Should You Be Happy With Kothari Products Limited’s (NSE:KOTHARIPRO) Performance Lately?

Assessing Kothari Products Limited’s (NSE:KOTHARIPRO) past track record of performance is an insightful exercise for investors. It allows us to reflect on whether or not the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess KOTHARIPRO’s recent performance announced on 31 March 2018 and evaluate these figures to its long-term trend and industry movements.

Check out our latest analysis for Kothari Products

Was KOTHARIPRO’s recent earnings decline worse than the long-term trend and the industry?

KOTHARIPRO’s trailing twelve-month earnings (from 31 March 2018) of ₹553.50m has declined by -26.90% compared to the previous year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -1.85%, indicating the rate at which KOTHARIPRO is growing has slowed down. Why is this? Let’s examine what’s occurring with margins and if the whole industry is experiencing the hit as well.

Revenue growth in the past couple of years, has been positive, yet earnings growth has been declining. This means Kothari Products has been ramping up expenses, which is harming margins and earnings, and is not a sustainable practice. Viewing growth from a sector-level, the IN trade distributors industry has been growing its average earnings by double-digit 18.64% in the past year, and 11.82% over the past five. This growth is a median of profitable companies of 23 Trade Distributors companies in IN including Jainco Projects (India), Anik Industries and Anik Industries. This means that any tailwind the industry is profiting from, Kothari Products has not been able to reap as much as its industry peers.

NSEI:KOTHARIPRO Income Statement Export August 17th 18
NSEI:KOTHARIPRO Income Statement Export August 17th 18
In terms of returns from investment, Kothari Products has fallen short of achieving a 20% return on equity (ROE), recording 5.47% instead. Furthermore, its return on assets (ROA) of 2.81% is below the IN Trade Distributors industry of 2.93%, indicating Kothari Products’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Kothari Products’s debt level, has declined over the past 3 years from 11.36% to 5.91%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 44.46% to 52.15% over the past 5 years.

What does this mean?

Kothari Products’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Usually companies that face an extended period of diminishing earnings are undergoing some sort of reinvestment phase in order to keep up with the latest industry growth and disruption. I recommend you continue to research Kothari Products to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for KOTHARIPRO’s future growth? Take a look at our free research report of analyst consensus for KOTHARIPRO’s outlook.
  2. Financial Health: Are KOTHARIPRO’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 March 2018. This may not be consistent with full year annual report figures.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.