In this analysis, my focus will be on developing a perspective on Sun Pharmaceutical Industries Limited’s (NSE:SUNPHARMA) latest ownership structure, a less discussed, but important factor. The impact of a company’s ownership structure affects both its short- and long-term performance. The effect of an active institutional investor with a similar ownership as a passive pension-fund can be vastly different on a company’s corporate governance and accountability to shareholders. While this may be more interesting for long-term investors, short-term investors can also benefit by paying attention to when these institutions trade in order to take advantage of the heightened volatility. Therefore, I will take a look at SUNPHARMA’s shareholders in more detail.
Institutional OwnershipSUNPHARMA’s 26.51% institutional ownership seems enough to cause large share price movements in the case of significant share sell-off or acquisitions by institutions, particularly when there is a low level of public 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 SUNPHARMA, investors need not worry about such volatility considering active hedge funds don’t have a significant stake. However, we should dig deeper into SUNPHARMA’s ownership structure and find out how other key ownership classes can affect its investment profile.
Insider OwnershipInsiders form a group of important ownership types as they manage the company’s operations and decide the best use of capital. Insider ownership has been linked to better alignment between management and shareholders. 12.56% ownership of SUNPHARMA insiders is large enough to make an impact on shareholder returns. In general, this level of insider ownership has negatively affected underperforming (consistently low PE ratio) companies and positively affected the companies that outperform (consistently high PE ratio). It may be interesting to take a look at what company insiders have been doing with their holdings lately. While insider buying is possibly a sign of a positive outlook for the company, selling doesn’t necessarily indicate a negative outlook as they may be selling to meet personal financial needs.
General Public OwnershipA big stake of 19.89% in SUNPHARMA is held by the general public. This level of ownership gives retail investors the power to sway key policy decisions such as board composition, executive compensation, and potential acquisitions. This is a positive sign for an investor who wants to be involved in key decision-making of the company.
Private Company OwnershipAnother important group of owners for potential investors in SUNPHARMA are private companies that hold a stake of 39.78% in SUNPHARMA. These are companies that are mainly invested due to their strategic interests or are incentivized by reaping capital gains on investments their shareholdings. With this size of ownership in SUNPHARMA, this ownership class can affect the company’s business strategy. As a result, potential investors should further explore the company’s business relations with these companies and find out if they can affect shareholder returns in the long-term.
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 is to avoid getting trapped in a sustained sell-off that is often observed in stocks with this level of institutional participation. However, ownership structure should not be the only determining factor when you’re building an investment thesis for SUNPHARMA. Instead, you should be evaluating company-specific factors such as the intrinsic valuation, which is a key driver of Sun Pharmaceutical Industries’s share price. I highly recommend you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for SUNPHARMA’s future growth? Take a look at our free research report of analyst consensus for SUNPHARMA’s outlook.
- Past Track Record: Has SUNPHARMA 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 SUNPHARMA’s historicals for more clarity.
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.