InterGlobe Aviation Limited's (NSE:INDIGO) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

With its stock down 4.0% over the past three months, it is easy to disregard InterGlobe Aviation (NSE:INDIGO). However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Particularly, we will be paying attention to InterGlobe Aviation'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 Do You Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for InterGlobe Aviation is:

59% = ₹51b ÷ ₹86b (Based on the trailing twelve months to September 2025).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every ₹1 worth of equity, the company was able to earn ₹0.59 in profit.

See our latest analysis for InterGlobe Aviation

What Is The Relationship Between ROE And 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

A Side By Side comparison of InterGlobe Aviation's Earnings Growth And 59% ROE

Firstly, we acknowledge that InterGlobe Aviation has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 18% which is quite remarkable. As a result, InterGlobe Aviation's exceptional 62% net income growth seen over the past five years, doesn't come as a surprise.

As a next step, we compared InterGlobe Aviation's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 53% in the same 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. Doing so will help them establish if the stock's future looks promising or ominous. What is INDIGO worth today? The intrinsic value infographic in our free research report helps visualize whether INDIGO is currently mispriced by the market.

Is InterGlobe Aviation Making Efficient Use Of Its Profits?

InterGlobe Aviation's three-year median payout ratio to shareholders is 5.3%, which is quite low. This implies that the company is retaining 95% of its profits. So it looks like InterGlobe Aviation is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Moreover, InterGlobe Aviation is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 6.1% of its profits over the next three years. However, InterGlobe Aviation's future ROE is expected to decline to 40% despite there being not much change anticipated in the company's payout ratio.

Conclusion

In total, we are pretty happy with InterGlobe Aviation'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. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.