We Think That There Are Issues Underlying S Chand's (NSE:SCHAND) Earnings

Published
June 01, 2022
NSEI:SCHAND
Source: Shutterstock

Unsurprisingly, S Chand and Company Limited's (NSE:SCHAND) stock price was strong on the back of its healthy earnings report. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

See our latest analysis for S Chand

earnings-and-revenue-history
NSEI:SCHAND Earnings and Revenue History June 1st 2022

An Unusual Tax Situation

S Chand reported a tax benefit of ₹35m, which is well worth noting. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. 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, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. 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.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On S Chand's Profit Performance

As we have already discussed S Chand reported that it received a tax benefit, rather than paying tax, in the last year. As a result we don't think its profit result, which includes that tax-boost, is a good guide to its sustainable profit levels. Therefore, it seems possible to us that S Chand's true underlying earnings power is actually less than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into S Chand, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for S Chand you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of S Chand's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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About NSEI:SCHAND

S Chand

S Chand and Company Limited, an education content company, develops and delivers content, solutions, and services for the early learning, K-12, and higher education segments in India.

Excellent balance sheet and good value.