With a market capitalisation of ₹2,58,222 crores, the stock closed at ₹133.75 on January 29, down 0.82% on the day, trading 26.81% below its 52-week high of ₹182.75. The quarter's performance underscores operational challenges as the company navigates competitive dynamics in India's evolving power sector landscape.
Financial Performance: Margin Compression Weighs on Profitability
Adani Power's Q3 FY26 top line of ₹13,456.84 crores reflected a modest sequential decline of 4.62% from ₹14,109.15 crores in Q2 FY26, whilst year-on-year growth remained marginal at 0.88%. The revenue trajectory suggests stabilisation after a period of volatility, though the company has struggled to maintain the momentum witnessed in previous quarters.
The operating profit (PBDIT excluding other income) stood at ₹5,150.29 crores, translating to an operating margin of 38.27%, down from 40.29% in the previous quarter and 39.55% a year ago. This 202-basis-point sequential contraction signals mounting cost pressures, likely stemming from elevated coal prices and operational inefficiencies. Net profit margin compressed to 21.60% from 23.43% in Q2 FY26, underscoring the profitability squeeze.
| Quarter | Revenue (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | Operating Margin |
|---|---|---|---|---|---|
| Sep'25 | 13,456.84 | -4.62% | 2,952.78 | -12.77% | 38.27% |
| Jun'25 | 14,109.15 | -0.90% | 3,384.86 | +28.36% | 40.29% |
| Mar'25 | 14,237.40 | +4.14% | 2,636.97 | -13.75% | 33.80% |
| Dec'24 | 13,671.18 | +2.49% | 3,057.21 | -8.24% | 36.74% |
| Sep'24 | 13,338.88 | -10.81% | 3,331.80 | -14.85% | 39.55% |
| Jun'24 | 14,955.63 | +11.91% | 3,912.79 | +42.95% | 41.42% |
| Mar'24 | 13,363.69 | — | 2,737.24 | — | 36.29% |
Interest costs remained relatively stable at ₹841.63 crores, whilst depreciation increased to ₹1,193.41 crores from ₹1,088.59 crores in Q2 FY26, reflecting ongoing capital expenditure and asset expansion. Tax expenses rose to ₹1,059.74 crores with an effective tax rate of 26.72%, up from 21.39% in the previous quarter, further impacting bottom-line performance.
For the full year FY25, Adani Power reported revenues of ₹56,203 crores, representing 11.6% year-on-year growth, with net profit of ₹12,749 crores. However, this marked a significant decline from ₹20,828 crores in FY24, primarily due to exceptional other income in the previous year. The company's operating margin for FY25 stood at 37.9%, demonstrating resilience despite challenging market conditions.
Quarterly Earnings Volatility
Adani Power's quarterly earnings have exhibited considerable volatility over the past seven quarters, with net profit ranging from a low of ₹2,636.97 crores in Mar'25 to a high of ₹3,912.79 crores in Jun'24. This inconsistency reflects the inherent cyclicality of the power sector, influenced by fluctuating coal prices, regulatory changes, and seasonal demand patterns. Investors should monitor whether management can stabilise earnings trajectories going forward.
Capital Efficiency: Strong ROE Amidst Leverage Concerns
Adani Power's return on equity (ROE) of 20.58% for the latest period remains a standout strength, indicating efficient capital deployment and strong profitability relative to shareholder equity. The average ROE over recent periods stands at an impressive 27.38%, positioning the company favourably within the power generation sector where capital intensity typically constrains returns.
However, the company's leverage profile warrants attention. The debt-to-equity ratio increased to 0.83 times on a half-yearly basis, marking the highest level in recent periods. Long-term debt stood at ₹27,646.96 crores as of March 2025, whilst the debt-to-EBITDA ratio averaged 3.79 times, suggesting moderate indebtedness. The EBIT-to-interest coverage ratio of 3.18 times, whilst adequate, remains on the weaker side compared to industry leaders, limiting financial flexibility during downturns.
⚠ Leverage Alert: Adani Power's debt-to-equity ratio has climbed to 0.83 times, the highest in recent periods, raising concerns about financial leverage. Whilst the company's strong cash flow generation provides a buffer, rising debt levels could constrain future growth investments and dividend payouts. The EBIT-to-interest coverage of 3.18 times, though acceptable, leaves limited room for margin deterioration.
