UltraTech Cement (NSE:ULTRACEMCO) Is Reinvesting At Lower Rates Of Return

Simply Wall St · 06/10 00:59

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. However, after investigating UltraTech Cement (NSE:ULTRACEMCO), we don't think it's current trends fit the mold of a multi-bagger.

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What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for UltraTech Cement:

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

0.084 = ₹85b ÷ (₹1.3t - ₹324b) (Based on the trailing twelve months to March 2025).

Thus, UltraTech Cement has an ROCE of 8.4%. On its own that's a low return, but compared to the average of 5.7% generated by the Basic Materials industry, it's much better.

See our latest analysis for UltraTech Cement

roce
NSEI:ULTRACEMCO Return on Capital Employed June 10th 2025

Above you can see how the current ROCE for UltraTech Cement compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for UltraTech Cement .

So How Is UltraTech Cement's ROCE Trending?

When we looked at the ROCE trend at UltraTech Cement, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 8.4% from 11% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

In summary, UltraTech Cement is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 208% 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.

One more thing to note, we've identified 1 warning sign with UltraTech Cement and understanding this should be part of your investment process.

While UltraTech Cement may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.