Which Midcap Companies have highest Promoter’s Pledging? – Feb 2019
Recently, there is a lot of talk about promoters pledging their share. Many Big companies are in the news because of the pledged promoter holding issues. Questions have arrived why are these companies pledging so much? Or why have the promoter pledged so much of their share? What are the impacts of these pledged promoters holding on their respective share prices?
We can compare the pledging of share by the promoters in India with the subprime crisis. Subprime crisis happens when there is a huge difference between the capacity and the supply. For example, if there was a capacity of Rs. 10, then the lending was done of Rs. 100. Though there are some similarities, we cannot directly compare these two. So, what the promoters do is that they pledge the share and borrow money on these share as guarantee, the borrowed money is then invested in some other activities. No doubt it is their share and they can do anything but is has a lot of risks.
Companies with Pledged Promoter Holdings
These are all mid cap companies.
The pledged share percentages are a percentage of the whole promoter holding. For example, 68.1% of 74.89% (and not 68.1% from 74.89%). If D/E ratio is high and the promoter has pledged higher shares, then chances are that the promoters have used this money in the company itself. But id D/E ratio is less but still the pledged promoter holding is high, then it would indicate that there are some other business interests of the promoter and the money is being used there.
Midcap Companies with pledged promoter holding
- Vedanta, the parent group of Sterlite Technologies, is claiming that they have removed the pledging on this company. But as per the details found on the BSE India’s website, there is still pledging shown against its promoters holding.
- As the D/E ratio of GMR Infra is very high, there also very high chances that the promoter has pledged its share for the same business itself. This can be taken as a positive as the promoter has and is showing the confidence to pledge its shares to run the company. But the infrastructure sector is not on the positive side as the sector requires huge debt; the ROCE is always low and has high government clearance risk. It can also be noted that the majority portion of the NPA’s is from the infrastructure sector.
- Here, it is very clear that the promoters of Max Financials are focusing on their other business interests.
- In the case of Odisha Cement too, a zero D/E ratio indicates that the promoter has taken calls on business other than the core.
- There is no need for the promoters of Crompton & Greaves Consumer Electricals to pledge their shares.
- The core business of Emami is personal care, but the promoter has taken many calls in the infrastructure sector. There is no problem in the core business of Emami, but it seems that the promoters focus is elsewhere.
- There are rumored possibilities that Amazon may buy Future Retail after which the stock of the company will get a boost.
- Adani Transmission is a part of high debt Adani group and is present in a capital-intensive sector because of which lenders don’t lend money without the security of shares.
- Adani Enterprise and Adani Power are other companies of Adani Group which have high debts.
- D/E ratio of Edelweiss financial is high as there is of lending and borrowing itself.
- Jubilant Foods, which holds the master franchise for Domino’s Pizza in India, also has high pledged promoter holding.
- The layman investors should avoid these stocks.
- There are better peer companies of all the companies mentioned above in the market without the problem of promoters pledging which can be considered for investments.
- It can also be noticed that recently there were major corrections in the share price of many companies with high promoters pledging.
- When a promoter pledges the shares of the core company and uses the borrowed money somewhere else, then this is not good for the core company.
- For example, Mr. Subhash Chandra had pledged his promoter holding in Zee Entertainment Enterprise Ltd. (ZEEL) and used the borrowed money is his other business interests such as road projects or real estate projects. The impact of this decision can be clearly seen on the core business ZEEL.
- The numbers that are used are approximate and have been rounded for presentation purposes.
- We are not in any way saying that these are bad companies, or the stocks of these companies are bad.
- We are also not suggesting anyone to immediately go and buy these stocks or invest in the stock markets.
- Only an analysis has been presented here. No judgments or final statements are being made here.