On a positive note, cash and cash equivalents reached ₹10,291.04 crores on a half-yearly basis, the highest level recorded, providing substantial liquidity for operational requirements and debt servicing. The debtors turnover ratio improved to 5.88 times, indicating efficient working capital management and faster collection cycles.
Operational Dynamics: Capacity Leadership Meets Margin Pressure
As India's largest private thermal power producer with 15,250 MW of operational capacity, Adani Power enjoys significant scale advantages and strategic positioning within the domestic power market. The company operates thermal power plants across multiple locations including Mundra, Tiroda, Kawai, Udupi, Raipur, and Raigarh, alongside a 40 MW solar project, providing geographic diversification.
However, the power sector faces structural headwinds. Declining power tariffs, aggressive renewable energy capacity additions, and regulatory uncertainties around coal-based generation create a challenging operating environment. Adani Power's margin compression in Q3 FY26 reflects these pressures, with operating margins falling below the 40% threshold that the company had maintained in earlier quarters.
The company's sales-to-capital-employed ratio of 0.52 times suggests moderate asset utilisation, typical for capital-intensive power generation businesses. Capacity utilisation trends and merchant power realisations will be critical determinants of future profitability, particularly as India transitions towards cleaner energy sources.
"Adani Power's leadership position in private thermal generation provides scale advantages, but margin sustainability remains the critical question as the sector navigates the energy transition."
Peer Comparison: Premium Valuation Despite Mixed Fundamentals
Adani Power's valuation metrics present a mixed picture when benchmarked against industry peers. The company trades at a price-to-earnings (P/E) ratio of 21.61 times, below the sector average but significantly above NTPC's 14.22 times and Power Grid Corporation's 15.89 times. The premium appears justified by Adani Power's superior ROE of 27.38%, substantially higher than NTPC's 12.34% and Tata Power's 10.20%.
| Company | P/E Ratio | P/BV | ROE (%) | Debt/Equity | Div Yield |
|---|---|---|---|---|---|
| Adani Power | 21.61 | 4.45 | 27.38% | 0.65 | — |
| NTPC | 14.22 | 1.76 | 12.34% | 1.29 | 2.44% |
| Power Grid Corpn | 15.89 | 2.44 | 17.22% | 1.28 | 3.43% |
| Tata Power Co. | 28.09 | 3.01 | 10.20% | 1.56 | 0.63% |
| Adani Green | 79.26 | 6.94 | 13.56% | 4.20 | — |
| Adani Energy Sol | 47.14 | 4.53 | 10.54% | 1.68 | — |
However, Adani Power's price-to-book value (P/BV) ratio of 4.45 times stands significantly above the peer average of approximately 3.7 times, suggesting the market has priced in optimistic growth expectations. The company's lower debt-to-equity ratio of 0.65 times compared to peers like NTPC (1.29x) and Power Grid (1.28x) provides a relative comfort on leverage, though this advantage has eroded in recent quarters.
Notably, Adani Power does not pay dividends, unlike NTPC (2.44% yield) and Power Grid (3.43% yield), which may deter income-focused investors. The company's market capitalisation of ₹2,58,222 crores positions it as the second-largest player in the power sector, trailing only NTPC.
Valuation Analysis: Premium Pricing Limits Entry Appeal
Adani Power's current valuation of ₹133.75 per share reflects a "Very Expensive" rating based on proprietary assessment metrics. The stock trades at a P/E ratio of 22 times trailing twelve-month earnings, significantly above the industry average P/E of 10 times, indicating a substantial premium that may not be fully justified by near-term fundamentals.
The enterprise value-to-EBITDA multiple of 14.42 times and EV-to-EBIT of 18.48 times further underscore the rich valuation. Historical context reveals the stock has oscillated between "Expensive" and "Very Expensive" grades since late July 2025, with the current classification persisting since early August. This persistent premium pricing suggests limited margin of safety for new investors.
The stock currently trades 26.81% below its 52-week high of ₹182.75, touched earlier in the fiscal year, whilst remaining 43.46% above its 52-week low of ₹93.23. This positioning suggests partial correction from peak levels but insufficient discount to warrant aggressive accumulation given deteriorating quarterly trends.
