NOCIL Limited (BOM:500730): Are Forecast Margins sustainable?

As analysts forecast NOCIL Limited (BOM:500730) to report solid earnings growth of 27.99% in the coming year, let’s stop and evaluate this positive outlook. It is crucial for investors to do this, so they can judge the underlying components responsible for spurring this growth, as the return realised by shareholders may look different in the future if underlying assumptions are not realised. To get some insight, I will shine a light on the behaviour of NOCIL’s margins so investors can evaluate the revenue and cost drivers behind future earnings projections and understand how they may impact on returns compared to the industry.

See our latest analysis for NOCIL

What can we tell from 500730’s profit margin?

In general, the value that accrues to equity holders is partly reliant on the ability of a company to convert sales revenue in to earnings. Knowing the portion of top line revenue that is turned into net income helps to assess this ability whilst spotting profit drivers, and can be found by calculating 500730’s profit margin.

Margin Calculation for 500730

Profit Margin = Net Income ÷ Revenue

∴ Profit Margin = ₹1.70b ÷ ₹9.89b = 17.18%

The past five years have seen NOCIL’s margin expand, due to a 29.32% average growth in net income outstripping a 11.43% average growth in revenue, which means that the previous increase in revenue has coincided with a larger portion falling to the bottom line. 500730’s most recent margin of 17.18% appears to follow this trend, indicating that earnings growth has likely been driven through improved cost management alongside the benefits of revenue growth.

What can we tell from future expectations?

Forward looking projections suggest margins will keep on expanding, with an expectation of 17.02% in annual revenue growth and a forecasted 20.97% in annual net income growth. This suggests future earnings growth is driven further by enhanced cost efficiency alongside revenue increases, which is enlarging the incremental amount of net income that is retained from the forecasted revenue growth. Nonetheless, those interested in the company should remember that margin expansion has different impacts on profit and return depending on the underlying situation, which reinforces the importance of deeper research.

Next Steps:

For 500730, I’ve compiled three fundamental aspects you should further examine:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is 500730 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 500730 is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of 500730? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!