Declining Stock and Solid Fundamentals: Is The Market Wrong About IndiaMART InterMESH Limited (NSE:INDIAMART)?

It is hard to get excited after looking at IndiaMART InterMESH's (NSE:INDIAMART) recent performance, when its stock has declined 3.4% over the past week. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Particularly, we will be paying attention to IndiaMART InterMESH's ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Is ROE Calculated?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for IndiaMART InterMESH is:

29% = ₹5.9b ÷ ₹20b (Based on the trailing twelve months to June 2025).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every ₹1 worth of equity, the company was able to earn ₹0.29 in profit.

View our latest analysis for IndiaMART InterMESH

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

IndiaMART InterMESH's Earnings Growth And 29% ROE

First thing first, we like that IndiaMART InterMESH has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 6.5% also doesn't go unnoticed by us. This likely paved the way for the modest 16% net income growth seen by IndiaMART InterMESH over the past five years.

We then compared IndiaMART InterMESH's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 30% in the same 5-year period, which is a bit concerning.

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is IndiaMART InterMESH fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is IndiaMART InterMESH Making Efficient Use Of Its Profits?

IndiaMART InterMESH has a three-year median payout ratio of 26%, which implies that it retains the remaining 74% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Additionally, IndiaMART InterMESH has paid dividends over a period of six years which means that the company is pretty serious about sharing its profits with shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 46% over the next three years. Consequently, the higher expected payout ratio explains the decline in the company's expected ROE (to 22%) over the same period.

Summary

Overall, we are quite pleased with IndiaMART InterMESH's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a respectable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.