Investors with a long-term horizong may find it valuable to assess SJVN Limited’s (NSE:SJVN) earnings trend over time and against its industry benchmark as opposed to simply looking at a sincle earnings announcement at one point in time. Below is my commentary, albiet very simple and high-level, on how SJVN is currently performing.
Was SJVN’s recent earnings decline indicative of a tough track record?SJVN’s trailing twelve-month earnings (from 31 March 2018) of ₹12.22b has declined by -20.87% compared to the previous year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 6.32%, indicating the rate at which SJVN is growing has slowed down. What could be happening here? Let’s examine what’s going on with margins and if the whole industry is experiencing the hit as well.
In the last couple of years, revenue growth has been lagging behind which implies that SJVN’s bottom line has been propelled by unmaintainable cost-reductions. Viewing growth from a sector-level, the IN electric utilities industry has been growing its average earnings by double-digit 45.33% in the past year, and 14.41% over the past five. This growth is a median of profitable companies of 13 Electric Utilities companies in IN including Reliance Infrastructure, Reliance Infrastructure and Power Grid of India. This means that whatever uplift the industry is enjoying, SJVN has not been able to leverage it as much as its industry peers.In terms of returns from investment, SJVN has not invested its equity funds well, leading to a 11.45% return on equity (ROE), below the sensible minimum of 20%. However, its return on assets (ROA) of 9.07% exceeds the IN Electric Utilities industry of 7.68%, indicating SJVN has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for SJVN’s debt level, has declined over the past 3 years from 16.00% to 12.14%.
What does this mean?
Though SJVN’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have capricious earnings, can have many factors affecting its business. I recommend you continue to research SJVN to get a better picture of the stock by looking at:
- Financial Health: Is SJVN’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.
- Valuation: What is SJVN worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SJVN is currently mispriced by the market.
- 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.
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 firstname.lastname@example.org.