Sastasundar Ventures' (NSE:SASTASUNDR) Solid Profits Have Weak Fundamentals

Investors were disappointed with Sastasundar Ventures Limited's (NSE:SASTASUNDR) earnings, despite the strong profit numbers. Our analysis uncovered some concerning factors that we believe the market might be paying attention to.

See our latest analysis for Sastasundar Ventures

An Unusual Tax Situation

We can see that Sastasundar Ventures received a tax benefit of ₹364m. This is meaningful because companies usually pay tax rather than receive tax benefits. We're sure the company was pleased with its tax benefit. And given that it lost money last year, it seems possible that the benefit is evidence that it now expects to find value in its past tax losses. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sastasundar Ventures.

Our Take On Sastasundar Ventures' Profit Performance

In its most recent report, Sastasundar Ventures disclosed a tax benefit, as we discussed above. Given that sort of benefit is not recurring, it's safe to say the statutory profit overstates its underlying profitability quite significantly. For this reason, we think that Sastasundar Ventures' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. While earnings are important, another area to consider is the balance sheet. You can see our latest analysis on Sastasundar Ventures' balance sheet health here.

Today we've zoomed in on a single data point to better understand the nature of Sastasundar Ventures' profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.