GAIL (India)'s (NSE:GAIL) Returns Have Hit A Wall

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at GAIL (India)'s (NSE:GAIL) ROCE trend, we were pretty happy with what we saw.

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Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for GAIL (India), this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.10 = ₹116b ÷ (₹1.3t - ₹219b) (Based on the trailing twelve months to March 2025).

So, GAIL (India) has an ROCE of 10%. In isolation, that's a pretty standard return but against the Gas Utilities industry average of 14%, it's not as good.

See our latest analysis for GAIL (India)

Above you can see how the current ROCE for GAIL (India) compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for GAIL (India) .

How Are Returns Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 10% for the last five years, and the capital employed within the business has risen 78% in that time. 10% is a pretty standard return, and it provides some comfort knowing that GAIL (India) has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

In the end, GAIL (India) has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 262% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we found 2 warning signs for GAIL (India) (1 doesn't sit too well with us) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.