Before investing in a stock, investors should conduct thorough checks, focusing on the business, financials, management, and industry outlook. Among these, return ratios are the most crucial financial metrics to analyse.
It’s a measure of how good a company is at turning its shareholders’ money into more money.
If two companies each earned ₹1 billion this year, but one required an investment of ₹10 billion to achieve those earnings while the other accomplished it with just ₹5 billion, it’s evident that the second company operated more efficiently and delivered superior results.
Understanding the significance of return ratios, we present a curated list of high-return stocks worth considering for your portfolio in 2025.
Also read: High risk, high reward? Decoding the rally in ITI
These stocks have been meticulously selected based on their robust fundamentals and outstanding return ratios, positioning them as promising investment options.
InterGlobe Aviation is the operating company for IndiGo, India’s largest passenger airline in terms of domestic market share.
The airline operates on a low-cost carrier business model, offering no-frills air-commute to passengers in the domestic as well as international sectors. It commenced operations from August 2006 with a single aircraft.
Promoted by Rahul Bhatia and Rakesh Gangwal, the company was originally incorporated in January 2004 as a private limited company and converted into a public limited company in June 2006 as InterGlobe Aviation.
Subsequently, IndiGo proceeded with its IPO in 2016, wherein its shares were listed on the BSE and the NSE.
Coming to its financials, in the second quarter of FY25, the revenue saw an increase of 13.5% YoY to ₹169.7 billion. The operating profit for the quarter stood at ₹16.1 billion, while the operating profit margin stood at 10%, versus 15%, in Q2 FY24.
At the net level, the company reported a loss of ₹9.8 billiom.
Here is a table showing annual financial performance of the company.
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In FY24, the company has generated a massive return on equity (RoE) of 423%, while the return on capital employed (RoCE) stands at 25%. Over the past 3 years, the company has registered an RoCE of 6%.
IndiGo is advancing its domestic and international growth strategy, aiming to be a leading carrier in India by 2030 while expanding globally.
With revamped digital platforms and new routes to destinations like Penang and Langkawi, it targets an international capacity share of 30%. Domestically, it is enhancing pilot training through partnerships and new learning centres.
Nestle India Limited, a subsidiary of the Swiss multinational Nestle, operates in the food sector. It holds a leading position across key product categories such as milk products, nutrition, beverages, prepared dishes, cooking aids, and chocolates.
Nestle owns brands such as Nescafe, Maggi, Milkybar, Kitkat, Bar-One, Milkmaid, Nestea, etc. The company’s distribution consists of 10,000+ distributors and more than 5.2 million outlets. It derives 96% of its revenues from the domestic market and balance 4% from exports.
Coming to the financials, Nestle witnessed a muted growth in net sales for the quarter ended September 2024 at 1.3% YoY to ₹51 billion. Operating profit for the quarter stood at ₹11.7 billion, while the operating profit margin stood at 23% YoY versus 24%, in Q2 FY24.
The net profit grew to ₹9.8 billion, versus ₹9.1 billion, in Q2 FY24. The net profit margin stood at 19.3%, versus 18%, in Q2 FY24.
Below is the table showing annual financial performance of the company.
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The return ratios for the company, RoE and RoCE stands at 122% and 153%, respectively, in FY24. For the past 3-year period the RoE of the company has stood at an impressive 121%, while the RoCE has stood at 152%.
Nestle’s management is optimistic about improved performance, driven by sustained rural growth, premiumisation, innovation, and cost efficiency. Under its RURBAN strategy, the company is expanding its reach into small towns and large villages.
Also read: Another tough year for consumer staple companies?
With 30 new projects in the pipeline, Nestle is focusing on innovation, launching diverse food products, including millet-based options for sustainability. It has also doubled its sustainability investments in areas like dairy, plastics, and sustainable sourcing.
P&G Hygiene and Health Care is the Indian subsidiary of the American multinational Procter & Gamble.
It specializes in manufacturing and selling branded packaged consumer goods in the feminine hygiene and healthcare segments, featuring well-known brands like Whisper, Vicks, and Old Spice.
Coming to its financial performance, the revenue of the company saw a slight decline of 0.3% YoY to ₹11.3 billion.
The operating profit stood at ₹2.9 billion versus ₹2.8 billion, in Q2 FY24. The operating profit margin for the quarter stood at 26%, versus 25%, in Q2 FY24.
The net profit remained flat at ₹2.1 billion. The net margin grew marginally to 18.7% versus 18.5%, in Q2 FY24.
Below is the table showing annual financial performance of the company.
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The RoE and RoCE for the company stood at 87% and 112%, respectively, in FY24. For the past 3-year period the RoE of the company has stood at an impressive 80%, while the RoCE has stood at 108%.
