Has Himatsingka Seide (NSE:HIMATSEIDE) Got What It Takes To Become A Multi-Bagger?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Himatsingka Seide (NSE:HIMATSEIDE) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Himatsingka Seide, this is the formula:

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

0.014 = ₹437m ÷ (₹50b - ₹18b) (Based on the trailing twelve months to December 2020).

Thus, Himatsingka Seide has an ROCE of 1.4%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 9.4%.

Check out our latest analysis for Himatsingka Seide

Above you can see how the current ROCE for Himatsingka Seide compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Himatsingka Seide.

The Trend Of ROCE

In terms of Himatsingka Seide's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.4% from 16% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

Our Take On Himatsingka Seide's ROCE

We're a bit apprehensive about Himatsingka Seide because despite more capital being deployed in the business, returns on that capital and sales have both fallen. And long term shareholders have watched their investments stay flat over the last five years. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you want to continue researching Himatsingka Seide, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Himatsingka Seide may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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