Stocks with highest promoter pledging

This is exactly what promoter pledging is all about. Only in this case, it’s the promoters of the company using their shares as collateral.

Let us take a look at the top stocks where promoters have pledged their holdings significantly.

#1 Suzlon Energy (88.5%)

Promoters of Suzlon Energy have pledged 88.5% of their total holdings as of June 2021.

During the June 2021 quarter, promoters’ stake in the company decreased by 0.65% and stood at 16.52% as compared to 17.17% in March 2021.

Just a couple of days back, Suzlon reported turnaround results for the June quarter.

Suzlon Energy reported a consolidated net profit of ₹36.4 m for the quarter ended June 2021, as compared to a net loss of ₹4 bn in the same quarter last year.

Its topline also rose 122%.

Suzlon’s shares are up approximately 60% over the past year.

The Indian government has set a goal of generating 175 gigawatt (GW) of renewable energy capacity by 2022.

Given that the solar power is a rapidly growing industry in India, Suzlon has benefitted of late being the leading renewable energy company in India.

To know more, check out Suzlon Energy’s latest shareholding pattern.

#2 GMR Infra (74.9%)

GMR Infrastructure has 74.9% of its promoter holdings pledged as of June 2021.

Promoters hold substantial stake of 61.5% out of the total holdings in the company.

Last week, GMR Infra pared its losses to ₹3.2 bn in the June 2021 quarter compared with a loss of ₹8.4 bn in the same period last year.

The company operates the Delhi International Airport and is looking to raise funds up to ₹60 bn.

Over the past one year, shares of the company have gained 34%. Shares of the company have been falling ever since it announced that its promoter – GMR Enterprises has pledged 24 m equity shares in favour of KLJ Plasticizers on 21 June.

#3 Max Financial Services (62.2%)

Promoters of Max Financial Services hold 14.72% stake in the company as of June 2021. Out of this 14.72%, the company’s promoters have pledged 62.2% of their holdings.

Notably, during the June quarter, total promoters’ stake in the company declined by a whopping 2.27%.

In the past twelve months, the biggest single sale by an insider was by MD & Director, Mohit Talwar, who sold ₹129 m worth of shares at a price of ₹643 per share.

#4 Sterling and Wilson Solar (53.7%)

Promoters of Sterling and Wilson Solar, the solar engineering and construction arm of the Shapoorji Pallonji Group, have 53.7% of their holdings pledged as of June 2021.

Promoters hold a large chunk of the total shares, 69.4% to be precise.

Over the last year, the biggest promoter sale by the company’s promoters was by its chairman, Khurshed Daruvala, who sold shares worth ₹2 bn at about ₹251 per share. The sale represented 22% of its total holdings.

The company recently recorded a revenue of ₹11.95 bn in the June quarter of 2021, a growth of 11.8%.

#5 Kalpataru Power (45.9%)

Promoter holdings in Kalpataru Power stand at 54.6%.

Out of this, the company’s promoters have pledged around 45.9% of their total holdings.

Interestingly, shares of the company have delivered 70% return to shareholders in the past twelve months.

The company’s strategy to monetise non-core assets and utilise proceeds towards debt reduction and acquisitions will likely strengthen its balance sheet.

#6 HFCL (44.7%)

Over the last year, promoters of HFCL have increased their stake in the company by 3.4%. As of June 2021, total promoter holding stands at 42.1%. Out of this, promoters have pledged 44.7% of their holdings.

Investors often stay away from, or are cautious on companies where promoters have pledged their shares.

Despite high promoter pledging, HFCL has turned into a multibagger. Its shares have gained 300% in the past one year. If compared from its 52-week high price, gains are more than 500%.

The government of India’s policy to get wi-fi in all villages in India, without using Chinese components is proving very beneficial to HFCL.

The company is a leading provider of wi-fi solutions and one a major player in the TIP Open WIFI-compliant hardware space.

#7 SpiceJet (44.3%)

Promoter pledging in aviation company SpiceJet stands at 44.3% as of June 2021.

Promoters of the company have reducing their stake over the past four quarters, though not in large quantity.

Just yesterday, shares of the company tumbled as much as 12% after the company’s net loss widened in the June quarter.

The low cost carrier today also announced that it was transferring its cargo and logistics services on a slump sale basis to its subsidiary SpiceXpress and Logistics Private.

#8 Emami (30.9%)

Emami is among the top FMCG companies where promoters have pledged shares.

Promoters of Emami hold 53.9% of the total stake in the company. Out of this, they have pledged about one-third of their total holdings.

The company has started the current financial year with good set of results where revenues increased by 37%.

Mutual funds have steadily decreased their stake in the company over the past one year.

As of September 2020 end, they held 22.14% stake. At present, mutual funds have 18.77% stake.

#9 Apollo Hospital (30%)

Promoters have pledged 30% of their total holdings in Apollo Hospitals as of June 2021.

Yesterday, the company’s shares scaled new high after posting stellar earnings.

Shares of companies engaged in healthcare and hospital services are in focus today, surging as much as 12-15%.

Several brokerage houses have raised their target prices for Apollo Hospitals after the recent performance and that could be the reason behind the recent rally.

Which other companies have significant promoter pledging?

Apart from the above, here are other top companies where promoters have pledged their shares.

View Full Image

Bluechip companies where promoter pledging reduced

Promoters of Asian Paints reduced their promoter pledging to 9% in June 2021 from 9.4% in the January-March quarter of 2021.

Meanwhile, Sun Pharma’s promoter pledging also fell to 6.4% from 8.6%.

Stocks which have the highest promoter pledging in terms of value include Hindustan Zinc ( ₹212 bn), Asian Paints ( ₹137 bn), Adani Ports and SEZ ( ₹132 bn), and JSW Steel ( ₹107 bn).

Highest increase and decrease in pledge during the June 2021 quarter

Increase

During the June 2021 quarter, Johnson Controls made fresh pledges, totaling 32.3% of the entire promoter holdings.

Meanwhile, Wockhardt increased pledged shareholding to 34.4% from 18.7% in March 2021.

Other companies include S H Kelkar, GMR Infra, and Apollo Hospitals.

Decrease

Companies in which pledged promoter holdings fell included Crompton Greaves Consumer Elec, Max Financial Services, Dish TV, Edelweiss Financial, and Gateway Distriparks.

Promoter pledging: Boon or Bane?

Is promoter pledging a bad thing? Absolutely not.

After all, promoters need funds and they use their shareholding in the company to do so. If these funds are redeployed into the main business, it should bode well for the company.

If the loans are being taken for personal needs, then it should be treated as a warning signal.

Though the question does remain why were other sources of funding not availed by the company?

Share pledging is not an illegal activity as banks often seek additional security in the form of promoter shares.

However, you must keep an eye out for such data points especially for companies with questionable managements.

Here’s what lead smallcap analyst & editor of Hidden Treasure, Richa Agarwal, thinks about promoter pledging:

“The promoter using pledged shares as a way of raising capital is okay. However, from a small retail shareholder’s standpoint, a high amount of pledging with bad financials could lead to the banks or financial institutions (who hold these shares as a collateral) to dump them to recover their dues.

This would then have a cascading effect on the stock price as well, resulting in a huge loss for the shareholder.”

It’s always better to check promoter pledging before making investment decisions.

Over leveraged firms with high percentage of pledged shares could very well turn out to be value traps.

Happy investing!

This article is syndicated from Equitymaster.com