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Radhakishan Damani: India's Value Investing Approach

India's Reclusive Warren Buffett: Two Favorite Stocks Down Over 50% – A Prime Time to Watch?

In the world of Indian investing, few figures command as much intrigue and respect as Radhakishan Damani, often dubbed India's reclusive Warren Buffett. Known for his low-profile lifestyle and astute value investing approach, Damani has built a fortune through his flagship retail chain, Avenue Supermarts (DMart), and a portfolio of carefully selected stocks. Unlike the flamboyant market mavens who dominate headlines, Damani shuns the spotlight, letting his investment decisions speak for themselves. His strategy echoes that of the legendary Warren Buffett: focusing on companies with strong fundamentals, sustainable moats, and long-term growth potential, often bought at reasonable valuations and held through market cycles.

Recently, however, two of Damani's favored stocks have taken a significant beating, plummeting over 50% from their peaks. This downturn has sparked interest among value hunters and contrarian investors, prompting questions about whether this represents a buying opportunity or a cautionary tale. As markets grapple with volatility driven by inflation, interest rate hikes, geopolitical tensions, and sector-specific challenges, these stocks stand out as potential turnaround stories. Let's delve into the details of these holdings, their current predicaments, and why they might deserve a spot on your watchlist.

The first stock in focus is VST Industries, a prominent player in the Indian tobacco sector. Damani, through his investment vehicle Bright Star Investments, holds a substantial stake in VST, making it one of his core portfolio bets outside of retail. VST Industries is renowned for its cigarette brands like Charminar and Moments, commanding a niche but loyal market share in a highly regulated industry. The company benefits from stable demand, high margins due to pricing power, and consistent cash flows, which align perfectly with Damani's preference for defensive, dividend-paying businesses.

However, VST has faced headwinds that have eroded its stock price by more than 50% from its all-time highs. Key factors include stringent government regulations on tobacco products, such as increased taxes, graphic health warnings, and bans on advertising, which have squeezed volumes and profitability. The rise of illicit trade and cheaper alternatives has further pressured market share. Additionally, broader market sentiment towards sin stocks—those in tobacco, alcohol, or gambling—has soured amid ESG (Environmental, Social, and Governance) investing trends, where funds increasingly avoid sectors deemed socially harmful. Despite these challenges, VST's fundamentals remain robust: it boasts a healthy balance sheet with minimal debt, strong return on equity (often exceeding 20%), and a history of generous dividends. In the latest financial reports, the company reported steady revenue growth, albeit at a moderated pace, supported by premium product launches and export expansions. Analysts point out that at current valuations—trading at a price-to-earnings ratio significantly below its historical average—VST could be undervalued, especially if regulatory pressures stabilize or if the company diversifies into less contentious areas like nicotine alternatives. For Damani, who has held onto his stake through previous downturns, this dip might reinforce his long-term conviction in the stock's resilience.

The second stock drawing attention is Blue Dart Express, India's leading logistics and express delivery company, in which Damani also maintains a notable position via his investment arms. Blue Dart, a subsidiary of DHL, operates in the fast-growing e-commerce and supply chain space, providing air and ground express services across the country. Its extensive network, technological integration, and partnership with global giant DHL give it a competitive edge in a sector exploding due to India's digital economy boom. Damani's interest in Blue Dart likely stems from its moat in time-sensitive deliveries, recurring revenue from B2B clients, and potential to capitalize on the e-commerce surge driven by players like Amazon, Flipkart, and Reliance.

Yet, Blue Dart's shares have tumbled over 50% from their peak levels, battered by a confluence of operational and macroeconomic factors. The COVID-19 pandemic initially disrupted logistics with lockdowns and supply chain snarls, but the post-pandemic recovery brought new woes: soaring fuel costs, intense competition from low-cost entrants like Delhivery and Ecom Express, and inflationary pressures on operating expenses. Rising aviation fuel prices have particularly hit Blue Dart's air express segment hard, while ground transportation faces margin compression from wage hikes and vehicle costs. Moreover, the broader slowdown in consumer spending and e-commerce growth moderation—amid high inflation and reduced discretionary purchases—has dampened volume growth. Recent quarterly results showed revenue increases but profit squeezes, with net margins contracting due to these cost escalations.

Despite the gloom, there are silver linings that could make Blue Dart an attractive watchlist candidate. The company is investing heavily in automation, drone deliveries, and sustainable practices to enhance efficiency and reduce costs. India's logistics sector is poised for exponential growth, with government initiatives like the National Logistics Policy aiming to cut costs and improve infrastructure. Blue Dart's premium positioning allows it to command higher pricing, and its DHL affiliation provides global synergies. Valuation-wise, the stock is now trading at a forward P/E multiple that's more reasonable compared to its historical premiums, potentially offering a margin of safety for patient investors. Damani's continued holding suggests he sees enduring value here, betting on the structural tailwinds of digitization and urbanization in India.

Why consider adding these stocks to your watchlist now? Damani's track record is a compelling endorsement. His investments in DMart transformed a modest retail chain into a market behemoth, delivering multibagger returns. His approach emphasizes buying quality at a discount during market pessimism, much like Buffett's famous quip: "Be fearful when others are greedy, and greedy when others are fearful." Both VST and Blue Dart fit this mold—established businesses with defensible positions, facing temporary setbacks but not existential threats. That said, risks abound: for VST, escalating anti-tobacco regulations could cap upside; for Blue Dart, prolonged economic slowdowns or disruptive tech (like autonomous vehicles) might alter the landscape.

Investors should conduct thorough due diligence, assessing factors like management quality, competitive dynamics, and macroeconomic trends. Monitoring quarterly earnings, regulatory updates, and insider activity (including Damani's moves) will be key. While these stocks may not rebound overnight, their current discounts could reward those with a long-term horizon. In a market where growth stocks dominate narratives, these value plays remind us of the timeless appeal of Damani's Buffett-inspired wisdom: patience, discipline, and a focus on intrinsic value. As Indian equities navigate uncertain waters, keeping an eye on these fallen favorites could uncover hidden gems. (Word count: 928)

Read the Full The Financial Express Article at:
[ https://www.financialexpress.com/market/stock-insights/2-favourite-stocks-of-indias-reclusive-warren-buffett-are-down-over-50-time-to-add-them-to-your-watchlist/3947580/ ]