High ROE Stocks in India: There are many types of investors and styles based on personal preferences. These investors look at different metrics before investing in the stock market.
Those who invest for the long term are generally interested in learning about the fundamentals of the company.
They use several valuation metrics to know more about the company. One such important measure is Return on Equity (ROE). In this article, we will understand what is ROE and also look at high ROE stocks in India.
What is ROE or Return On Equity?
Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders’ equity. This is usually expressed in percentages.
ROE is also considered the return on net assets. It is because shareholders’ equity is equal to a company’s assets minus its debt. This metric is useful in measuring a corporation’s profitability and how efficient it is in generating profits.
The ratio takes into account an item each from the Income statement (Net Income) and Balance sheet (Shareholder’s equity). The ROE shows a firm’s ability to turn its equity investments into profits. Investors can learn how much profit is the company able to generate for every rupee invested by them.
What does ROE tell you?
A healthy sign for the company is when the ROE has grown consistently over time. This will prove the management’s ability to reinvest its earnings properly with the ultimate goal of increasing the shareholder’s value.
To assess a company based on its ROE, it is also important to compare it with its peers. Apart from comparison with its peers, it is also necessary to analyze the industry’s ROE. It is so because different industries tend to have varied ROE standards.
Return on Equity and Debt
The ROE as a single measure is generally more useful in analyzing companies that are typically debt-free. It is because having excessive debt on the balance sheet can inflate the ROE.
How so? It is because of the simple accounting equation which states that “Equity= Asset – Liabilities (Debt)”. And when used for ROE, as per the basic rule of math, if the denominator decreases, the fraction as whole increases i.e., higher ROE.
What is a good ROE in the Indian stock market?
A specific ROE range cannot be deemed as a good return on equity for a company. While an ROE of 25% is desirable for some industries, an ROE of 15% will also be considered good for some other industries. So, as a good rule of thumb, a company’s ROE should be equal to or above the average ROE of the companies in the same sector
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High ROE Stocks in India
Here is the list of top companies with high ROEs in the Indian Stock market. They are:
High ROE Stocks in India: Large Cap
1. Nestle India Ltd.
Nestle India is an Indian subsidiary of the Swiss-based multinational company Nestle. It is a prominent player in the food and beverage sector.
It offers products across a range of categories like dairy (Milkmaid), cereals (Nesplus), baby cereals (Ceregrow), etc. Nestle is a debt-free company.
The company has been able to deliver exceptional results over the few years. The average five-year ROE for the company is 87.36%.
On a yearly basis, from 2018 to 2022, the company has a return on equity of 45.3%, 70.39%, 105.76%, 106.84%, and 108.52% respectively. Superior market share along with strong brand recognition gives Nestle the edge over its peers.
2. Procter & Gamble Hygiene and Health Care Ltd.
P&G Hygiene is an Indian arm of American multinational P&G. It is one of the leading fast-moving consumer goods companies which specializes in personal care and hygiene products.
The product portfolio includes dominant brands such as Pampers, Gillette, Whisper, Old Spice, Head & Shoulder, Ariel, etc. It is also a debt-free company.
The company maintained an average 5-year ROE of 60.93%. The ROE numbers from 2018 to 2022 are 57.17%, 49.79%, 42.74%, 71.64%, and 83.3% respectively.
The consistency in such high returns can be attributed to its focus on driving consumer meaningful innovations backed by significant distribution expansion and strong advertising.
3. Colgate-Palmolive (India) Ltd.
Colgate Palmolive India is an Indian subsidiary of American consumer goods company Colgate Palmolive. It is engaged in oral care with products ranging from toothpaste, toothbrushes, mouthwashes. It also offers personal care products under the “Palmolive” brand.
The ROE for this large-cap company from 2018 to 2022 has been 48.32%, 52.37%, 53.75%, 75%, and 74.4% respectively. The five-year average ROE sums up to 60.77%.
The strong performance is backed by its strong leadership with significant market share and continuous focus on innovation by offering new products.
Complete list of High ROE Stocks in India: Large Cap
| Company | 2018 | 2019 | 2020 | 2021 | 2022 | Average 5 yr |
|---|---|---|---|---|---|---|
| Nestle India Ltd. | 45.3 | 70.39 | 105.76 | 106.84 | 108.52 | 87.36 |
| Colgate-Palmolive (India) Ltd. | 48.32 | 52.37 | 53.75 | 75 | 74.4 | 60.77 |
| Procter & Gamble Hygiene and Health Care Ltd. | 57.17 | 49.79 | 42.74 | 71.64 | 83.3 | 60.93 |
| Hindustan Unilever Ltd. | 74.82 | 80.29 | 84.25 | 28.63 | 18.37 | 57.27 |
| Coal India Ltd. | 31.49 | 74.91 | 56.99 | 37 | 43.65 | 48.81 |
| Page Industries Ltd. | 45.86 | 48.57 | 43.04 | 39.96 | 54.37 | 46.36 |
| Marico Ltd. | 34.1 | 41.21 | 35.03 | 38.62 | 38.43 | 37.48 |
| Britannia Industries Ltd. | 33 | 30.32 | 32.39 | 46.9 | 49.89 | 38.50 |
| Tata Consultancy Services Ltd. | 30.29 | 36.18 | 37.6 | 38.55 | 44.13 | 37.35 |
| Tata Elxsi Ltd. | 37.04 | 34.5 | 25.2 | 30.15 | 37.23 | 32.82 |
| Bharat Petroleum Corporation Ltd. | 29.04 | 22.63 | 9.74 | 38.82 | 22.33 | 24.51 |
High ROE Stocks in India: Mid-cap
1. Castrol India Ltd.
Castrol India Limited is an automotive and industrial lubricant manufacturing company. It is the 2nd largest manufacturer of automotive and industrial lubricants in India with around 20% market share in the industry. The company has zero debt on its balance sheet.
