REC Limited's (NSE:RECLTD) market cap touched ₹1.3t last week, benefiting both public companies who own 53% as well as institutions

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. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

While public companies were the group that benefitted the most from last week’s ₹61b market cap gain, institutions too had a 26% share in those profits.

Let's delve deeper into each type of owner of REC, beginning with the chart below.

See 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.

As you can see, institutional investors have a fair amount of stake in REC. 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. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of REC, (below). Of course, keep in mind that there are other factors to consider, too.

We note that hedge funds don't have a meaningful investment in REC. Our data shows that Power Finance Corporation Limited is the largest shareholder with 53% of shares outstanding. This implies that they have majority interest control of the future of the company. Meanwhile, the second and third largest shareholders, hold 3.4% and 2.0%, of the shares outstanding, respectively.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of REC

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

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.

Our information suggests that REC Limited insiders own under 1% of the company. Being so large, we would not expect insiders to own a large proportion of the stock. Collectively, they own ₹4.0m 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

The general public, who are usually individual investors, hold a 20% stake in 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:

It's always worth thinking about the different groups who own shares in a company. But to understand REC better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for REC (of which 1 makes us a bit uncomfortable!) you should know about.

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.