Could The Market Be Wrong About Aurangabad Distillery Limited (NSE:AURDIS) Given Its Attractive Financial Prospects? - Rvpg media

Could The Market Be Wrong About Aurangabad Distillery Limited (NSE:AURDIS) Given Its Attractive Financial Prospects?

Aurangabad Distillery (NSE:AURDIS) has had a rough month with its share price down 18%. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. In this article, we decided to focus on Aurangabad Distillery’s ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for Aurangabad Distillery

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 Aurangabad Distillery is:

18% = ₹90m ÷ ₹494m (Based on the trailing twelve months to March 2022).

The ‘return’ is the profit over the last twelve months. So, this means that for every ₹1 of its shareholder’s investments, the company generates a profit of ₹0.18.

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. We now need to evaluate how much profit the company reinvests or “retains” for future growth which then gives us an idea about the growth potential of the company. 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.

Aurangabad Distillery’s Earnings Growth And 18% ROE

To start with, Aurangabad Distillery’s ROE looks acceptable. Further, the company’s ROE compares quite favorably to the industry average of 15%. This probably laid the ground for Aurangabad Distillery’s moderate 8.1% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that Aurangabad Distillery’s reported growth was lower than the industry growth of 17% in the same period, which is not something we like to see.

past-earnings-growth
NSEI:AURDIS Past Earnings Growth November 18th 2022

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). Doing so will help them establish if the stock’s future looks promising or ominous. If you’re wondering about Aurangabad Distillery’s’s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Aurangabad Distillery Making Efficient Use Of Its Profits?

Aurangabad Distillery doesn’t pay any dividend currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the decent earnings growth number that we discussed above.

Conclusion

In total, we are pretty happy with Aurangabad Distillery’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 a good amount of growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Let’s not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business. Our risks dashboard would have the 3 risks we have identified for Aurangabad Distillery.

Valuation is complex, but we’re helping make it simple.

Find out whether Aurangabad Distillery is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.

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