Radhakishan Damani: Man with the Midas touch in

the stock markets

economictimes.indiatimes.com /markets/analysis/radhakishan-damani-man-with-the-midastouch-in-the-stock-markets/articleshow/32630959.cms
By Kala Vijayraghavan & Sagar Malviya , ET Bureau | 25 Mar, 2014, 11.43AM IST
By
Kala Vijayraghavan & Sagar Malviya, ET Bureau | 25 Mar, 2014, 11.43AM IST
Damani's likes to let his work speak f or itself
and his portf olio of listed investments, at its
last-known market value of Rs 1,731 cr, is an
eight-bagger.
()
Vol: shares traded
()
Vol: shares traded
ET SPECIAL:
Save precious time tracking your investments

Business Values
Take customers. All of D-Mart's stores are in, or close to, residential areas and not in malls. Since
it owns 90% of its stores, it ends up paying more upf ront but insulates itself f rom rising rentals
or relocation risk. T hat works f or it because D-Mart can use its capital steadily.
It is not chasing growth, it is well capitalised and debt-light, and its operations generate spare
cash. As of March 2013, it had Rs 786 crore in shareholder f unds and debt of 432 crore. "With
owned properties and no cost of rentals, they are, in f act, building assets on their books," says
Ruchi Sally, director at retail consultancy Elargir Solutions. Further, in terms of size, D-Mart does
not aspire to meet every consumer need like a Big Bazaar. Instead, it aims to meet most regular
consumer needs, while of f ering value f or money. "T hey have a relatively smaller f ormat, which
helps them reach store-level prof itability much quicker," says Sally. At Rs 53 crore, D-Mart's
revenues per store is said to be the highest among grocery chains (a comparison is not possible
as Future and Reliance house multiple f ormats).
"T hey (D-Mart) buy it low, stack it high and sell it cheap without undercutting," says George
Angelo, executive director, sales, Dabur India. Adds a senior manager at a Mumbai based
supermarket chain, not wanting to be named: "T here is an unsaid rule not to open any store
within a radius of one km of a D-Mart. We have come to terms that we cannot beat them on
prices."

Vendor relationships are the second pillar of D-Mart's model. "His (Damani's) biggest strength
was vendor relationships, having come f rom a trader background," says Mall. Against the payment
norm in the FMCG industry of 12-21 days, D-Mart pays vendors on day 11, a trait that keeps them
in the good books of vendors and avoids stock outs. "As a retailer, they are reasonable with
vendors," says Angelo of Dabur, f or some of whose products D-Mart is the leading seller. "T here
is a Lakshman Rekha (a line they won't cross) to haggle with vendors."
Nilesh Shah, a seasoned investor himself , sees f inancial logic in such vendor engagements,
which he explains in a way that, initially, sounds counter-intuitive. "T he sole motive of RK Damani
is not to make money through D-Mart," says the MD and CEO of Axis Capital.
Shah compares D-Mart to Subhiksha, a discount chain that grew using debt and ended up going
under. Subhiksha took credit f rom suppliers to sell to customers, and used its cash f or
overheads and acquisitions. It was always a spiral where cash disappeared and no wealth was
created. "D-Mart, on the other hand, pays suppliers well in time. So, it buys goods cheaper since
there is no interest loaded on them and, theref ore, its turnover per square f oot also increases,"
says Shah. "Since there is no expansion spree and no interest to be loaded, the model is hugely
successf ul."
T hat's not to say D-Mart does not rile suppliers. "Since D-Mart buys in bulk to earn higher
margins, at times, they run their own promotions through the year," says a sales head of a large
regional f ood company, on the condition of anonymity. "T his erodes brand positioning, especially
of smaller brands, which f ind it dif f icult to sell without a discount tag." Counters Neville Noronha,
CEO of D-Mart: "T hat is an immature view since this is not a one-day game. T he incremental
volume that D-Mart sells allows us to of f er that additional value to the customer."
Profits Over Growth
Employees are the third pillar of D-Mart's model. What it does not of f er by way of money, it
makes up by way of f lexibility, empowerment and a relaxed, but ef f icient, work culture. "We are
happy even with a 10th standard f ail, but with the right attitude and commitment," says Noronha.
"What we do is invest heavily in training. And so, even f rom a basic f ront-end, when they rise to
store-level managers, they are not seen as target candidates by others, who cannot accept a
10th standard f ail."
Dheeraj Kampani, who has been with D-Mart f or nine years af ter joining f rom Spencer's Retail,
values the empowerment. "You are just told once about the value system and policies at D-Mart
and then given the f reedom to operate without somebody constantly looking over your shoulder,"
he says. "T here is a clear f ocus on what has to be achieved, but there is no mad scramble to
achieve targets. If you have stayed a year at D-Mart, it is unlikely that you will ever leave."
In 2004, Neville Noronha was in Hindustan Unilever and interacting with Damani as a vendor.
Today, af ter being convinced by Damani to join as head of business, he is the main man at DMart; and unlike the HUL brigade, he neither has an IIT or an IIM degree. "I had nothing more than
the passion to compete and be the best," adds Noronha. Noronha iterates Damani's philosophy
f or D-Mart. "We are not looking at any numbers play," he says. "We do not look too f ar into the
horizon to generate this much or more revenues. What we are, however, very clear about is in
f ollowing Damani's vision that the business has to be prof itable."
T hat also puts into context D-Mart's expansion startegy, which f ollows a cluster approach. DMart is in Maharashtra (45 stores) and Gujarat (18 stores), and has six stores in Hyderabad and
f our in Bangalore. "Supermarkets have to have local sourcing and supply to be successf ul," says
Harminder Sahni, managing director of retail advisory f irm Wazir Advisors.
"T hat is where other bigger players f altered because supply chain cannot be pan-India." "We play
to our strengths," says Noronha. "Our management bandwidth and cost structures do not allow

us to go national f or now." Damani, who meets the management once a month, says he is neither
looking too f ar ahead nor interested in tying up with a f oreign retailer. He visits D-Mart stores
regularly, interacts with employees, looks at merchandise and gives insights.
His two daughters, Manjri Chandak and Jyoti Kabra, are involved on a day-to-day basis, especially
in merchandising; Chandak is also on the D-Mart board. "Both like consumer businesses," says
Damani. "So, I guide them. T hey are being groomed more as stakeholders possibly than someone
who will actively run the business."
T he market buzz is that Damani might yet list D-Mart when sentiment in the stock market
improves f or good, the main reason being to of f er an exit option to employees, f riends, f amily
and well-wishers who own equity. "As an investor, I think, D-Mart is a great, prof itable model and
RK Damani has it in him to deliver great value to shareholders," says Ramesh Damani. "He is
exceptionally gif ted."
T he Value Investor
For all his mild mannerisms, the legend of Radhakishan Damani was born in a pitched battle. In
1992, when Harshad Mehta, the Big Bull of the time, was ramping up share prices, Damani kept
looking at the astronomical valuations and shorting.
Mehta bought more, prices rose f urther, Damani sold more. Someone was going to be killed.
When it was revealed that Mehta had been siphoning of f f unds f rom the banking system, the
market collapsed, and Damani made a killing. Damani's conviction was borne out of a notion of
'right price'or the hunt f or value.

Much as he likes to dive into the rush of trading, there's also an old school part of Damani where
value is a notion that takes many years to be realised. "He's a brilliant and successf ul investor,
with a combination of being practical and humble at the same time," says Anand Rathi, f ounder of
Anand Rathi Financial Services.
Damani, who joined his brother's stockbroking business at the age of 32 f ollowing their f ather's
death, built his f ortune by buying multinational stocks during the late-80s and early-90s. "My
philosophy is long term, with a horizon of f ive to 10 years," he says. "If I like something and
believe in it, I am committed to it."
T hat philosophy is demonstrated in his investment portf olio, which is housed in a company called
Bright Star Investments. T he subset of listed companies in it is a compilation of 31 companies,
most of them blue chips, most of them chunks, most of them bought at low valuations.
As of March 2013, the cost price of this subset was Rs 212 crore. Its market value: Rs 1,731
crore. Its largest holding is also its most dramatic. In February 2001, Bright Star announced it held
15% in cigarette maker VST Industries, owned by British American Tobacco, and wanted to buy
another 20%. It had bought that 15% at an average price of Rs 88 a share. A bidding battle
ensued with IT C. VST stayed with BAT. Yesterday, the VST stock closed at Rs 1,700. T his values
Bright Star's Rs 51 crore holding at Rs 681 crore. And the legend of RK Damani grew.