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April 20, 2024
PI Global Investments
Infrastructure

IRB Infrastructure Developers’ (NSE:IRB) Returns Have Hit A Wall


If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at IRB Infrastructure Developers (NSE:IRB), it didn’t seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

For those that aren’t sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for IRB Infrastructure Developers:

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

0.058 = ₹22b ÷ (₹441b – ₹67b) (Based on the trailing twelve months to September 2023).

Thus, IRB Infrastructure Developers has an ROCE of 5.8%. In absolute terms, that’s a low return and it also under-performs the Construction industry average of 13%.

View our latest analysis for IRB Infrastructure Developers

roce
NSEI:IRB Return on Capital Employed January 21st 2024

Above you can see how the current ROCE for IRB Infrastructure Developers compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like, you can check out the forecasts from the analysts covering IRB Infrastructure Developers here for free.

How Are Returns Trending?

Things have been pretty stable at IRB Infrastructure Developers, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they’re past the growth phase. So don’t be surprised if IRB Infrastructure Developers doesn’t end up being a multi-bagger in a few years time.

The Bottom Line

In a nutshell, IRB Infrastructure Developers has been trudging along with the same returns from the same amount of capital over the last five years. Investors must think there’s better things to come because the stock has knocked it out of the park, delivering a 235% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn’t get our hopes up too high.

IRB Infrastructure Developers does have some risks, we noticed 3 warning signs (and 1 which is significant) we think you should know about.

While IRB Infrastructure Developers isn’t earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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

Find out whether IRB Infrastructure Developers 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.

View the Free Analysis

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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