There are many types of investors and styles based on personal preferences. These investors look at different metrics before investing in the stock market.
Those who invest for the long term are generally interested in learning about the fundamentals of the company.
They use several valuation metrics to know more about the company. One such important measure is Return on Equity (ROE). In this article, we will understand what is ROE and also look at high ROE stocks in India.
What Is ROE Or Return On Equity?
Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders’ equity. This is usually expressed in percentages.
ROE is also considered the return on net assets. It is because shareholders’ equity is equal to a company’s assets minus its debt. This metric is useful in measuring a corporation’s profitability and how efficient it is in generating profits.
The ratio takes into account an item each from the Income statement (Net Income) and Balance sheet (Shareholder’s equity). The ROE shows a firm’s ability to turn its equity investments into profits. Investors can learn how much profit is the company able to generate for every rupee invested by them.
High ROE Stocks In India
Here is the list of top companies with high ROEs in the Indian Stock market. They are:
High ROE Stocks in India: Large Cap
1. Nestle India Ltd.
Nestle India is an Indian subsidiary of Swiss-based multinational company Nestle. It is a prominent player in the food and beverage sector.
It offers products across a range of categories like dairy (Milkmaid), cereals (Nesplus), baby cereals (Ceregrow), etc. Nestle is a debt-free company.
The company has been able to deliver exceptional results over the few years. The average five-year ROE for the company is 58.17%.
On a yearly basis, from 2017 to 2021, the company has a return on equity of 32.83%, 36.56%, 45.3%, 70.39%, and 105.76%, respectively. Superior market share along with strong brand recognition gives Nestle the edge over its peers.
2. Procter & Gamble Hygiene and Health Care Ltd.
P&G Hygiene is an Indian arm of American multinational P&G. It is one of the leading fast-moving consumer goods companies which specializes in personal care and hygiene products.
The product portfolio includes dominant brands such as Pampers, Gillette, Whisper, Old Spice, Head & Shoulder, Ariel, etc. It is also a debt-free company.
The company maintained an average 5 year ROE of 52.2%. The ROE numbers from 2017 to 2021 are 39.95, 57.17, 49.79, 42.74, and 71.64, respectively.
The consistency in such high returns can be attributed to its focus on driving consumer meaningful innovations backed by significant distribution expansion and strong advertising.
3. Colgate-Palmolive (India) Ltd.
Colgate Palmolive India is an Indian subsidiary of American consumer goods company Colgate Palmolive. It is engaged in oral care with products ranging from toothpaste, toothbrushes, mouthwashes. It also offers personal care products under the “Palmolive” brand.
The ROE for this large-cap company from 2017 to 2021 has been 50.48%, 48.32%, 52.37%, 53.75%, and 75% respectively. The five-year average ROE sums up to be 55.98%.
The strong performance is backed by its strong leadership with significant market share and continuous focus on innovation by offering new products.
High ROE Stocks In India: Mid-Cap
1. Castrol India Ltd.
Castrol logo
Castrol India Limited is an automotive and industrial lubricant manufacturing company. It is the 2nd largest manufacturer of automotive and industrial lubricants in India with around 20% market share in the industry. The company has zero debt on its balance sheet.
Castrol Indi
a has maintained an average ROE of 66.11 in the last five years. The companies focus on strategic interventions along with optimizing the costs, drove efficiencies, and cash performance.
Along with that, it has a key focus
High ROE Stocks In India: Small Cap
1. Gujarat Themis Biosyn Ltd.
Gujarat Themis Biosyn Ltd is a biotech and synthetic product manufacturing company. It manufactures and distributes pharmaceuticals bulk drugs called rifampicin.
Its other products include preparations of active pharmaceutical ingredients rifampicin and lovastatin. This zero-debt company exports its products to Europe and the United States.
The ROE of this small-cap company has been exceptional over the years. Over the last five years starting from 2017 to 2021 it has ROE of 72.63%, 38.065, 41.85%, 77.99%, and 53.82% respectively taking its average to 56.9%.
The shift from contract manufacturing to a manufacturing and sales model helped the company to increase its earnings and thus margins.
2. TAAL Enterprises Ltd.
TAAL Tech is a niche Engineering and Technology Solutions provider serving global corporations. It has been the partner of choice for those seeking the ultimate in Air Charter Solutions. The company also has zero debt on its balance sheet.
The ROE for the last five years from 2017 to 2021 is 33.56%, 72.94%, 53.28%, 38.88%, and 50.17% making its 5 years average 49.8%. The company focuses on product engineering and service tailored to the needs of its customers giving it an edge in the industry.
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