Is EFC (I) Limited's (NSE:EFCIL) Recent Stock Performance Tethered To Its Strong Fundamentals?

Most readers would already be aware that EFC (I)'s (NSE:EFCIL) stock increased significantly by 16% over the past week. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to EFC (I)'s ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How Is ROE Calculated?

The formula for return on equity is:

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

So, based on the above formula, the ROE for EFC (I) is:

28% = ₹1.9b ÷ ₹6.8b (Based on the trailing twelve months to September 2025).

The 'return' is the income the business earned over the last year. That means that for every ₹1 worth of shareholders' equity, the company generated ₹0.28 in profit.

Check out our latest analysis for EFC (I)

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

EFC (I)'s Earnings Growth And 28% ROE

First thing first, we like that EFC (I) has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 4.9% which is quite remarkable. So, the substantial 77% net income growth seen by EFC (I) over the past five years isn't overly surprising.

As a next step, we compared EFC (I)'s net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 30%.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about EFC (I)'s's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is EFC (I) Using Its Retained Earnings Effectively?

EFC (I) doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Summary

Overall, we are quite pleased with EFC (I)'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. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.