Shree Pushkar Chemicals & Fertilisers Limited's (NSE:SHREEPUSHK) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Simply Wall St · 04/08 02:07

Shree Pushkar Chemicals & Fertilisers (NSE:SHREEPUSHK) has had a rough month with its share price down 28%. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Specifically, we decided to study Shree Pushkar Chemicals & Fertilisers' ROE in this article.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

How Is ROE Calculated?

Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Shree Pushkar Chemicals & Fertilisers is:

11% = ₹552m ÷ ₹5.1b (Based on the trailing twelve months to December 2024).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each ₹1 of shareholders' capital it has, the company made ₹0.11 in profit.

View our latest analysis for Shree Pushkar Chemicals & Fertilisers

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

A Side By Side comparison of Shree Pushkar Chemicals & Fertilisers' Earnings Growth And 11% ROE

At first glance, Shree Pushkar Chemicals & Fertilisers' ROE doesn't look very promising. However, its ROE is similar to the industry average of 10%, so we won't completely dismiss the company. Even so, Shree Pushkar Chemicals & Fertilisers has shown a fairly decent growth in its net income which grew at a rate of 5.6%. Taking into consideration that the ROE is not particularly high, we reckon that there could also be other factors at play which could be influencing the company's growth. Such as - high earnings retention or an efficient management in place.

As a next step, we compared Shree Pushkar Chemicals & Fertilisers' net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 13% in the same period.

past-earnings-growth
NSEI:SHREEPUSHK Past Earnings Growth April 8th 2025

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Shree Pushkar Chemicals & Fertilisers is trading on a high P/E or a low P/E , relative to its industry.

Is Shree Pushkar Chemicals & Fertilisers Using Its Retained Earnings Effectively?

In Shree Pushkar Chemicals & Fertilisers' case, its respectable earnings growth can probably be explained by its low three-year median payout ratio of 13% (or a retention ratio of 87%), which suggests that the company is investing most of its profits to grow its business.

Moreover, Shree Pushkar Chemicals & Fertilisers is determined to keep sharing its profits with shareholders which we infer from its long history of nine years of paying a dividend.

Conclusion

In total, it does look like Shree Pushkar Chemicals & Fertilisers has some positive aspects to its business. Specifically, its fairly high earnings growth number, which no doubt was backed by the company's high earnings retention. Still, the low ROE means that all that reinvestment is not reaping a lot of benefit to the investors. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. To know the 3 risks we have identified for Shree Pushkar Chemicals & Fertilisers visit our risks dashboard for free.