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In the wake of Sona BLW Precision Forgings Limited’s (NSE:SONACOMS) latest ₹10b market cap drop, institutional owners may be forced to take severe actions


Key Insights

  • Significantly high institutional ownership implies Sona BLW Precision Forgings’ stock prices are sensitive to their trading actions.
  • The top 2 shareholders own 54% of the company
  • Ownership research along with analyst forecasts data help provide a good understanding of opportunities in a stock

Every investor in Sona BLW Precision Forgings Limited (NSE:SONACOMS) should be aware of the most powerful shareholder groups. The group holding the most number of shares in the company, around 35% to be precise, is institutions. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

And institutional investors saw their holdings value drop by 4.2% last week. This set of investors may especially be concerned about the current loss, which adds to a one-year loss of 42% for shareholders. Institutions or “liquidity providers” control large sums of money and therefore, these types of investors usually have a lot of influence over stock price movements. Hence, if weakness in Sona BLW Precision Forgings’ share price continues, institutional investors may feel compelled to sell the stock, which might not be ideal for individual investors.

In the chart below, we zoom in on the different ownership groups of Sona BLW Precision Forgings.

View our latest analysis for Sona BLW Precision Forgings

NSEI:SONACOMS Ownership Breakdown January 23rd 2023

What Does The Institutional Ownership Tell Us About Sona BLW Precision Forgings?

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.

Sona BLW Precision Forgings already has institutions on the share registry. Indeed, they own a respectable stake in the company. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. 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 Sona BLW Precision Forgings, (below). Of course, keep in mind that there are other factors to consider, too.

earnings-and-revenue-growth
NSEI:SONACOMS Earnings and Revenue Growth January 23rd 2023

Hedge funds don’t have many shares in Sona BLW Precision Forgings. The company’s largest shareholder is Sona Autocomp Holding Private Limited, with ownership of 33%. For context, the second largest shareholder holds about 21% of the shares outstanding, followed by an ownership of 5.7% by the third-largest shareholder.

After doing some more digging, we found that the top 2 shareholders collectively control more than half of the company’s shares, implying that they have considerable power to influence the company’s decisions.

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 Sona BLW Precision Forgings

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 less than 1% of Sona BLW Precision Forgings Limited. We do note, however, it is possible insiders have an indirect interest through a private company or other corporate structure. It’s a big company, so even a small proportional interest can create alignment between the board and shareholders. In this case insiders own ₹475k worth of shares. It is always good to see at least some insider ownership, but it might be worth checking if those insiders have been selling.

General Public Ownership

The general public, who are usually individual investors, hold a 12% stake in Sona BLW Precision Forgings. While this group can’t necessarily call the shots, it can certainly have a real influence on how the company is run.

Private Equity Ownership

Private equity firms hold a 21% stake in Sona BLW Precision Forgings. This suggests they can be influential in key policy decisions. Sometimes we see private equity stick around for the long term, but generally speaking they have a shorter investment horizon and — as the name suggests — don’t invest in public companies much. After some time they may look to sell and redeploy capital elsewhere.

Private Company Ownership

It seems that Private Companies own 33%, of the Sona BLW Precision Forgings stock. 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. For instance, we’ve identified 1 warning sign for Sona BLW Precision Forgings that you should be aware of.

If you would prefer discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.

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.

Valuation is complex, but we’re helping make it simple.

Find out whether Sona BLW Precision Forgings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.



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