Manorama Industries Limited's (NSE:MANORAMA) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?
Manorama Industries (NSE:MANORAMA) has had a rough three months with its share price down 7.3%. 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 Manorama Industries' ROE today.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.
How Do You Calculate Return On Equity?
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 Manorama Industries is:
30% = ₹1.7b ÷ ₹5.6b (Based on the trailing twelve months to September 2025).
The 'return' refers to a company's earnings over the last year. That means that for every ₹1 worth of shareholders' equity, the company generated ₹0.30 in profit.
View our latest analysis for Manorama Industries
What Has ROE Got To Do With Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.
Manorama Industries' Earnings Growth And 30% ROE
To begin with, Manorama Industries has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 11% also doesn't go unnoticed by us. Under the circumstances, Manorama Industries' considerable five year net income growth of 47% was to be expected.
As a next step, we compared Manorama Industries' net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 20%.
Earnings growth is a huge factor in stock valuation. 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 Manorama Industries''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Manorama Industries Efficiently Re-investing Its Profits?
Manorama Industries' ' three-year median payout ratio is on the lower side at 3.6% implying that it is retaining a higher percentage (96%) of its profits. So it looks like Manorama Industries is reinvesting profits heavily to grow its business, which shows in its earnings growth.
Along with seeing a growth in earnings, Manorama Industries only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders.
Conclusion
On the whole, we feel that Manorama Industries' performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.