Could Prakash Steelage Limited’s (NSE:PRAKASHSTL) Investor Composition Influence The Stock Price?

The big shareholder groups in Prakash Steelage Limited (NSE:PRAKASHSTL) have power over the company. Insiders often own a large chunk of younger, smaller, companies while huge companies tend to have institutions as shareholders. I quite like to see at least a little bit of insider ownership. As Charlie Munger said ‘Show me the incentive and I will show you the outcome.

Prakash Steelage is a smaller company with a market capitalization of ₹35m, so it may still be flying under the radar of many institutional investors. Taking a look at our data on the ownership groups (below), it’s seems that institutional investors have bought into the company. We can zoom in on the different ownership groups, to learn more about Prakash Steelage.

View our latest analysis for Prakash Steelage

NSEI:PRAKASHSTL Ownership Summary, March 4th 2020
NSEI:PRAKASHSTL Ownership Summary, March 4th 2020

What Does The Institutional Ownership Tell Us About Prakash Steelage?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it’s included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

We can see that Prakash Steelage does have institutional investors; and they hold 6.0% 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. 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 Prakash Steelage, (below). Of course, keep in mind that there are other factors to consider, too.

NSEI:PRAKASHSTL Income Statement, March 4th 2020
NSEI:PRAKASHSTL Income Statement, March 4th 2020

Hedge funds don’t have many shares in Prakash Steelage. With a 23% stake, CEO Prakash Kanugo is the largest shareholder. With 7.1% and 4.0% of the shares outstanding respectively, Seth Iron & Steel Pvt Ltd. and Ashok Mafatlal are the second and third largest shareholders. Interestingly, Ashok Mafatlal is also a Member of the Board of Directors, again, indicating strong insider ownership amongst the company’s top shareholders.

On further inspection, we found that 53% of the share register is owned by the top 9 shareholders, suggesting that the interests of the larger shareholders are balanced out to an extent by the smaller ones.

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. Our information suggests that there isn’t any analyst coverage of the stock, so it is probably little known.

Insider Ownership Of Prakash Steelage

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 most recent data indicates that insiders own a reasonable proportion of Prakash Steelage Limited. Insiders own ₹15m worth of shares in the ₹35m company. I would say this shows alignment with shareholders, but it is worth noting that the company is still quite small; some insiders may have founded the business. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public holds a 36% stake in PRAKASHSTL. 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 Company Ownership

Our data indicates that Private Companies hold 16%, 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:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Be aware that Prakash Steelage is showing 5 warning signs in our investment analysis , and 2 of those make us uncomfortable…

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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