased their stake in this beverage company for four consecutive quarters.
In December 2021, they held a 24.48% stake which has increased to 32.72% for the quarter that ended on 31 December 2022.
In a board meeting held on 9 December 2022, Som Distilleries and Breweries approved a proposal to set up a new canning facility and expand its existing utilities at Bhopal with an investment of Rs 1 bn.
The company's expansion plan also includes expanding the brewing facility in the Hasan Plant of Woodpecker Distilleries and Breweries The company hopes to complete the expansion plan in time to be ready for the summer season.
The board also approved a rights issue to fund the expansion plan. The company will issue fully paid-up equity shares of Rs 5 each, aggregating to Rs 490 m.
So capacity expansion could be one reason behind promoters' bullishness. Other reasons could be the company's strong market share and stellar Q3 numbers.
For the quarter that ended on 31 December 2022 net profit of the company stood at Rs 105.2 m in as against net loss of Rs 11.2 m reported during the year ago period. Sequentially this quarter's net profit is higher by 28%.
The company's total sales stood 101% higher at Rs 30.8 bn in the quarter ended December 2022 as against Rs 15.3 bn during the previous quarter ended December 2021. Sequentially December 2022's sales is 19% higher.
#5 NCL Industries
NCL Industries is one of the leading cement and building material manufacturers and suppliers in India. The company commenced production of cement under the brand name Nagarjuna and established a premium brand image, particularly in the coastal districts of Andhra Pradesh.
Shareholding pattern of NCL Industries shows that the insiders have increased their stake in NCL Industries for six consecutive quarters.
In June 2021, they held a 43.73% stake which has increased to 46.48% for the quarter that ended on 31 December 2022.
In September 2022 a news headline went viral:
"India overtakes the UK to become the fifth largest economy in the world"
This headline made every Indian swell with pride, even those who made zero contributions to the economy. Jokes apart, it is clear from the headline that India's economy is growing at a rapid pace.
When an economy is growing, people invest more in infrastructure because the living standard rises. Hence, a growing economy suggests a boom in the infrastructure sector. And a booming infrastructure sector suggests increasing demand for cement.
Demand for cement is strong and pricing is likely to remain stable with an upward bias in the near term.
Increasing demand of cement will be a big boost for NCL Industries as it sells a reputed brand of cement. Being one of the most popular brands in the southern region its sales may see a sharp rise which will ultimately lead to higher profits and better earnings per share.
Track promoter buying activity on Equitymaster's Stock Screener
You can track which stocks promoters are buying using Equitymaster's Indian stock screener.
This tool also keep track of what foreign investors are buying and selling and what domestic mutual funds are buying and selling.
A word of caution
When insiders are buying stake in their company through open market, it could mean two things… the promoters may be of the view that shares are undervalued or they believe something big is about to happen in the company. They might know something that the retail individuals don't.
However, one should note that promoter buying cannot be the only reason to invest in a stock. Sometimes insiders may keep on buying stake to boost its share price even when there is no reason to be bullish on the company.
Ace investor Peter Lynch has effectively put the dilemma of such stocks in a quote,
“When insiders are buying, it's a good sign, unless they happen to be New England bankers.”
The comment from New England refers to the foolishness of the promoters of Texas and New England banks. They had high stakes in their own banks even when they had no strategy for a turnaround of the share price. Ultimately, the bank had to close down.
Hence, high promoter holding should be an additional point in your list of finding a fundamentally strong company.
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