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In this analysis, my focus will be on developing a perspective on Escorts Limited’s (NSE:ESCORTS) 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. Since the same amount of capital coming from an activist institution and a passive mutual fund has different implications on corporate governance, it is a useful exercise to deconstruct ESCORTS’s shareholder registry.
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Institutional Ownership
ESCORTS’s 26.36% 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. Although ESCORTS has a high institutional ownership, such stock moves, in the short-term, are more commonly linked to a particular type of active institutional investors – hedge funds. For ESCORTS shareholders, the potential of this type of share price volatility shouldn’t be as concerning as hedge fund ownership is is not significant,indicating few chances of such sudden price moves. While that hardly seems concerning, I will explore further into ESCORTS’s ownership type to find out how it can affect the company’s investment profile.
Insider Ownership
I find insiders are an important group of stakeholders, who are directly involved in making key decisions related to the use of capital. In essence, insider ownership is more about the alignment of shareholders’ interests with the management. 8.58% ownership makes insiders an important shareholder group. An insider stake of this level indicates that executives are highly aligned with the shareholders as both stand to gain when the value of the company rises. However, it would be interesting to take a look at their buying and selling activities lately. Buying may be sign of upbeat future expectations, but selling doesn’t necessarily mean the opposite as the insiders may be motivated by financial needs or they are simply diversifying their risk.
General Public Ownership
A big stake of 22.57% in ESCORTS is held by the general public. This size of ownership gives retail investors collective power in deciding on major policy decisions such as executive compensation, appointment of directors and acquisitions of businesses.
Private Company Ownership
Potential investors in ESCORTS should also look at another important group of investors: private companies, with a stake of 39.92%, who are primarily invested because of strategic and capital gain interests. An ownership of this size indicates a strong financial backing and has the potential to influence ESCORTS’s business strategy. Thus, investors should dig deeper into ESCORTS’s business relations with these companies and how it can affect shareholder returns in the long-term.