With analysts projecting Pondy Oxides and Chemicals Limited (BOM:532626) to report robust earnings growth of 28.57% annualised over the few years to come, it’s necessary to take a moment and reflect on this strong vision. Investors should consider the forces that are spurring this growth, as the return realised by shareholders may look different in the future if underlying assumptions are not realised. To get some insight, I will try to evaluate Pondy Oxides and Chemicals’s margin behaviour to assist in analysing the revenue and cost anatomy behind the earnings expectations for the future and the impact it has on shareholder returns relative to the wider industry.Check out our latest analysis for Pondy Oxides and Chemicals
Breaking Down 532626’s Profit Margin
In general, the value that accrues to equity holders is partly reliant on the ability of a company to convert sales revenue in to earnings. By calculating 532626’s profit margin, we can take a closer look at this ability and use it to understand what is driving earnings growth.
Margin Calculation for 532626
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = ₹291.79m ÷ ₹9.40b = 3.11%
Pondy Oxides and Chemicals’s margin has expanded in the past five years, due to average net income growth of 39.54% surpassing a 16.56% average growth in revenue, which suggests that the company has been able to convert a larger percentage of revenue into net income whilst grow their top line at the same time. 532626’s most recent margin of 3.11% appears to follow this trend, which suggests that the increase in net income has likely occurred from a combination of enhanced cost efficiency as well as top line growth.
Using Pondy Oxides and Chemicals’s margin expectations as a way to understand projections for the future
It is expected that margins will continue to expand, with 22.08% in expected annual revenue growth and annual net income growth forecasted at 28.57%. This suggests future earnings growth is driven further by enhanced cost efficiency alongside revenue increases, which is enlarging the incremental amount of net income that is retained from the forecasted revenue growth. Nonetheless, those interested in the company should remember that a expanding margin can hold various implications on the company’s performance depending on how it operates, which makes further research very important.
For 532626, I’ve compiled three relevant factors you should further research:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Future Earnings: How does 532626’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of 532626? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!