Markets
Three companies winning the profitability game hands down
Summary
- Page Industries, Indian Energy Exchange, and Motherson Sumi Wiring stand out for their capital efficiency, consistently outperforming industry averages. Though not as high-profile as blue-chip giants, their impressive ROCE and growth strategies make them worth considering for long-term returns.
When it comes to investing in the Indian stock market, most investors gravitate toward the big names—Reliance Industries, Tata group, Adani. These companies dominate the headlines, and investors often wonder what sets them apart. In any investment decision, countless metrics are considered to evaluate stocks.
At the core of it all is one thing every business, whether it's Tata or the grocery store down the street, strives for—profitability.
Ultimately, every analysis points back to this one goal. It's no surprise that the blue-chip giants dominate here, but they're not the only ones worth paying attention to.
There's a key metric that often gets overlooked when assessing profitability: Return on Capital Employed (ROCE). Sometimes referred to as Return on Invested Capital (ROIC), ROCE is a simple yet powerful financial ratio that tells us how efficiently a company is generating profits from its invested capital.
This is where the distinction lies—not just in how much profit a company makes, but in how well it converts capital into profit.
To calculate ROCE, divide a company’s earnings before interest and taxes (Ebit) by its capital employed (shareholders' equity plus long-term liabilities). In other words, it measures how many rupees of profit are generated for every rupee of capital invested.
But this ratio is more than just a number. It offers insights into a company’s operational efficiency and long-term sustainability. A high ROCE means a company is effectively turning capital into profits.
Sometimes, a blue-chip company might boast impressive absolute profit figures, but a smaller company with a higher ROCE could be generating more profit per rupee invested.
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Today, we’re highlighting three companies that, while often discussed, showcase exceptional efficiency and profitability through their ROCE.
Here they are:
Page Industries
Founded in 1995, Page Industries Ltd has become a leading name in the Indian apparel market, renowned for its exclusive licensing partnership with Jockey International. As the sole licensee for Jockey in India and neighbouring countries, Page Industries has built a robust product portfolio spanning innerwear, athleisure, and accessories for both men and women. Its products are distributed through a vast network of over 110,000 outlets across 2,750+ cities and towns in India.
In addition to Jockey, Page Industries holds an exclusive licence for Speedo International Ltd in India, expanding its offerings into swimwear and related products. The company operates 15 state-of-the-art manufacturing facilities in Karnataka and Tamil Nadu, with an annual production capacity of 280 million pieces.
While Page Industries derives 99% of its business from the Jockey brand, its long-term licensing agreements, extending until 2040, provide stability and a positive outlook for future growth in the Indian market.
Financial strength and ROCE
Page Industries currently boasts a robust ROCE of 45%, meaning for every ₹100 invested in the business, the company generates a profit of ₹45. In comparison, the industry median ROCE stands at 13.9%, placing Page well ahead of its peers. Its closest competitor, KPR Mill Ltd, posts a ROCE of 20%, which is less than half of what Page achieves.
Over the last decade, Page Industries has averaged a ROCE of around 59%, showcasing its consistent profitability. According to the company's annual report for 2023-24, Page plans to sustain its high returns by focusing on market expansion, product innovation, digital transformation, sustainability initiatives, and strategic partnerships.
Financial performance
Page Industries' financial strength is further reflected in its market cap, which stands at ₹46,494 crore. The company has recorded a compounded sales growth of 17% over the last three years and 10% over the last five years. Ebitda increased from ₹618 crore in March 2019 to ₹872 crore in March 2024, representing a CAGR of 7.2% over five years.
For the fiscal year ended March 2024, profit after tax stood at ₹569 crore, with a compounded profit growth of 8% over the last five years. The current share price of Page Industries is ₹41,664, marking a 98% increase over the last five years.
Valuation and dividends
Page Industries is currently trading at a price-to-earnings (P/E) ratio of 80x, compared to its 10-year median of 73.6x, indicating a premium valuation. The company also offers a dividend yield of 0.89%, significantly higher than the industry median of 0.31%, with a healthy dividend payout ratio of 66.1%.
For more such analysis, read Profit Pulse.
Prominent shareholders include SBI Bluechip Fund, Life Insurance Corp. of India, HDFC Life Insurance Co. Ltd, and Mirae Asset Large & Midcap Fund.
Indian Energy Exchange
Indian Energy Exchange Ltd (IEX), founded in 2008, is India's leading power trading platform and the first to be licensed by the Central Electricity Regulatory Commission (CERC) for spot trading in electricity. IEX offers an automated platform for trading electricity, Renewable Energy Certificates (RECs), and Energy Saving Certificates (ESCerts), cementing its role as a pioneer in India's energy market.
The company’s product portfolio includes the Day Ahead Market (DAM), Green Day Ahead Market, Term Ahead Market (TAM), and certificate trading. IEX has over 7,600 registered participants, including more than 60 distribution companies and 4,800+ open access consumers, and commands an impressive market share of 94.2%, positioning it as a near-monopoly in the sector.
Financial strength and growth
IEX’s revenue is largely driven by transaction fees, which contributed 78% to its standalone income in Q3 FY24. The company recorded a strong performance with trading volumes reaching 28.3 BU in Q3 FY24, reflecting a 16.8% year-on-year growth. IEX has also diversified its operations by launching the Indian Gas Exchange (IGX), India's first automated natural gas trading platform, and establishing the International Carbo Exchange (ICX) to facilitate carbon trading, following the Ministry of Power's approval for a regulated domestic carbon market.
