Will Weakness in AstraZeneca Pharma India Limited's (NSE:ASTRAZEN) Stock Prove Temporary Given Strong Fundamentals?

AstraZeneca Pharma India (NSE:ASTRAZEN) has had a rough month with its share price down 4.2%. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Specifically, we decided to study AstraZeneca Pharma India's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

How To Calculate Return On Equity?

ROE can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for AstraZeneca Pharma India is:

25% = ₹2.0b ÷ ₹8.0b (Based on the trailing twelve months to September 2025).

The 'return' is the yearly profit. One way to conceptualize this is that for each ₹1 of shareholders' capital it has, the company made ₹0.25 in profit.

See our latest analysis for AstraZeneca Pharma India

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

AstraZeneca Pharma India's Earnings Growth And 25% ROE

At first glance, AstraZeneca Pharma India seems to have a decent ROE. On comparing with the average industry ROE of 11% the company's ROE looks pretty remarkable. This probably laid the ground for AstraZeneca Pharma India's moderate 16% net income growth seen over the past five years.

We then compared AstraZeneca Pharma India's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 12% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is AstraZeneca Pharma India fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is AstraZeneca Pharma India Using Its Retained Earnings Effectively?

With a three-year median payout ratio of 39% (implying that the company retains 61% of its profits), it seems that AstraZeneca Pharma India is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Besides, AstraZeneca Pharma India has been paying dividends over a period of six years. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

Overall, we are quite pleased with AstraZeneca Pharma India's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. Our risks dashboard would have the 2 risks we have identified for AstraZeneca Pharma India.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.