Has Bhartiya International (NSE:BIL) Got What It Takes To Become A Multi-Bagger?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Bhartiya International (NSE:BIL) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Bhartiya International is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.041 = ₹172m ÷ (₹9.0b - ₹4.8b) (Based on the trailing twelve months to June 2020).

Thus, Bhartiya International has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 9.2%.

View our latest analysis for Bhartiya International

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bhartiya International's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Bhartiya International, check out these free graphs here.

What Can We Tell From Bhartiya International's ROCE Trend?

On the surface, the trend of ROCE at Bhartiya International doesn't inspire confidence. Over the last five years, returns on capital have decreased to 4.1% from 22% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

On a separate but related note, it's important to know that Bhartiya International has a current liabilities to total assets ratio of 54%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

We're a bit apprehensive about Bhartiya International because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Investors haven't taken kindly to these developments, since the stock has declined 62% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

One more thing: We've identified 5 warning signs with Bhartiya International (at least 2 which can't be ignored) , and understanding them would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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