Could Indiabulls Real Estate Limited’s (NSE:IBREALEST) Investor Composition Impacts Your Returns?

Kevin Zeng

Updated Thu, Aug 30, 2018, 6:00 PM

I am going to take a deep dive into Indiabulls Real Estate Limited’s (NSE:IBREALEST) most recent ownership structure, not a frequent subject of discussion among individual investors. The impact of a company’s ownership structure affects both its short- and long-term performance. Differences in ownership structure of companies can have a profound effect on how management’s incentives are aligned with shareholder returns, and whether they adhere to corporate governance best practices. Although this is an important factor for long-term investors, many investors can also be impacted by institutional presence and their high-volume trading. Therefore, it is beneficial for us to examine IBREALEST’s ownership structure in more detail.

View our latest analysis for Indiabulls Real Estate

NSEI:IBREALEST Ownership Summary August 31st 18

Institutional Ownership

With an institutional ownership of 31.5%, IBREALEST can face volatile stock price movements if institutions execute block trades on the open market, more so, when there are relatively small amounts of shares available on the market to trade These moves, at least in the short-term, are generally observed in an institutional ownership mix comprising of active stock pickers, in particular levered hedge funds, which can cause large price swings. In the case of IBREALEST, investors need not worry about such volatility considering active hedge funds don’t have a significant stake. However, we should dig deeper into IBREALEST’s ownership structure and find out how other key ownership classes can affect its investment profile.

Insider Ownership

Insiders 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. Although individuals in IBREALEST hold only a minor stake, it’s a good sign for shareholders as the company’s executives and directors have their incentives directly linked to the company’s performance. In addition to this, it may be interesting to look at insider buying and selling activities. Keep in mind that buying may be sign of upbeat future expectations, but selling doesn’t necessarily mean the opposite as the insiders might just be doing it out of their personal financial needs.

NSEI:IBREALEST Insider Trading August 31st 18

General Public Ownership

The general public holds a substantial 19.8% stake in IBREALEST, making it a highly popular stock among retail investors. 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 IBREALEST should also look at another important group of investors: private companies, with a stake of 47.9%, who are primarily invested because of strategic and capital gain interests. With this size of ownership in IBREALEST, 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.

Next Steps:

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 IBREALEST. Instead, you should be evaluating company-specific factors such as the intrinsic valuation, which is a key driver of Indiabulls Real Estate’s share price. I urge you to complete your research by taking a look at the following:

Future Outlook: What are well-informed industry analysts predicting for IBREALEST’s future growth? Take a look at our free research report of analyst consensus for IBREALEST’s outlook.
Past Track Record: Has IBREALEST 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 IBREALEST’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 editorial-team@simplywallst.com.

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