After reading Capacit’e Infraprojects Limited’s (NSE:CAPACITE) latest earnings update (31 March 2018), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether CAPACITE has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways.
Could CAPACITE beat the long-term trend and outperform its industry?CAPACITE’s trailing twelve-month earnings (from 31 March 2018) of ₹795.7m has jumped 14.7% compared to the previous year. However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 45.9%, indicating the rate at which CAPACITE is growing has slowed down. What could be happening here? Well, let’s examine what’s occurring with margins and whether the entire industry is experiencing the hit as well.
In the past few years, revenue growth has been lagging behind which implies that Capacit’e Infraprojects’s bottom line has been driven by unmaintainable cost-reductions. Eyeballing growth from a sector-level, the IN real estate industry has been enduring some headwinds over the past twelve months, leading to an average earnings drop of -8.9%. This is a significant change, given that the industry has been delivering a positive rate of 9.3%, on average, over the last five years. This growth is a median of profitable companies of 25 Real Estate companies in IN including Vijay Shanthi Builders, Vijay Shanthi Builders and Manas Properties. This means whatever near-term headwind the industry is experiencing, Capacit’e Infraprojects is less exposed compared to its peers.In terms of returns from investment, Capacit’e Infraprojects has fallen short of achieving a 20% return on equity (ROE), recording 10.6% instead. However, its return on assets (ROA) of 6.9% exceeds the IN Real Estate industry of 3.8%, indicating Capacit’e Infraprojects has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Capacit’e Infraprojects’s debt level, has declined over the past 3 years from 17.9% to 12.9%.
What does this mean?
Though Capacit’e Infraprojects’s past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research Capacit’e Infraprojects to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CAPACITE’s future growth? Take a look at our free research report of analyst consensus for CAPACITE’s outlook.
- Financial Health: Are CAPACITE’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 March 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.