Rico Auto Industries Limited (BOM:520008): Are Forecast Margins sustainable?

Rico Auto Industries Limited's (BOM:520008) steady outlook for net income drives analysts to project subtle growth of 8.54% in the coming year, but let's stop and evaluate this projection. Those invested in the stock should contemplate the factors that are driving this growth, because the sustainability of returns to shareholders can be impacted on in different ways. To get a preliminary understanding, I will shine a light on the behaviour of Rico Auto Industries’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.

What can we tell from 520008'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 520008's profit margin.

There has been an expansion in Rico Auto Industries's margin over the past five years, with positive average net income growth of 3.23% and decline in revenue growth of -6.51% on average, indicating that that despite the previous revenue decline, the company has managed to maintain positive earnigns growth and therefore increase the proportion of revenue that falls to the bottom line. 520008's most recent margin of 4.78% appears to follow this trend, which suggests that the increase in net income has probably occured due to enhanced cost efficiency as opposed to revenue increases.

Using Rico Auto Industries's margin expectations as a way to understand projections for the future

Margins are expected to transition into contraction, with an expectation of 16.72% in annual revenue growth and 8.19% earnings growth expected annually. This indicates net income growth is to be increased further through revenue growth, which is forcing down the percentage of net income retained from the growth in revenue. Nonetheless, those interested in the company should remember that margin contraction can hold various implications on the company's performance depending on how it operates, which makes further research very important.

Next Steps:

For 520008, 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. Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for 520008's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of 520008? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.