Why The Bombay Dyeing and Manufacturing Company Limited's (NSE:BOMDYEING) Ownership Structure Is Important

I am going to take a deep dive into The Bombay Dyeing and Manufacturing Company Limited’s (NSEI:BOMDYEING) most recent ownership structure, not a frequent subject of discussion among individual investors. Ownership structure of a company has been found to affect share performance over time. Different types of investors can have varying degrees of influence on a company’s management team. For example, an active institutional investor may be more likely to hold a company accountable for certain actions whereas a passive fund will move in and out of stocks without regards to corporate governance. The implications of these institutions’ actions can either benefit or hinder individual investors, so it is important to understand the ownership composition of your stock investment. Therefore, it is beneficial for us to examine BOMDYEING's ownership structure in more detail.

See our latest analysis for Bombay Dyeing and Manufacturing

Institutional Ownership

Institutions account for 11.78% of BOMDYEING's outstanding shares, a significant enough holding to move stock prices if they start buying and selling in large quantities, especially when there are relatively small amounts of shares available on the market to trade. However, as not all institutions are alike, such high volatility events, especially in the short-term, have been more frequently linked to active market participants like hedge funds. In the case of BOMDYEING, investors need not worry about such volatility considering active hedge funds don't have a significant stake. However, we should dig deeper into BOMDYEING's ownership structure and find out how other key ownership classes can affect its investment profile.

Insider Ownership

Another important group of shareholders are company insiders. Insider ownership has to do more with how the company is managed and less to do with the direct impact of the magnitude of shares trading on the market. BOMDYEING insiders hold a not-so-significant 4.64% stake in the company, which somewhat aligns their interests with that of shareholders. However, a higher level of insider ownership has been linked to management executing on high-returning projects instead of expansion projects for the sake of apparent growth. In addition to this, it may be interesting to look at insider buying and selling activities. Keep in mind that buying may be sign of upbeat future expectations, but selling doesn't necessarily mean the opposite as the insiders might just be doing it out of their personal financial needs.

General Public Ownership

A big stake of 31.92% in BOMDYEING is held by the general public. With this size of ownership, retail investors can collectively play a role in major company policies that affect shareholders returns, including executive remuneration and the appointment of directors. They can also exercise the power to decline an acquisition or merger that may not improve profitability.

Private Company Ownership

Another group of owners that a potential investor in BOMDYEING should consider are private companies, with a stake of 10.75%. While they invest more often due to strategic interests, an investment can also be driven by capital gains through share price appreciation. An ownership of this size indicates a strong financial backing and has the potential to influence BOMDYEING's business strategy. Thus, investors should dig deeper into BOMDYEING's business relations with these companies and how it can affect shareholder returns in the long-term.

Next Steps:

The company's high institutional ownership makes margin of safety a very important consideration to existing investors since long bull and bear trends often emerge when these big-ticket investors see a change in long-term potential of the company. This will allow investors to reduce the impact of non-fundamental factors, such as volatile block trading impact on their portfolio value. However, ownership structure should not be the only focus of your research when constructing an investment thesis around BOMDYEING. Rather, you should be examining fundamental factors such as the intrinsic valuation, which is a key driver of Bombay Dyeing and Manufacturing’s share price. I highly recommend you to complete your research by taking a look at the following:

• 1. Financial Health: Is BOMDYEING’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
• 2. Past Track Record: Has BOMDYEING been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of BOMDYEING's historicals for more clarity.
• 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.