Dalmia Bharat Sugar and Industries Limited's (NSE:DALMIASUG) Stock is Soaring But Financials Seem Inconsistent: Will The Uptrend Continue?

Dalmia Bharat Sugar and Industries (NSE:DALMIASUG) has had a great run on the share market with its stock up by a significant 22% over the last three months. However, we decided to pay attention to the company's fundamentals which don't appear to give a clear sign about the company's financial health. In this article, we decided to focus on Dalmia Bharat Sugar and Industries' ROE.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How To Calculate Return On Equity?

Return on equity 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 Dalmia Bharat Sugar and Industries is:

9.0% = ₹2.7b ÷ ₹30b (Based on the trailing twelve months to December 2024).

The 'return' is the yearly profit. So, this means that for every ₹1 of its shareholder's investments, the company generates a profit of ₹0.09.

See our latest analysis for Dalmia Bharat Sugar and Industries

Why Is ROE Important For 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.

Dalmia Bharat Sugar and Industries' Earnings Growth And 9.0% ROE

At first glance, Dalmia Bharat Sugar and Industries' ROE doesn't look very promising. Yet, a closer study shows that the company's ROE is similar to the industry average of 10%. Having said that, Dalmia Bharat Sugar and Industries has shown a meagre net income growth of 3.3% over the past five years. Remember, the company's ROE is not particularly great to begin with. So this could also be one of the reasons behind the company's low growth in earnings.

Next, on comparing with the industry net income growth, we found that Dalmia Bharat Sugar and Industries' reported growth was lower than the industry growth of 16% over the last few years, which is not something we like to see.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Dalmia Bharat Sugar and Industries''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Dalmia Bharat Sugar and Industries Making Efficient Use Of Its Profits?

Dalmia Bharat Sugar and Industries has a low three-year median payout ratio of 15% (meaning, the company keeps the remaining 85% of profits) which means that the company is retaining more of its earnings. However, the low earnings growth number doesn't reflect this fact. So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.

Additionally, Dalmia Bharat Sugar and Industries has paid dividends over a period of nine years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth.

Conclusion

Overall, we have mixed feelings about Dalmia Bharat Sugar and Industries. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. 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.