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Could The SMS Pharmaceuticals Limited (NSE:SMSPHARMA) Ownership Structure Tell Us Something Useful?

Simply Wall St

The big shareholder groups in SMS Pharmaceuticals Limited (NSE:SMSPHARMA) have power over the company. Large companies usually have institutions as shareholders, and we usually see insiders owning shares in smaller companies. 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.'

SMS Pharmaceuticals is a smaller company with a market capitalization of ₹4.2b, so it may still be flying under the radar of many institutional investors. In the chart below below, we can see that institutions are not on the share registry. Let's take a closer look to see what the different types of shareholder can tell us about SMSPHARMA.

Check out our latest analysis for SMS Pharmaceuticals

NSEI:SMSPHARMA Ownership Summary, September 16th 2019

What Does The Lack Of Institutional Ownership Tell Us About SMS Pharmaceuticals?

Institutional investors often avoid companies that are too small, too illiquid or too risky for their tastes. But it's unusual to see larger companies without any institutional investors.

There are multiple explanations for why institutions don't own a stock. The most common is that the company is too small relative to fund under management, so the institition does not bother to look closely at the company. Alternatively, there might be something about the company that has kept institutional investors away. SMS Pharmaceuticals's earnings and revenue track record (below) may not be compelling to institutional investors -- or they simply might not have looked at the business closely.

NSEI:SMSPHARMA Income Statement, September 16th 2019

SMS Pharmaceuticals is not owned by hedge funds. We're not picking up on any analyst coverage of the stock at the moment, so the company is unlikely to be widely held.

Insider Ownership Of SMS Pharmaceuticals

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.

Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.

It seems that insiders own more than half the SMS Pharmaceuticals Limited stock. This gives them a lot of power. So they have a ₹2.9b stake in this ₹4.2b business. It is good to see this level of investment. You can check here to see if those insiders have been buying recently.

General Public Ownership

The general public holds a 24% stake in SMSPHARMA. 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

We can see that Private Companies own 7.6%, of the shares on issue. It might be worth looking deeper into this. If related parties, such as insiders, have an interest in one of these private companies, that should be disclosed in the annual report. Private companies may also have a strategic interest in the company.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand SMS Pharmaceuticals better, we need to consider many other factors.

I like to dive deeper into how a company has performed in the past. You can find historic revenue and earnings in this detailed graph.

Of course this may not be the best stock to buy. Therefore, you may wish to see our free collection of interesting prospects boasting favorable financials.

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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. Thank you for reading.