Pidilite Industries (NSE:PIDILITIND) has had a rough month with its share price down 5.4%. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Specifically, we decided to study Pidilite Industries’ ROE in this article.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company’s success at turning shareholder investments into profits.
How To 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 Pidilite Industries is:
23% = ₹22b ÷ ₹98b (Based on the trailing twelve months to September 2025).
The ‘return’ is the amount earned after tax over the last twelve months. That means that for every ₹1 worth of shareholders’ equity, the company generated ₹0.23 in profit.
Check out our latest analysis for Pidilite Industries
What Has ROE Got To Do With Earnings Growth?
So far, we’ve learned that ROE is a measure of a company’s profitability. We now need to evaluate how much profit the company reinvests or “retains” for future growth which then gives us an idea about the growth potential of the company. 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 Pidilite Industries’ Earnings Growth And 23% ROE
To begin with, Pidilite Industries seems to have a respectable ROE. Especially when compared to the industry average of 10.0% the company’s ROE looks pretty impressive. This certainly adds some context to Pidilite Industries’ decent 16% net income growth seen over the past five years.
Next, on comparing with the industry net income growth, we found that Pidilite Industries’ growth is quite high when compared to the industry average growth of 8.8% in the same period, which is great to see.
Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. If you’re wondering about Pidilite Industries”s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Pidilite Industries Efficiently Re-investing Its Profits?
With a three-year median payout ratio of 47% (implying that the company retains 53% of its profits), it seems that Pidilite Industries is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that’s well covered.
Moreover, Pidilite Industries is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Based on the latest analysts’ estimates, we found that the company’s future payout ratio over the next three years is expected to hold steady at 49%. As a result, Pidilite Industries’ ROE is not expected to change by much either, which we inferred from the analyst estimate of 22% for future ROE.
Conclusion
Overall, we are quite pleased with Pidilite Industries’ performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company’s earnings growth is expected to slow down. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
New: Manage All Your Stock Portfolios in One Place
We’ve created the ultimate portfolio companion for stock investors, and it’s free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
