Transformers and Rectifiers (India) Limited's (NSE:TARIL) Stock Has Fared Decently: Is the Market Following Strong Financials?

Transformers and Rectifiers (India)'s (NSE:TARIL) stock up by 7.4% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Transformers and Rectifiers (India)'s ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Is ROE Calculated?

ROE can be calculated by using the formula:

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

So, based on the above formula, the ROE for Transformers and Rectifiers (India) is:

21% = ₹2.6b ÷ ₹13b (Based on the trailing twelve months to June 2025).

The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each ₹1 of shareholders' capital it has, the company made ₹0.21 in profit.

View our latest analysis for Transformers and Rectifiers (India)

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Transformers and Rectifiers (India)'s Earnings Growth And 21% ROE

At first glance, Transformers and Rectifiers (India) seems to have a decent ROE. Especially when compared to the industry average of 13% the company's ROE looks pretty impressive. This certainly adds some context to Transformers and Rectifiers (India)'s exceptional 70% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

As a next step, we compared Transformers and Rectifiers (India)'s net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 36%.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. What is TARIL worth today? The intrinsic value infographic in our free research report helps visualize whether TARIL is currently mispriced by the market.

Is Transformers and Rectifiers (India) Using Its Retained Earnings Effectively?

Transformers and Rectifiers (India) has a really low three-year median payout ratio of 5.5%, meaning that it has the remaining 94% left over to reinvest into its business. So it looks like Transformers and Rectifiers (India) is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Moreover, Transformers and Rectifiers (India) is determined to keep sharing its profits with shareholders which we infer from its long history of four years of paying a dividend. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 9.2% over the next three years. Regardless, the future ROE for Transformers and Rectifiers (India) is speculated to rise to 27% despite the anticipated increase in the payout ratio. There could probably be other factors that could be driving the future growth in the ROE.

Summary

Overall, we are quite pleased with Transformers and Rectifiers (India)'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 sizeable growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. 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.