Indo National (NSE:NIPPOBATRY) Might Have The Makings Of A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Indo National's (NSE:NIPPOBATRY) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Indo National:

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

0.13 = ₹447m ÷ (₹5.1b - ₹1.8b) (Based on the trailing twelve months to March 2021).

Thus, Indo National has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 10% generated by the Electrical industry.

Check out our latest analysis for Indo National

Historical performance is a great place to start when researching a stock so above you can see the gauge for Indo National's ROCE against it's prior returns. If you'd like to look at how Indo National has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The trends we've noticed at Indo National are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 52% 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.

Our Take On Indo National's ROCE

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 Indo National has. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 31% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing: We've identified 4 warning signs with Indo National (at least 1 which is concerning) , and understanding these would certainly be useful.

While Indo National 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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