Profitability and ROCE
IEX currently boasts an impressive ROCE of 50%, well above the industry median of 35%. Over the last three, five, and ten years, IEX’s average ROCE has been 53.7%, 55.1%, and 58.6%, respectively, significantly outperforming its closest peer, BSE Ltd., which reports a ROCE of 19%.
According to the company’s annual report for 2023-24, IEX’s strategic priorities include:
Regional integration through cross-border trading
New market products and segments
Power procurement optimization by distribution utilities
Expanding into ancillary markets
Peer-to-peer trading
Market performance and valuation
IEX has a market cap of ₹18,635 crore and has demonstrated consistent growth, with compounded sales growth of 12% over the last three and five years. EBITDA grew from ₹203 crore in March 2019 to ₹379 crore in March 2024, reflecting a 5-year CAGR of 13.37%. For the fiscal year ended March 2024, profit after tax stood at ₹341 crore, with a compounded profit growth rate of 16% over five years.
The company's current share price is ₹209, marking a remarkable 422% rise over the last five years.
IEX is trading at a price-to-earnings (P/E) ratio of 52x, compared to its 10-year median of 40x, indicating a premium valuation. The dividend yield stands at 1.2%, higher than the industry median of 0.6%, with a healthy dividend payout ratio of 52%.
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Notable shareholders include SBI Mutual Fund, Parag Parikh Flexi Cap Fund, Life Insurance Corporation of India, and Mirae Asset Mutual Fund.
Motherson Sumi Wiring India
Motherson Sumi Wiring India Ltd (MSWIL), a leader in India’s wiring harness industry, commands over 40% of the market. Established in FY22 following a corporate reorganization, MSWIL is a joint venture between Sumitomo Wiring Systems, Ltd., a global leader in wiring harness manufacturing, and the Motherson Group.
In FY23, MSWIL significantly expanded its product portfolio, launching 23 new products and overhauling 17 across passenger vehicles, commercial vehicles, and two-wheeler segments. The company operates 26 wiring harness plants strategically located near key automotive clusters and OEM facilities, employing more than 45,000 people. Notably, MSWIL supplies to 10 of the 12 top-selling passenger vehicle models in India.
Financial strength and ROCE
MSWIL has an impressive current ROCE of 48%, with an average ROCE of 58.9% since its inception. The industry median ROCE is 15%, placing MSWIL far ahead of its peers. Its closest competitor, Bosch Ltd, posts a ROCE of around 21%.
According to the company’s annual report for 2023-24, MSWIL achieved its highest-ever revenue in FY24. The company has outlined a strategic theme for the upcoming year: “The secret of success is the consistency of purpose."RE G
MSWIL plans to focus on:
Expanding its footprint in line with market growth
Increasing its focus on digitalization and automation
Strengthening relationships with both long-standing and new customers to drive continued growth
Capital expenditure and market performance
MSWIL has allocated a capital expenditure of ₹200 crore for FY25, aimed primarily at expansion and productivity improvements. The company currently holds a market capitalization of ₹30,204 crore and has recorded a compounded sales growth of 28% since its inception in 2022.
Ebitda increased from ₹553 crore in March 2021 to ₹1,013 crore in March 2024, reflecting a 22.31% CAGR over the past five years. For FY24, profit after tax was ₹638 crore, with a compounded profit growth rate of 17% over the last three years.
MSWIL’s current share price is ₹68, representing a 48% increase over the last three years. The company is trading at a price-to-earnings (P/E) ratio of 45x, compared to its 3-year median of 52x.
Dividend and shareholders
MSWIL offers a dividend yield of 1.17%, significantly above the industry median of 0.25%, with a healthy dividend payout ratio of 60%. Notable shareholders include Mirae Asset Nifty Midcap 150 Fund, SBI Large and Midcap Fund, and ICICI Prudential Balanced Advantage Fund.
The road ahead
Today, we explored three companies—Page Industries Ltd, Indian Energy Exchange Ltd, and Motherson Sumi Wiring India Ltd—that may not grab headlines as often as the big names, but they stand out due to their exceptional capital efficiency.
Despite their strong financial performance, it's notable that no prominent Super Investors in India have invested in these companies, according to shareholding data on Screener.in (which reports holdings of over 1%).
Conclusion
Although these companies might be overshadowed by blue-chip giants, their remarkable ROCE figures, far exceeding industry averages, indicate that profitability isn’t reserved for the biggest names alone.
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Adding these under-the-radar companies to your watchlist could be a smart move for investors seeking opportunities where profitability outpaces the competition.
Note: Throughout this article, we have relied on data from Screener.in and Trendlyne.com. In instances where data was unavailable, we have used alternative sources that are widely recognized and accepted.
The purpose of this article is to present interesting charts, data points, and thought-provoking opinions. It is not a recommendation. If you are considering an investment, please consult your financial advisor. This article is intended for educational purposes only.
Suhel Khan has been an avid follower of the markets for over a decade. He previously served as Head of Sales & Marketing at a leading equity research firm in Mumbai. Currently, he spends most of his time analysing the investments and strategies of India’s top Super Investors.
Disclosure: The author and his dependents do not hold any of the stocks mentioned in this article.
