GMM Pfaudler (NSE:GMMPFAUDLR) Could Be Struggling To Allocate Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think GMM Pfaudler (NSE:GMMPFAUDLR) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on GMM Pfaudler is:

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

0.12 = ₹2.3b ÷ (₹31b - ₹11b) (Based on the trailing twelve months to June 2025).

Thus, GMM Pfaudler has an ROCE of 12%. In absolute terms, that's a pretty standard return but compared to the Machinery industry average it falls behind.

View our latest analysis for GMM Pfaudler

Above you can see how the current ROCE for GMM Pfaudler compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering GMM Pfaudler for free.

The Trend Of ROCE

When we looked at the ROCE trend at GMM Pfaudler, we didn't gain much confidence. To be more specific, ROCE has fallen from 24% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On GMM Pfaudler's ROCE

To conclude, we've found that GMM Pfaudler is reinvesting in the business, but returns have been falling. Unsurprisingly then, the total return to shareholders over the last five years has been flat. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing, we've spotted 2 warning signs facing GMM Pfaudler that you might find interesting.

While GMM Pfaudler may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned.