Here's What To Make Of Mishra Dhatu Nigam's (NSE:MIDHANI) Decelerating Rates Of Return

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Mishra Dhatu Nigam (NSE:MIDHANI), we don't think it's current trends fit the mold of a multi-bagger.

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Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Mishra Dhatu Nigam, this is the formula:

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

0.083 = ₹1.9b ÷ (₹29b - ₹6.9b) (Based on the trailing twelve months to March 2025).

Therefore, Mishra Dhatu Nigam has an ROCE of 8.3%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 14%.

See our latest analysis for Mishra Dhatu Nigam

Above you can see how the current ROCE for Mishra Dhatu Nigam compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Mishra Dhatu Nigam .

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at Mishra Dhatu Nigam. The company has employed 31% more capital in the last five years, and the returns on that capital have remained stable at 8.3%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

Long story short, while Mishra Dhatu Nigam has been reinvesting its capital, the returns that it's generating haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 123% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Mishra Dhatu Nigam does have some risks though, and we've spotted 1 warning sign for Mishra Dhatu Nigam that you might be interested in.

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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.