Institutions own 26% of REC Limited (NSE:RECLTD) shares but public companies control 53% of the company

Key Insights

• Significant control over REC by public companies implies that the general public has more power to influence management and governance-related decisions
• Power Finance Corporation Limited owns 53% of the company
• Institutions own 26% of REC

Every investor in REC Limited (NSE:RECLTD) should be aware of the most powerful shareholder groups. And the group that holds the biggest piece of the pie are public companies with 53% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

And institutions on the other hand have a 26% ownership in the company. Generally speaking, as a company grows, institutions will increase their ownership. Conversely, insiders often decrease their ownership over time.

Let's take a closer look to see what the different types of shareholders can tell us about REC.

View our latest analysis for REC

What Does The Institutional Ownership Tell Us About REC?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

We can see that REC does have institutional investors; and they hold a good portion of the company's stock. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. 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 REC's historic earnings and revenue below, but keep in mind there's always more to the story.

Hedge funds don't have many shares in REC. Looking at our data, we can see that the largest shareholder is Power Finance Corporation Limited with 53% of shares outstanding. With such a huge stake in the ownership, we infer that they have significant control of the future of the company. The WindAcre Partnership LLC is the second largest shareholder owning 3.4% of common stock, and BlackRock, Inc. holds about 2.0% of the company stock.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of REC

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. 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.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

Our data suggests that insiders own under 1% of REC Limited in their own names. Being so large, we would not expect insiders to own a large proportion of the stock. Collectively, they own ₹4.6m of stock. In this sort of situation, it can be more interesting to see if those insiders have been buying or selling.

General Public Ownership

With a 19% ownership, the general public, mostly comprising of individual investors, have some degree of sway over REC. 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.

Public Company Ownership

Public companies currently own 53% of REC stock. This may be a strategic interest and the two companies may have related business interests. It could be that they have de-merged. This holding is probably worth investigating further.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with REC (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

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.

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This article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned.