Investors Shouldn't Be Too Comfortable With Lexus Granito (India)'s (NSE:LEXUS) Robust Earnings

Last week's profit announcement from Lexus Granito (India) Limited (NSE:LEXUS) was underwhelming for investors, despite headline numbers being robust. We think that the market might be paying attention to some underlying factors are concerning.

Check out our latest analysis for Lexus Granito (India)

An Unusual Tax Situation

We can see that Lexus Granito (India) received a tax benefit of ₹18m. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. Of course, prima facie it's great to receive a tax benefit. And given that it lost money last year, it seems possible that the benefit is evidence that it now expects to find value in its past tax losses. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Lexus Granito (India).

Our Take On Lexus Granito (India)'s Profit Performance

As we have already discussed Lexus Granito (India) reported that it received a tax benefit, rather than paying tax, in the last year. As a result we don't think its profit result, which includes that tax-boost, is a good guide to its sustainable profit levels. Because of this, we think that it may be that Lexus Granito (India)'s statutory profits are better than its underlying earnings power. The good news is that it earned a profit in the last twelve months, despite its previous loss. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Lexus Granito (India) at this point in time. For example, we've found that Lexus Granito (India) has 3 warning signs (1 is significant!) that deserve your attention before going any further with your analysis.

Today we've zoomed in on a single data point to better understand the nature of Lexus Granito (India)'s profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.