Zomato Limited's (NSE:ZOMATO) institutional investors lost 3.9% over the past week but have profited from longer-term gains

Simply Wall St · 03/09/2024 02:13

Key Insights

  • Institutions' substantial holdings in Zomato implies that they have significant influence over the company's share price
  • 51% of the business is held by the top 13 shareholders
  • Analyst forecasts along with ownership data serve to give a strong idea about prospects for a business

To get a sense of who is truly in control of Zomato Limited (NSE:ZOMATO), it is important to understand the ownership structure of the business. And the group that holds the biggest piece of the pie are institutions with 49% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

Institutional investors endured the highest losses after the company's market cap fell by ₹56b last week. However, the 197% one-year returns may have helped alleviate their overall losses. But they would probably be wary of future losses.

Let's delve deeper into each type of owner of Zomato, beginning with the chart below.

Check out our latest analysis for Zomato

ownership-breakdown
NSEI:ZOMATO Ownership Breakdown March 9th 2024

What Does The Institutional Ownership Tell Us About Zomato?

Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.

As you can see, institutional investors have a fair amount of stake in Zomato. 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 Zomato, (below). Of course, keep in mind that there are other factors to consider, too.

earnings-and-revenue-growth
NSEI:ZOMATO Earnings and Revenue Growth March 9th 2024

Hedge funds don't have many shares in Zomato. Looking at our data, we can see that the largest shareholder is Info Edge (India) Limited with 14% of shares outstanding. In comparison, the second and third largest shareholders hold about 6.4% and 4.4% of the stock. Furthermore, CEO Deepinder Goyal is the owner of 4.3% of the company's shares.

Looking at the shareholder registry, we can see that 51% of the ownership is controlled by the top 13 shareholders, meaning that no single shareholder has a majority interest in the ownership.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of Zomato

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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.

We can see that insiders own shares in Zomato Limited. The insiders have a meaningful stake worth ₹65b. Most would say this shows a good alignment of interests between shareholders and the board. Still, it might be worth checking if those insiders have been selling.

General Public Ownership

The general public, who are usually individual investors, hold a 19% stake in Zomato. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

Private Company Ownership

We can see that Private Companies own 12%, 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.

Public Company Ownership

Public companies currently own 15% of Zomato stock. It's hard to say for sure but this suggests they have entwined business interests. This might be a strategic stake, so it's worth watching this space for changes in ownership.

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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Zomato , and understanding them should be part of your investment process.

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.

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.