Generally, investors use balance sheets, profit and loss accounts, and cash flow statements to find out the company's true worth. But this process is time-consuming and cumbersome. An easier way to find out about a company's performance is to look at its financial ratios.
Here are 5 bluechip stocks with high Return on Equity
Investors and analysts can gain profitable advantages in the stock market by using the widely popular, and arguably indispensable, technique of ratio analysis.
Though this is not a foolproof method, it is a good way to run a fast check on a company's health.
The Financial ratios are tools used to assess the relative strength of companies by performing simple calculations on items on income statements, balance sheets, and cash flow statements.
Fundamental analysis is the term given to the use of financial ratios in determining the relative strength of companies for investment purposes.
Further, Ratios measure companies' operational efficiency, liquidity, stability, and profitability, giving investors more relevant information than raw financial data.
Using ratios puts all companies on a relatively equal playing field in the eyes of analysts; companies are judged on their performance rather than their size, sales volume, or market share.
Moreover, compared to the raw financial data of two different companies in the same industry, offers only limited insight. Ratios go beyond the numbers to reveal how good a company is at making a profit, funding the business, growing through sales rather than debt, and a wide range of other factors.
In addition, careful analysis of a company's ratios can reveal which companies have the fundamental strength to increase their stock value over time and are potentially profitable opportunities while pointing out the weaker players in the market as well.
Today we look at one such important ratio-Return on Equity (ROE).
The Return on Equity measures the return that shareholders get from the business and overall earnings. It helps investors compare the profitability of companies in the same industry.
The ratio highlights the capability of the management. ROE is calculated using net income divided by shareholder equity.
A good rule of thumb is to target an ROE that is equal to or just above the average for the company's sector—those in the same business.
Bluechip stocks are huge companies with excellent reputations, often including some of the biggest household names, Investopedia says.
Let's look at some Nifty50 stocks with a high ROE.
Nestle India (NIL) is the largest food company in India with over Rs. 13,000 crore of sales. It is broadly present in infant & baby food products, noodles, chocolates & beverage categories. In the last five years, the company has forayed into newer categories and launched more than 100 new products.
NESTLE India is a subsidiary of NESTLE S.A. of Switzerland. Nestle India Limited was incorporated in New Delhi on 28 March 1959 and was promoted by Nestle Alimentana S.A. via a wholly-owned subsidiary, Nestle Holdings Ltd.
As of 2020, the parent company, Nestle, owns 62.76% of Nestle India. The company has nine manufacturing facilities including the newly commissioned plant in Sanand, Gujarat.
During Q1CY22, Nestle's standalone revenue increased by 10.2% YoY to reach Rs. 3,981 cr. Major brands such as Maggi Noodles, Kitkat, Munch and Nescafe Classic registered double-digit growth during the quarter. This was mainly due to innovative campaigns, consumer promotions, and targeted distribution drives.
The company has been able to deliver exceptional results over the last few years. The average three-year ROE for the company is 102.9%.
The five-year average ROE of Nestle is 77.6% which is the highest among large-cap companies listed on the Indian stock market.
Britannia Industries Limited is an Indian company specialising in the food industry, part of the Wadia Group headed by Nusli Wadia. Founded in 1892 and headquartered in Kolkata.
It is one of India’s leading food companies with a 100 year legacy and annual revenues above Rs. 9000 Cr.
Britannia’s product portfolio includes Biscuits, Bread, Cakes, Rusk, and Dairy products including Cheese, Beverages, Milk and Yoghurt.
The Company manufactures India’s favourite brands like Good Day, Tiger, NutriChoice, Milk Bikis and Marie Gold which are household names in India.
Britannia products are available across the country in close to 5 million retail outlets and reach over 50% of Indian homes.
The company’s Dairy business contributes close to 5 per cent of revenue and Britannia dairy products directly reach 100,000 outlets.
