Is Indian Railway Catering & Tourism Corporation Limited's (NSE:IRCTC) Stock's Recent Performance A Reflection Of Its Financial Health?

Indian Railway Catering & Tourism's (NSE:IRCTC) stock is up by 7.3% over the past three months. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. Specifically, we decided to study Indian Railway Catering & Tourism's ROE in this article.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How To Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Indian Railway Catering & Tourism is:

36% = ₹13b ÷ ₹37b (Based on the trailing twelve months to March 2025).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each ₹1 of shareholders' capital it has, the company made ₹0.36 in profit.

Check out our latest analysis for Indian Railway Catering & Tourism

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.

Indian Railway Catering & Tourism's Earnings Growth And 36% ROE

First thing first, we like that Indian Railway Catering & Tourism has an impressive ROE. Secondly, even when compared to the industry average of 13% the company's ROE is quite impressive. So, the substantial 28% net income growth seen by Indian Railway Catering & Tourism over the past five years isn't overly surprising.

We then performed a comparison between Indian Railway Catering & Tourism's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 29% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. Is Indian Railway Catering & Tourism fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Indian Railway Catering & Tourism Efficiently Re-investing Its Profits?

Indian Railway Catering & Tourism's three-year median payout ratio is a pretty moderate 45%, meaning the company retains 55% of its income. By the looks of it, the dividend is well covered and Indian Railway Catering & Tourism is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Moreover, Indian Railway Catering & Tourism is determined to keep sharing its profits with shareholders which we infer from its long history of five years of paying a dividend. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 61% over the next three years. Therefore, the expected rise in the payout ratio explains why the company's ROE is expected to decline to 28% over the same period.

Conclusion

In total, we are pretty happy with Indian Railway Catering & Tourism's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial 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. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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.