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Is Motherson Sumi Wiring India Limited's (NSE:MSUMI) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Simply Wall St · 07/24 01:06

Motherson Sumi Wiring India (NSE:MSUMI) has had a great run on the share market with its stock up by a significant 11% over the last three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Motherson Sumi Wiring India's ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How To 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 Motherson Sumi Wiring India is:

36% = ₹6.1b ÷ ₹17b (Based on the trailing twelve months to March 2025).

The 'return' is the yearly profit. So, this means that for every ₹1 of its shareholder's investments, the company generates a profit of ₹0.36.

Check out our latest analysis for Motherson Sumi Wiring India

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.

A Side By Side comparison of Motherson Sumi Wiring India's Earnings Growth And 36% ROE

To begin with, Motherson Sumi Wiring India has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 11% the company's ROE is quite impressive. Probably as a result of this, Motherson Sumi Wiring India was able to see a decent net income growth of 11% over the last five years.

As a next step, we compared Motherson Sumi Wiring India's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 27% in the same period.

past-earnings-growth
NSEI:MSUMI Past Earnings Growth July 24th 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 Motherson Sumi Wiring India is trading on a high P/E or a low P/E, relative to its industry.

Is Motherson Sumi Wiring India Using Its Retained Earnings Effectively?

Motherson Sumi Wiring India has a significant three-year median payout ratio of 61%, meaning that it is left with only 39% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Additionally, Motherson Sumi Wiring India has paid dividends over a period of three years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 41% over the next three years. Despite the lower expected payout ratio, the company's ROE is not expected to change by much.

Conclusion

In total, it does look like Motherson Sumi Wiring India has some positive aspects to its business. Its earnings have grown respectably as we saw earlier, which was likely due to the company reinvesting its earnings at a pretty high rate of return. However, given the high ROE, we do think that the company is reinvesting a small portion of its profits. This could likely be preventing the company from growing to its full extent. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.