PROFILE: With D-Mart IPO, reclusive RK Damani readies for big league
Damani has already acquired a cult status on Dalal Street — both as a trader and value investor — in little over a decade since wetting his feet in the stock market.
Anecdote has it that in the early ‘90s when Radhakishan Damani flipped through the pages of a Forbes edition, he found the billionaires list to be dominated by retailers. Reclusive, but by no means unambitious, Damani is said to have made up his mind then to enter organised retailing, which was still in its infancy in the country.
At that point, Damani had already acquired a cult status on Dalal Street — both as a trader and value investor — in little over a decade since wetting his feet in the stock market.
Others say Damani’s foray into organised retailing was accidental. He had just lost a public battle to tobacco giant BAT for the control of VST Industries, suffered losses betting against technology stocks and was being hounded by market regulator SEBI for allegedly being part of a bear cartel accused of hammering stock prices.
Damani wanted to keep away from the market for a while, and the challenge of setting up a fairly complex operation like retail, without any prior knowledge, appealed to his patient and enquiring temperament.
Whether by design or by accident, RK Damani would over the next 15 years use his learnings as a stock market trader and investor to create one of the most profitable retail chains in the country under the D-Mart brand name.
For friends and associates who have known him since his days as a rookie stock trader on Dalal Street, Damani is a living example of the adage slow and steady wins the race.
He was already past 30 when he had entered the stock market after quitting the family business of ball bearings. Through sheer perseverance and discipline, he went on to be counted among the best in the profession.
And he was past 45 when he decided to try his hand at retail. For Damani, age was the least of the barriers when he was gripped by the desire to wade into uncharted waters.
Before setting up the first D-Mart store, he took up a franchisee of co-operative store chain Apna Bazaar and ran it for more than a year to learn the ropes.
Right from the start, Damani preferred a hands-on approach so that he could see and learn everything up close.
He would personally make the rounds of Mumbai’s Crawford Market and Vashi’s APMC market to get the best deals from wholesale dealers.
He would park his car a few streets away; partly out of compulsion given the congested alleys, but equally by plan as he did not want the traders to know that they were dealing with an affluent customer.
It helped that few outside the stock market had heard of him, let alone know him by face.
Damani enjoyed the bargaining process; it was a throwback to the days when stock market transactions were done face-to-face in the trading ring of the screen. To be able to make a decent profit on your trade, you had to get a good rate out of the counterparty.
With D-Mart, Damani’s philosophy was clear from day one: It was all about offering the lowest price to the customer. And to do that, he had to source his goods cheaply.
And while Damani may have been a skilled trader in stocks, dealing with wholesale dealers was a different experience altogether.
Their policy was that they were not responsible for the goods once the goods left their shops. This meant they would not be responsible if some pieces in the lot were damaged or missing.
It is doubtful that the hardnosed traders would have changed their policy even if they were aware of Damani’s reputation in the stock market.
Always a keen observer of people and trends, Damani would watch the traders conduct business long after he had closed a deal.
Once, while at the Vashi market to source rice, he stayed back long enough to watch the traders leave for their homes in a pooled car.
By then Damani had seen their simple lifestyle and concluded that most traders were not the rich parasites they were made out to be.
“If they are as rich as others think, it certainly does not show in their habits. We won’t get much by squeezing them on prices,” Damani is said to have remarked to one of his associates accompanying him.
Instead Damani decided that he would make his suppliers and vendors loyal stakeholders in his venture by paying them on time. That would ensure that they gave him the best possible goods at the most competitive prices.
In less than six months, Damani’s humility, frankness and practice of timely payments won over the traders so as to get good terms from a majority of them.
And Damani did not stop at that. He would do the rounds of rival stores to get a sense of the operations and an idea of consumer tastes. He even visited supermarkets in places like Raigad, Alibaug to gauge consumer preferences.
At a basic level, the core principle of retailing had some similarities with stock market investing.
In Damani’s close circle of stock market friends, it was not enough to identify a good investment idea. Having spotted a good stock at a good price, how much of it did you buy? That was the parameter by which they used to judge a good investor.
In retail too, it was about spotting an item, buying it cheap and big, and then merchandising it in a manner that it flew off the shelves, according to a person who had worked with Damani in the initial stages of the venture.
Every day, Damani, along with his staff, would go through the list of the top-selling grocery items and then restack them on the shelves so as to improve sales further.
“The store was like a lab for the first few months, and it would morph into something different every few days that even the regular customers would sometimes be put off by the frequent changes,” says a former colleague.
Among other practices, the stores had to ensure that there was adequate change—particularly coins--with the cashiers to speed up check out time. A mini truck would pick up sacks of change from the RBI everyday
“We would never ask customers for change, the reason being it would take more time for a shopper to reach for change in a purse or wallet, than it would take for a cashier to hand it out from a neatly arranged drawer,” says the ex-colleague.
