After looking at REI Agro Limited’s (NSEI:REIAGROLTD) latest earnings announcement (31 March 2014), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways. View our latest analysis for REI Agro
Was REIAGROLTD’s weak performance lately a part of a long-term decline?
To account for any quarterly or half-yearly updates, I use the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This technique enables me to assess many different companies on a similar basis, using the latest information. “For REI Agro, its “, most recent earnings is ₹4,271.5M, which, against the previous year’s level, has declined by a non-trivial -38.88%. Since these figures may be somewhat short-term, I’ve estimated an annualized five-year figure for REI Agro’s net income, which stands at ₹4,839.5M. This doesn’t seem to paint a better picture, since earnings seem to have gradually been falling over the longer term.
What could be happening here? Let’s examine what’s transpiring with margins and if the entire industry is experiencing the hit as well. Revenue growth in the past few years, has been positive, however, earnings growth has failed to keep up meaning REI Agro has been increasing its expenses by a lot more. This hurts margins and earnings, and is not a sustainable practice. Viewing growth from a sector-level, the IN food products industry has been growing its average earnings by double-digit 26.89% in the past twelve months, and 14.42% over the past couple of years. This suggests that whatever tailwind the industry is profiting from, REI Agro has not been able to realize the gains unlike its average peer.
What does this mean?
REI Agro’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Generally companies that endure a drawn out period of diminishing earnings are going through some sort of reinvestment phase in order to keep up with the latest industry disruption and growth. You should continue to research REI Agro to get a more holistic view of the stock by looking at: