GMR Power And Urban Infra (NSE:GMRP&UI) Might Have The Makings Of A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, GMR Power And Urban Infra (NSE:GMRP&UI) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for GMR Power And Urban Infra, this is the formula:

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

0.11 = ₹12b ÷ (₹166b - ₹60b) (Based on the trailing twelve months to September 2024).

Therefore, GMR Power And Urban Infra has an ROCE of 11%. In isolation, that's a pretty standard return but against the Construction industry average of 15%, it's not as good.

View our latest analysis for GMR Power And Urban Infra

In the above chart we have measured GMR Power And Urban Infra's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering GMR Power And Urban Infra for free.

So How Is GMR Power And Urban Infra's ROCE Trending?

The trends we've noticed at GMR Power And Urban Infra are quite reassuring. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 74% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 36%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that GMR Power And Urban Infra has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what GMR Power And Urban Infra has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 90% return over the last year. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing GMR Power And Urban Infra we've found 4 warning signs (2 are significant!) that you should be aware of before investing here.

While GMR Power And Urban Infra isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.