And it was not enough merely to make payments to your suppliers on time. Damani believed in befriending the entrepreneurs in each category to the point that he had implicit faith in them, and they in turn upheld the trust.
And there were things to be learned in almost every category.
For instance, when it came to spices, there were so many varieties that it was impossible to be able to tell the difference unless you were a full-time trader in spices.
Damani zeroed in on a few traders he could trust. The arrangement was thus — I won’t haggle over prices and will pay you on time, in return, whenever you are unable to get good-quality stuff in the market, don’t sell anything to me that day.
For the first few months, Damani & co were unable to get their crockery ware moving fast enough.
By then he had become friendly enough with an old man at Musafir Khana (Crawford Market) who dealt in crockery.
“Stop buying as though you were buying them for your own house,” the old man told Damani,”…buy them for the customers who will be coming to your stores. Their choice can be strange, but that is the way it is.” Damani took the advice...and it worked.
There were learnings in other segments as well, even something as nondescript as women’s innerwear.
“Some really unheard-of brands commanded a huge loyalty. And that meant the terms of the distributors were pretty rigid,” said the ex-colleague. “We had no choice but to agree and trust their judgement.”
As a stock trader, Damani was quick to admit his own error of judgment and get out of the position immediately even if it meant incurring a loss, say his friends. And that is one of the reasons why he has been more successful than his peers
“Taking a loss is the most painful thing for any stock market trader; there is a bruised ego besides a lighter pocket,” said a technical analyst who had worked closely with Damani.
“He (Damani) would remark that reversing a loss-making trade was like performing a surgery on one arm with the other; painful to watch, but something that had to be done as quickly as possible,” the analyst said.
As a retailer, Damani improvised on his principle of taking losses. Once, a big consignment failed to do as well as the store had expected it to.
Returning the unsold items to the vendor was easy, since the agreement for that item provided for it. But Damani suggested that they make another attempt at selling those through some interesting offer. His staff wondered at the reason behind it when there was an easy option at hand.
“If it sells, we learn something new. If it doesn’t, it is a lesson to be more careful about what we buy in future,” he is said to have told his staff.
Damani had his share of luck as well. Property prices were close to rock-bottom in the early 2000s as he went around looking for land for his stores. And Damani’s foresight in the choice of locations helped make the most of that good fortune.
To cite one instance, stores which were initially on the outskirts of places like Thane and Bhiwandi are now as good as centrally located, with the towns having expanded over the years.
Even today, a majority of the 120-odd stores are either self-owned or on long-term lease. An obsession with keeping costs to the minimum is showing in his company’s profitability. For financial year 2015-16, the company reported a net profit of Rs 320 crore on a topline of a little over Rs 8,600 crore. Both revenues and net profit have grown 31 percent compounded over the preceding two years.
Between 2002 and 2007, Damani focused his energies on building D-Mart into a formidable retail chain. Since 2007, people close to Damani say that he has been dividing his time between his stock market and retail interests; more towards the latter.
But in his second innings in the stock market, Damani did not create the kind of ripples he had in his first stint, when he matched his wits against the likes of Harshad Mehta in 1992 and 1998, against Ketan Parekh in 2000 and then against BAT for the control of VST Industries.
Damani had made his fortune by investing in the shares of blue chip multinational corporations like in the late 80s and early 90s. And while many of his bets post 2007 turned out to be immensely profitable, there were no stand-out calls.
“The market has changed; it has become simply too large to take notice of any individual,” says a broker who has transacted for Damani in the past.
Still, the value of his holdings in listed companies — spread across investment arms Damani Estate, Bright Star Investments and Derive Trading — stood at Rs 2,665 crore at latest market prices. And this includes only the stocks where he holds over 1 percent, and so has to be disclosed to stock exchanges.
His investment arms Damani Estate and Bright Star Investments together made a net profit of Rs 75 crore through share trading in financial year 2015-16.
Damani figured among the top 100 richest Indians in the Forbes Rich List of 2016, ranking 98th with a networth of USD 1.15 billion. He was not on the list the following year.
With his company now valued at Rs 18,000 crore conservatively (based on the IPO price band), 62-year-old Damani’s 90 percent stake in it will be worth a little over Rs 16,000 crore. Add to that the value of his stakes in listed companies, and Damani will be on solid ground this time around when he makes to the Forbes richest Indian list.
The list will also put him miles ahead of his contemporaries in the stock market, some of whom played mentor to Damani as he was trying to find his footing in the profession. And deservedly so. Damani’s peers spotted good businesses and created wealth for themselves. But Damani not only spotted good businesses, he has shown that he can run even run one successfully enough to create wealth not just for himself, but also his stakeholders.Follow @sant0nair