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Samvardhana Motherson International Limited's (NSE:MOTHERSON) Stock Is Going Strong: Have Financials A Role To Play?

Simply Wall St · 2d ago

Samvardhana Motherson International (NSE:MOTHERSON) has had a great run on the share market with its stock up by a significant 9.5% over the last month. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. In this article, we decided to focus on Samvardhana Motherson International's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

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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 Samvardhana Motherson International is:

9.0% = ₹36b ÷ ₹396b (Based on the trailing twelve months to September 2025).

The 'return' is the yearly profit. One way to conceptualize this is that for each ₹1 of shareholders' capital it has, the company made ₹0.09 in profit.

See our latest analysis for Samvardhana Motherson International

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

A Side By Side comparison of Samvardhana Motherson International's Earnings Growth And 9.0% ROE

At first glance, Samvardhana Motherson International's ROE doesn't look very promising. However, given that the company's ROE is similar to the average industry ROE of 10%, we may spare it some thought. Particularly, the exceptional 38% net income growth seen by Samvardhana Motherson International over the past five years is pretty remarkable. Considering the moderately low ROE, it is quite possible that there might be some 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.

As a next step, we compared Samvardhana Motherson International's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 24%.

past-earnings-growth
NSEI:MOTHERSON Past Earnings Growth December 16th 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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. 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 Samvardhana Motherson International is trading on a high P/E or a low P/E, relative to its industry.

Is Samvardhana Motherson International Making Efficient Use Of Its Profits?

Samvardhana Motherson International has a really low three-year median payout ratio of 19%, meaning that it has the remaining 81% left over to reinvest into its business. So it looks like Samvardhana Motherson International is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Additionally, Samvardhana Motherson International has paid dividends over a period of at least ten 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 over the next three years is expected to be approximately 20%. Still, forecasts suggest that Samvardhana Motherson International's future ROE will rise to 14% even though the the company's payout ratio is not expected to change by much.

Conclusion

On the whole, we do feel that Samvardhana Motherson International has some positive attributes. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.