Castrol India has maintained an average ROE of 54.51% in the last five years. From 2018 to 2022 it had a ratio of 65.56%, 66.22%, 42.58%, 50.64%, and 47.55% respectively.
The companies focus on strategic interventions along with optimizing the costs, driving efficiencies, and cash performance. Along with that, it has a key focus on implementing cutting-edge technology through which it could launch several new brands.
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2. Gillette India Ltd.
Gillette India Ltd is a renowned player in the FMCG industry. It is in the business of manufacturing Blades and Razors, Oral Care, and Portable Power. It has created brands like Duracell, Oral-B, MACH3 Turbo, and 7oclock. The company has zero long-term liabilities.
In the mid-cap category, Gillette has maintained a high ROE over the years. From 2018 to 2022 it had a ratio of 38.56%, 34.56%, 27.44%, 36.86%, and 35.54% respectively.
This takes its 5-year average to 34.59. The performance can be due to its superiority in product and commercial innovations and affordable pricing of its products.
Complete list of High ROE Stocks in India: Midcap
| Company | 2018 | 2019 | 2020 | 2021 | 2022 | Average 5 yr |
|---|---|---|---|---|---|---|
| Castrol India Ltd. | 65.56 | 66.22 | 42.58 | 50.64 | 47.55 | 54.51 |
| Gillette India Ltd. | 38.56 | 34.56 | 27.44 | 36.86 | 35.54 | 34.592 |
| Computer Age Management Services Ltd. | 34.6 | 29.99 | 34.48 | 39.11 | 51.19 | 37.874 |
| Alkyl Amines Chemicals Ltd. | 23.69 | 25.33 | 47.91 | 44.6 | 25.32 | 33.37 |
| Cholamandalam Financial Holdings Ltd. | 37.14 | 39.14 | 27.43 | 35.59 | 38.18 | 35.496 |
| Manappuram Finance Ltd. | 18.91 | 22.84 | 29.02 | 26.58 | 16.98 | 22.866 |
| Alembic Pharmaceuticals Ltd. | 20.42 | 24 | 26.97 | 26.91 | 10.01 | 21.662 |
High ROE Stocks in India: Small cap
1. Gujarat Themis Biosyn Ltd.
Gujarat Themis Biosyn Ltd is a biotech and synthetic product manufacturing company. It manufactures and distributes pharmaceuticals bulk drugs called rifampicin.
Its other products include preparations of active pharmaceutical ingredients rifampicin and lovastatin. This zero-debt company exports its products to Europe and the United States.
The ROE of this small-cap company has been exceptional over the years. Over the last five years starting from 2018 to 2022 it has an ROE of 38.06%, 41.85%, 77.99%, 53.82%, and 50.35% respectively taking its average to 52.41%.
The shift from contract manufacturing to a manufacturing and sales model helped the company to increase its earnings and thus margins.
2. TAAL Enterprises Ltd.
TAAL Tech is a niche Engineering and Technology Solutions provider serving global corporations. It has been the partner of choice for those seeking the ultimate in Air Charter Solutions. The company also has zero debt on its balance sheet.
The ROE for the last five years from 2018 to 2022 is 72.94%, 53.28%, 38.88%,50.17%, and 36.48% making its 5 years average 50.35%. The company focuses on product engineering and service tailored to the needs of its customers giving it an edge in the industry.
Complete List of High ROE Stocks in India: Small cap
| Company | 2018 | 2019 | 2020 | 2021 | 2022 | Average 5 yr |
|---|---|---|---|---|---|---|
| Gujarat Themis Biosyn Ltd. | 38.06 | 41.85 | 77.99 | 53.82 | 50.35 | 52.414 |
| Hawkins Cookers Ltd. | 44.97 | 47.47 | 56.13 | 50.83 | 42.93 | 48.466 |
| TAAL Enterprises Ltd. | 72.94 | 53.28 | 38.88 | 50.17 | 36.48 | 50.35 |
| Kanchi Karpooram Ltd. | 53.26 | 56.46 | 33.39 | 50.78 | 18 | 42.378 |
| Bajaj Consumer Care Ltd. | 42.79 | 46.31 | 33.15 | 31.73 | 21.69 | 35.134 |
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In Closing
In this article, we looked at the companies with high ROE in different categories. This metric is useful in fundamental analysis. However, to get a clear picture this should be analyzed with other ratios as well. In addition to that, ROE varies according to the industry.
Therefore, comparing a company’s ROE with the industry average would give a better understanding. That’s all for this post on High ROE Stocks in India. How often do you check the ROE before investing? Let us know in the comments below. Happy Investing!!!
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