It had a presence in more than 60 countries across the globe. The international footprint includes a presence in the Middle East through local manufacturing in UAE and Oman, which are the No 2 biscuit players in UAE.
For the quarter ending March 2022, consolidated net sales (including other operating income) of Britannia Industries have increased 13.41% to ₹3550.45 crore compared to the quarter ended March 2021.
The three-year average ROE of Britannia stands at 45.6%, and it maintained an average 5 year ROE of 38.7%.
Tata Consultancy Services
TCS is the second-largest Indian company by market capitalisation and is among the most valuable IT services brands worldwide. It is a part of the Tata Group and operates in 149 locations across 46 countries.
TCS offers a consulting-led, cognitive-powered, integrated portfolio of business, technology, and engineering services and solutions. This is delivered through its unique Location Independent Agile delivery model, recognized as a benchmark of excellence in software development.
A part of the Tata group, India's largest multinational business group, TCS has over 488,000 of the world’s best-trained consultants.
TCS' proactive stance on climate change and award-winning work with communities across the world have earned it a place in leading sustainability indices such as the MSCI Global Sustainability Index and the FTSE4Good Emerging Index.
In April 2018, TCS became the first Indian IT company to reach $100 billion in market capitalisation and the second Indian company ever (after Reliance Industries achieved it in 2007).
The average three-year ROE for TCS stands at 37.8%, and Its five-year average ROE is at 35.8%.
Meanwhile, TCS's consolidated revenue in the January-March quarter was at ₹50,591 crores, a 16 per cent increase over the previous quarter. Quarterly, revenue has climbed by 3%. In constant currency, revenue increased 14.3 per cent year on year (YoY).
During the year, TCS added 10 clients to the $100 million+ bucket; 19 clients were added to the $50 million+ bucket; 40 clients were added to the $20 million+ bucket, and 52 clients were added to the $10 million+ bucket.
Coal India Limited (CIL) the state-owned coal mining corporate came into being in November 1975. With a modest production of 79 Million Tonnes (MTs) at the year of its inception.
CIL today is the single largest coal producer in the world and one of the largest corporate employers with a manpower of 272445 (as of 1st April 2020).
CIL functions through its subsidiaries in 84 mining areas spread over eight (8) states of India. Coal India Limited has 352 mines (as on 1st April 2020) of which 158 are underground, 174 opencast and 20 mixed mines.
CIL is a Maharatna company - a privileged status conferred by the Government of India to select state-owned enterprises to empower them to expand their operations and emerge as global giants.
Coal India and its subsidiaries produced 534.7 lakh tonnes of coal in April 2022, according to the Ministry of Coal.
Coal India’s production went up by 4.43 per cent from 5,960.24 lakh tons in 2020-21 to 6,220.64 lakh tons during 2021-22.
The three-year average ROE of Coal India stands at 50.9%, and the company maintained an average 5 year ROE of 45.2%.
Bharat Petroleum Corporation Limited (BPCL)
BPCL is one of India’s leading oil & gas companies. It operates refineries located in Kochi, Mumbai, Bina and Numaligarh.
The company’s marketing infrastructure consists of installations, retail outlets, depots, and LPG distributors.
(BPCL) is an Indian government-owned oil and gas explorer and producer. It is under the ownership of the Ministry of Petroleum and Natural Gas, Government of India, headquartered in Mumbai, Maharashtra. It operates two large refineries in Kochi and Mumbai.
BPCL operates more than 19000 retail outlets across the country
Meanwhile, the government has decided not to go ahead with the privatisation plan of state-run Bharat Petroleum Corporation Ltd (BPCL) and has told its suitors that it will revise the plan and come to market, according to Anil Agarwal, chairman of Vedanta Resources.
The average three-year ROE for BPCL stands at 19.6%, and Its five-year average ROE is at 22.3%.
Note: This story is for educational purposes only. Please speak to a financial advisor before investing.
personal financeTeam MintGenie