Do Its Financials Have Any Role To Play In Driving Gujarat Pipavav Port Limited's (NSE:GPPL) Stock Up Recently?

Most readers would already be aware that Gujarat Pipavav Port's (NSE:GPPL) stock increased significantly by 6.8% over the past week. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Particularly, we will be paying attention to Gujarat Pipavav Port's ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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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 Gujarat Pipavav Port is:

17% = ₹3.9b ÷ ₹23b (Based on the trailing twelve months to June 2025).

The 'return' is the amount earned after tax over the last twelve months. That means that for every ₹1 worth of shareholders' equity, the company generated ₹0.17 in profit.

Check out our latest analysis for Gujarat Pipavav Port

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

A Side By Side comparison of Gujarat Pipavav Port's Earnings Growth And 17% ROE

To start with, Gujarat Pipavav Port's ROE looks acceptable. Even when compared to the industry average of 17% the company's ROE looks quite decent. This probably goes some way in explaining Gujarat Pipavav Port's moderate 13% growth over the past five years amongst other factors.

As a next step, we compared Gujarat Pipavav Port's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 30% in the same period.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is GPPL fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Gujarat Pipavav Port Efficiently Re-investing Its Profits?

While Gujarat Pipavav Port has a three-year median payout ratio of 97% (which means it retains 3.0% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Additionally, Gujarat Pipavav Port has paid dividends over a period of nine years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 78%. However, Gujarat Pipavav Port's ROE is predicted to rise to 21% despite there being no anticipated change in its payout ratio.

Summary

In total, it does look like Gujarat Pipavav Port has some positive aspects to its business. As noted earlier, its earnings growth has been quite decent, and the high ROE does contribute to that growth. Still, the company invests little to almost none of its profits. This could potentially reduce the odds that the company continues to see the same level of growth in the future. We also studied the latest analyst forecasts and found that the company's earnings growth is expected be similar to its current growth rate. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.