Is It Time to Be Cautious? 2 Stocks with Declining Promoter Holdings You Should Watch

Promoter shareholding serves as a key indicator of confidence in a business, but it’s essential to understand that a reduction in this shareholding can happen for various reasons. Sometimes, promoters sell their stakes for strategic purposes unrelated to the company’s health, and this doesn’t always spell trouble. However, when shareholding declines, it can indicate a need for caution.

In this article, we’ll explore two notable stocks that have recently experienced declining shareholding. Should investors be wary? Let’s delve into the details.

Home First: A Leader in Affordable Housing

Home First has established itself as a significant player in the affordable housing market, boasting an impressive assets under management (AUM) of ₹97 billion as of FY24. This company primarily caters to low and middle-income borrowers, offering home loans with an average ticket size of ₹1.2 million. With a robust network of 133 branches, it operates across 135 districts, tapping into 343 touchpoints.

AUM Growth: Home First’s AUM surged from ₹36 billion in FY20 to ₹97 billion in FY24, reflecting a remarkable compound annual growth rate (CAGR) of 28%. This growth was fueled by a substantial increase in loan disbursements, which saw a CAGR of 25% as demand for real estate soared in the post-pandemic landscape.
Strong Loan Portfolio: Approximately 86% of its AUM is derived from home loans, with the remainder coming from shop loans and property-backed loans. Notably, 68% of the AUM is sourced from salaried individuals, providing a buffer against potential credit quality shocks.
Asset Quality and Profitability: Home First maintains an impressive collection efficiency of 99%, with gross non-performing assets (NPA) at 1.7% and net NPA at 1.2%—among the best in the sector. The company’s credit cost stands at a low 0.3% in FY24, down from 1.8% in FY22, allowing it to allocate less capital for loan losses and enhance profitability.
Financial Performance: Over the past four years, Home First’s net interest income has grown at a 33% CAGR, increasing from ₹1.5 billion in FY20 to ₹4.7 billion in FY24. The net profit has also seen a substantial rise, hitting ₹3.1 billion in FY24 with a 40% CAGR.

However, there has been a noticeable decline in promoter shareholding, dropping from 33.5% in Q3FY24 to 14.3% in Q3FY25 due to share sales by its private equity backers. Looking forward, Home First aims for a CAGR of 27-30% in AUM over the next two years, with plans to open 30-40 new branches.

Godrej Consumer: A Diversified FMCG Giant

Godrej Consumer Products, a member of the esteemed Godrej Group, was established following the 2001 demerger of the consumer division of Godrej Soaps. This fast-moving consumer goods (FMCG) powerhouse holds a dominant position in household insecticides, hair colors, air fresheners, and liquid detergents.

Market Leadership: Godrej Consumer is the frontrunner in household insecticides, hair color, and air freshener segments, while also being the second-largest player in the domestic soap market. The company recently expanded its portfolio by acquiring Raymond’s FMCG business for ₹28 billion, enhancing its market position.
Revenue Insights: Over the last four years, the company’s revenue has grown at a modest CAGR of 9%, rising from ₹99 billion in FY20 to ₹141 billion in FY24. However, recent performance has been hampered by declines in the Indonesian and African markets.
Financial Metrics: The net profit grew at a 5.7% CAGR, reaching ₹20.4 billion in FY24, while margins have remained stable between 19% and 22%. In FY24, the India segment alone generated ₹84 billion, showcasing a 9% year-on-year growth.

Promoter holding has decreased from 63% in Q2FY25 to 53% in Q3FY25 due to a strategic realignment following a family settlement within the Godrej Group. Despite these changes, the company is keen on expanding its rural market presence, doubling outlet coverage and tripling village coverage.

Conclusion: Understanding Shareholding Trends

While it’s common for promoters to sell shares for various reasons, it doesn’t always signal a decline in business health. For instance, Home First, backed by private equity, is strategically repositioning itself, while Godrej Consumer is undergoing group restructuring.

As long as the underlying business fundamentals remain robust, investors can approach these shareholding changes with a level of assurance. Keeping an eye on performance metrics and market strategies is crucial for making informed investment decisions.

By staying informed and engaged with company progress, investors can navigate the complexities of shareholding trends effectively.

For further insights on stock performance and investment strategies, consider seeking advice from financial experts to tailor your investment approach.