NACL Industries Limited (BOM:524709): Does The Earnings Decline Make It An Underperformer?

For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on NACL Industries Limited (BOM:524709) useful as an attempt to give more color around how NACL Industries is currently performing. View out our latest analysis for NACL Industries

How Well Did 524709 Perform?

524709's trailing twelve-month earnings (from 31 March 2018) of ₹115.70m has more than halved from ₹371.39m in the prior year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 34.31%, indicating the rate at which 524709 is growing has slowed down. Why could this be happening? Well, let's look at what's occurring with margins and whether the entire industry is facing the same headwind.

Over the last few years, revenue growth has been lagging behind which implies that NACL Industries’s bottom line has been propelled by unsustainable cost-cutting. Looking at growth from a sector-level, the IN chemicals industry has been growing its average earnings by double-digit 16.75% over the previous twelve months, and 13.18% over the past five years. This suggests that whatever tailwind the industry is profiting from, NACL Industries has not been able to realize the gains unlike its average peer.

In terms of returns from investment, NACL Industries has not invested its equity funds well, leading to a 4.84% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 6.31% is below the IN Chemicals industry of 9.14%, indicating NACL Industries's are utilized less efficiently. However, its return on capital (ROC), which also accounts for NACL Industries’s debt level, has increased over the past 3 years from 5.04% to 5.49%.

What does this mean?

Though NACL Industries's past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have capricious earnings, can have many factors impacting its business. I recommend you continue to research NACL Industries to get a better picture of the stock by looking at:

1. Financial Health: Is 524709’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
2. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 March 2018. This may not be consistent with full year annual report figures.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.