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When The Andhra Sugars Limited (NSE:ANDHRSUGAR) announced its most recent earnings (31 March 2018), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Being able to interpret how well Andhra Sugars has done so far requires weighing its performance against a benchmark, rather than looking at a standalone number at a point in time. In this article, I’ve summarized the key takeaways on how I see ANDHRSUGAR has performed.
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Was ANDHRSUGAR’s recent earnings decline worse than the long-term trend and the industry?
ANDHRSUGAR’s trailing twelve-month earnings (from 31 March 2018) of ₹1.17b has declined by -4.0% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 4.4%, indicating the rate at which ANDHRSUGAR is growing has slowed down. What could be happening here? Well, let’s take a look at what’s transpiring with margins and if the entire industry is facing the same headwind.
Over the last couple of years, revenue growth has not been able to catch up, which suggests that Andhra Sugars’s bottom line has been driven by unsustainable cost-cutting.
Inspecting growth from a sector-level, the IN chemicals industry has been growing its average earnings by double-digit 25.0% over the previous twelve months, and 14.6% over the past half a decade. This growth is a median of profitable companies of 25 Chemicals companies in IN including E.I.D.- Parry (India), Ritesh International and Polychem. This shows that any uplift the industry is enjoying, Andhra Sugars has not been able to reap as much as its industry peers.
In terms of returns from investment, Andhra Sugars has fallen short of achieving a 20% return on equity (ROE), recording 11.1% instead. However, its return on assets (ROA) of 9.1% exceeds the IN Chemicals industry of 8.7%, indicating Andhra Sugars has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Andhra Sugars’s debt level, has increased over the past 3 years from 1.1% to 12.0%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 39.8% to 17.3% over the past 5 years.
What does this mean?
Andhra Sugars’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that are profitable, but have volatile earnings, can have many factors influencing its business. You should continue to research Andhra Sugars to get a more holistic view of the stock by looking at: