The recent ₹26b market cap decrease is likely to have disappointed insiders invested in Cipla Limited (NSE:CIPLA)

By
Simply Wall St
Published
February 25, 2022
NSEI:CIPLA
Source: Shutterstock

A look at the shareholders of Cipla Limited (NSE:CIPLA) can tell us which group is most powerful. And the group that holds the biggest piece of the pie are individual insiders with 34% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

And following last week's 3.5% decline in share price, insiders suffered the most losses.

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

See our latest analysis for Cipla

ownership-breakdown
NSEI:CIPLA Ownership Breakdown February 25th 2022

What Does The Institutional Ownership Tell Us About Cipla?

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 Cipla 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 Cipla's historic earnings and revenue below, but keep in mind there's always more to the story.

earnings-and-revenue-growth
NSEI:CIPLA Earnings and Revenue Growth February 25th 2022

Cipla is not owned by hedge funds. The company's largest shareholder is Yusuf Hamied, with ownership of 19%. In comparison, the second and third largest shareholders hold about 5.7% and 4.1% of the stock.

Looking at the shareholder registry, we can see that 51% of the ownership is controlled by the top 13 shareholders, meaning that no single shareholder has a majority interest in the ownership.

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. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Cipla

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.

Our information suggests that insiders maintain a significant holding in Cipla Limited. It has a market capitalization of just ₹723b, and insiders have ₹243b worth of shares in their own names. That's quite significant. Most would say this shows a good degree of alignment with shareholders, especially in a company of this size. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public, who are usually individual investors, hold a 33% stake in Cipla. 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.

Next Steps:

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

I like to dive deeper into how a company has performed in the past. You can access this interactive graph of past earnings, revenue and cash flow, for free.

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter 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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