Could Lumax Auto Technologies Limited’s (NSE:LUMAXTECH) Investor Composition Influence The Stock Price?

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The big shareholder groups in Lumax Auto Technologies Limited (NSE:LUMAXTECH) have power over the company. Generally speaking, as a company grows, institutions will increase their ownership. Conversely, insiders often decrease their ownership over time. Warren Buffett said that he likes ‘a business with enduring competitive advantages that is run by able and owner-oriented people’. So it’s nice to see some insider ownership, because it may suggest that management is owner-oriented.

Lumax Auto Technologies is a smaller company with a market capitalization of ₹9.7b, so it may still be flying under the radar of many institutional investors. In the chart below below, we can see that institutions own shares in the company. We can zoom in on the different ownership groups, to learn more about LUMAXTECH.

Check out our latest analysis for Lumax Auto Technologies

NSEI:LUMAXTECH Ownership Summary February 11th 19
NSEI:LUMAXTECH Ownership Summary February 11th 19

What Does The Institutional Ownership Tell Us About Lumax Auto Technologies?

Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.

We can see that Lumax Auto Technologies does have institutional investors; and they hold 14% of the stock. This suggests some credibility amongst professional investors. But we can’t rely on that fact alone, since institutions make bad investments sometimes, just like everyone does. When multiple institutions own a stock, there’s always a risk that they are in a ‘crowded trade’. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see Lumax Auto Technologies’s historic earnings and revenue, below, but keep in mind there’s always more to the story.

NSEI:LUMAXTECH Income Statement Export February 11th 19
NSEI:LUMAXTECH Income Statement Export February 11th 19

We note that hedge funds don’t have a meaningful investment in Lumax Auto Technologies. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of Lumax Auto Technologies

The definition of company insiders can be subjective, and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

It seems insiders own a significant proportion of Lumax Auto Technologies Limited. Insiders own ₹4.1b worth of shares in the ₹9.7b company. It is great to see insiders so invested in the business. It might be worth checking if those insiders have been buying recently.

General Public Ownership

With a 16% ownership, the general public have some degree of sway over LUMAXTECH. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.

Private Equity Ownership

With a stake of 9.0%, private equity firms could influence the LUMAXTECH board. Some might like this, because private equity are sometimes activists who hold management accountable. But other times, private equity is selling out, having taking the company public.

Private Company Ownership

Our data indicates that Private Companies hold 18%, of the company’s shares. It’s hard to draw any conclusions from this fact alone, so its worth looking into who owns those private companies. Sometimes insiders or other related parties have an interest in shares in a public company through a separate private company.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important.

Many find it useful to take an in depth look at how a company has performed in the past. You can access this detailed graph of past earnings, revenue and cash flow .

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.