Udayshivakumar Infra Limited's (NSE:USK) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Simply Wall St · 6d ago

With its stock down 26% over the past three months, it is easy to disregard Udayshivakumar Infra (NSE:USK). However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Specifically, we decided to study Udayshivakumar Infra's ROE in this article.

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.

View our latest analysis for Udayshivakumar Infra

How Do You Calculate Return On Equity?

ROE 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 Udayshivakumar Infra is:

7.5% = ₹129m ÷ ₹1.7b (Based on the trailing twelve months to December 2024).

The 'return' refers to a company's earnings over the last year. So, this means that for every ₹1 of its shareholder's investments, the company generates a profit of ₹0.07.

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. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

Udayshivakumar Infra's Earnings Growth And 7.5% ROE

It is quite clear that Udayshivakumar Infra's ROE is rather low. Even compared to the average industry ROE of 14%, the company's ROE is quite dismal. Although, we can see that Udayshivakumar Infra saw a modest net income growth of 16% over the past five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that Udayshivakumar Infra's reported growth was lower than the industry growth of 33% over the last few years, which is not something we like to see.

past-earnings-growth
NSEI:USK Past Earnings Growth March 14th 2025

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. 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 Udayshivakumar Infra is trading on a high P/E or a low P/E, relative to its industry.

Is Udayshivakumar Infra Making Efficient Use Of Its Profits?

Udayshivakumar Infra doesn't pay any regular dividends 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

Overall, we feel that Udayshivakumar Infra certainly does have some positive factors to consider. 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. You can see the 2 risks we have identified for Udayshivakumar Infra by visiting our risks dashboard for free on our platform here.