The management highlights significant potential in the quick commerce segment, evidenced by a 22% rise in active users on major platforms. Despite macroeconomic uncertainties, the company is confident in its integrated growth strategy to navigate market fluctuations effectively.
Looking ahead, the company expects the feminine care category to maintain double-digit growth over the next three years. To achieve this, it plans to prioritise a balanced approach that drives top-line growth while safeguarding margins through innovation and productivity enhancements.
TCS, the flagship company of the Tata group, is a leading IT services, consulting, and business solutions provider, partnering with many of the world’s largest corporations.
As India’s largest software services firm, TCS offers outsourcing solutions, serves a diverse client base, and has a global presence across six continents.
The company operates in key business sectors, including financial services, consumer business, life sciences and healthcare, manufacturing, and technology services. TCS collaborates with top global conglomerates like Google, Amazon, Adobe, Intel, Bosch, IBM, and Apple, among others.
Also read: TCS’s outlook lends comfort, but a risk clouds FY26 revenue prospects
Coming to its financial performance of Q2 FY25, TCS reported revenue of ₹642.6 billion, a YoY growth of 7.6%. Segment performance showed that the BFSI, consumer business group, and life sciences & healthcare sectors each grew by 0.1%.
The energy, resources, and utilities sectors grew by 7%, while regional markets achieved a remarkable growth of 50.4%.
In contrast, manufacturing experienced a growth of 5.3%. However, technology & services declined by 1.9%, and communication & media saw a significant drop of 10.3%.
On the operating profit front, the company saw the company saw a growth to ₹167.3 billion, from ₹157.4 billion, in Q2 FY24. The operating profit margin, however, remained flat at 26%.
Overall, TCS was able to increase its profit for the quarter by 5.1% YoY to ₹119.5 billion. The net profit margin for the quarter stood at 18.6% versus 19.1%, in Q2 FY24.
Below is the table showing annual financial performance of the company.
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The RoE and RoCE of the company stand at 51% and 64%, respectively, in FY24. While over the past 3 years the RoE and RoCE stood at 47% and 59.1%, respectively.
During the quarter, TCS has made significant investments in AI, with over 600 engagements, of which 86 are currently in production.
Going forward, TCS is focusing on integrating GenAI into various service lines and business processes.
Despite experiencing challenges in the life sciences and healthcare sectors, as well as short-term pressures in manufacturing, TCS maintains a stable demand outlook.
Trent, a part of the Tata Group, is a prominent player in the retail business.
In 1998, the Tatas acquired Littlewoods, a London-based retail chain, which was later rebranded as Westside under the Trent banner. The company operates 61 Westside department stores, several Star Bazaar hypermarkets, and Landmark bookstores, along with stores of the Spanish brand Zara.
As part of its retail expansion, Trent aims to expand Westside to 100 stores within the next four years and increase the number of Star Bazaar outlets to 50 in the coming years. These efforts are expected to drive scale and profitability, making Westside one of India’s largest and fastest-growing retail chains.
During the second quarter of FY25, the company’s revenue from operations rose to ₹41.5 billion, reflecting a 39.4% growth compared to the ₹29.3 billion reported in the same quarter last year.
Operating profit for the period was ₹6.4 billion, while the operating margin remained flat at 15%.
Trent reported a consolidated net profit of ₹3.3 billion for Q2FY25, a 46.9% YoY increase while the net profit margin stood at 8.6% versus 7.6%, in Q2FY24.
Below is the table showing annual financial performance of the company.
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The RoE and RoCE for the company stand at 36% and 24%, respectively, in FY24. Over the course of past 3 years, the RoE and RoCE stood at 15% and 14.8%, respectively.
Trent’s future strategy is focused on sustained growth and expanding its market reach. The company plans to consistently add 30 to 40 new stores annually, each carefully chosen based on market potential and location. These stores will meet high standards, to create a significant impact in local markets.
Trent’s strong performance in tier 2 and tier 3 cities shows that its appeal is growing beyond just major urban areas, and the company will continue to identify opportunities in these regions.
Looking ahead, Trent’s strategy includes a strong push for an integrated approach, blending its physical store expansion with a growing online presence.
Investing in stocks with consistently high returns on capital, like strong ROE and ROCE, can be a smart move for long-term investors.
These ratios reflect a company’s ability to generate profitable returns, but high returns often attract competition, which can erode profits over time.
That’s why it’s essential not to rely solely on financial ratios. A successful investment strategy considers factors like management quality, growth potential, industry outlook, and corporate governance.
Stay informed and be mindful of the challenges before making decisions.
Happy Investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
