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The Indian Hotels Company Limited's (NSE:INDHOTEL) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Simply Wall St · 2d ago

With its stock down 5.5% over the past three months, it is easy to disregard Indian Hotels (NSE:INDHOTEL). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. In this article, we decided to focus on Indian Hotels' ROE.

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. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for Indian Hotels is:

14% = ₹18b ÷ ₹129b (Based on the trailing twelve months to September 2025).

The 'return' is the profit over the last twelve months. So, this means that for every ₹1 of its shareholder's investments, the company generates a profit of ₹0.14.

Check out our latest analysis for Indian Hotels

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Indian Hotels' Earnings Growth And 14% ROE

When you first look at it, Indian Hotels' ROE doesn't look that attractive. However, the fact that the its ROE is quite higher to the industry average of 7.3% doesn't go unnoticed by us. Particularly, the substantial 59% net income growth seen by Indian Hotels over the past five years is impressive . That being said, the company does have a slightly low ROE to begin with, just that it is higher than the industry average. Therefore, the growth in earnings could also be the result of other factors. Such as- high earnings retention or the company belonging to a high growth industry.

Next, on comparing Indian Hotels' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 50% over the last few years.

past-earnings-growth
NSEI:INDHOTEL Past Earnings Growth December 14th 2025

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Indian Hotels''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Indian Hotels Making Efficient Use Of Its Profits?

Indian Hotels has a really low three-year median payout ratio of 14%, meaning that it has the remaining 86% left over to reinvest into its business. So it seems like the management is reinvesting profits heavily to grow its business and this reflects in its earnings growth number.

Moreover, Indian Hotels is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Our latest analyst data shows that the future payout ratio of the company is expected to rise to 18% over the next three years. Regardless, the future ROE for Indian Hotels is speculated to rise to 18% despite the anticipated increase in the payout ratio. There could probably be other factors that could be driving the future growth in the ROE.

Conclusion

Overall, we are quite pleased with Indian Hotels' performance. Specifically, we like that it has been reinvesting a high portion of its profits at a moderate rate of return, resulting in earnings expansion. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.