Will Bhageria Industries (NSE:BHAGERIA) Multiply In Value Going Forward?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Bhageria Industries (NSE:BHAGERIA), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Bhageria Industries:

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

0.13 = ₹602m ÷ (₹5.1b - ₹557m) (Based on the trailing twelve months to September 2020).

So, Bhageria Industries has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 14% generated by the Chemicals industry.

View our latest analysis for Bhageria Industries

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Bhageria Industries' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Bhageria Industries Tell Us?

When we looked at the ROCE trend at Bhageria Industries, we didn't gain much confidence. Around five years ago the returns on capital were 44%, but since then they've fallen to 13%. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

On a side note, Bhageria Industries has done well to pay down its current liabilities to 11% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Key Takeaway

From the above analysis, we find it rather worrisome that returns on capital and sales for Bhageria Industries have fallen, meanwhile the business is employing more capital than it was five years ago. In spite of that, the stock has delivered a 22% return to shareholders who held over the last three years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

On a separate note, we've found 2 warning signs for Bhageria Industries you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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