Shareholding Pattern: Institutional Interest Builds Gradually
Adani Power's shareholding structure remains heavily promoter-dominated, with the Adani family and affiliated entities maintaining a steady 74.96% stake across the last five quarters. This unwavering promoter commitment provides governance stability, though the high concentration limits free float availability and can constrain liquidity during market stress.
| Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 74.96% | 74.96% | 74.96% | 74.96% | Unchanged |
| FII | 11.64% | 11.53% | 12.46% | 12.37% | +0.11% |
| Mutual Funds | 3.39% | 2.69% | 1.76% | 1.64% | +0.70% |
| Insurance | 0.02% | 0.01% | 0.00% | 0.00% | +0.01% |
| Non-Institutional | 9.98% | 10.81% | 10.82% | 11.02% | -0.83% |
Foreign institutional investors (FIIs) hold 11.64% as of December 2025, showing a marginal sequential increase of 11 basis points, suggesting cautious optimism. More encouragingly, mutual fund holdings have risen sharply to 3.39% from 2.69% in the previous quarter, indicating growing domestic institutional interest. The number of mutual funds invested in the company stands at 27, reflecting broadening participation.
Non-institutional holdings declined by 83 basis points to 9.98%, potentially indicating retail profit-booking at elevated price levels. Overall institutional holdings of 15.06% remain moderate for a large-cap company, suggesting room for further institutional accumulation if operational performance stabilises.
Stock Performance: Exceptional Long-Term Gains, Near-Term Weakness
Adani Power's stock has delivered spectacular long-term returns whilst exhibiting significant volatility in recent months. Over the past year, the stock has generated 28.03% returns, substantially outperforming the Sensex's 7.88% gain by an alpha of 20.15 percentage points. This outperformance extends across longer timeframes, with three-year returns of 169.60% and five-year returns of an astounding 1,203.61%.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -5.01% | +0.31% | -5.32% |
| 1 Month | -4.91% | -2.51% | -2.40% |
| 3 Months | -17.49% | -2.86% | -14.63% |
| 6 Months | +12.86% | +1.51% | +11.35% |
| YTD | -6.47% | -3.11% | -3.36% |
| 1 Year | +28.03% | +7.88% | +20.15% |
| 3 Years | +169.60% | +39.16% | +130.44% |
| 5 Years | +1,203.61% | +78.38% | +1,125.23% |
However, near-term performance has deteriorated sharply. The stock has declined 17.49% over the past three months, underperforming the Sensex by 14.63 percentage points, whilst one-week returns show a 5.01% drop. Year-to-date, the stock is down 6.47%, reflecting mounting concerns about margin sustainability and earnings trajectory.
The stock's beta of 1.17 indicates higher volatility than the broader market, with volatility standing at 40.12% compared to the Sensex's 11.23%. This high-risk, high-return profile suits aggressive investors but may be unsuitable for conservative portfolios. The stock currently trades below all key moving averages—5-day (₹136.17), 20-day (₹141.99), 50-day (₹143.87), 100-day (₹146.11), and 200-day (₹129.99)—signalling technical weakness.
Investment Thesis: Quality Concerns Overshadow Scale Advantages
Adani Power's investment proposition rests on four key pillars: valuation, quality, financial trend, and technical outlook. The current assessment reveals a mixed picture with more negatives than positives.
Valuation (Very Expensive): At 22 times trailing earnings and 4.45 times book value, Adani Power trades at a significant premium to both historical averages and peer multiples. The "Very Expensive" grade limits upside potential and provides minimal margin of safety.
Quality (Average): The company earns an "Average" quality rating based on long-term financial performance. Whilst ROE of 27.38% stands out positively, concerns around rising leverage (debt-to-equity at 0.83x), moderate EBIT-to-interest coverage (3.18x), and zero dividend payout constrain the quality assessment.
Financial Trend (Negative): The most concerning aspect remains the negative financial trend, with quarterly net profit declining 17.6% versus the previous four-quarter average. Key metrics including ROCE, net sales, PBDIT, and EPS have all deteriorated in recent quarters, signalling operational headwinds.
Technical Trend (Mildly Bullish): Despite near-term weakness, the technical assessment remains mildly bullish on a weekly timeframe, though monthly indicators show mixed signals. The stock's position below all major moving averages suggests caution is warranted.
Key Strengths & Risk Factors
✓ Key Strengths
- Market Leadership: India's largest private thermal power producer with 15,250 MW capacity provides scale advantages and pricing power
- Exceptional ROE: Return on equity of 27.38% significantly exceeds peer averages, demonstrating superior capital efficiency
- Strong Cash Position: Cash reserves of ₹10,291.04 crores provide robust liquidity buffer for operations and debt servicing
- Geographic Diversification: Multiple plant locations across India reduce concentration risk and enhance operational resilience
- Long-Term Track Record: Five-year returns of 1,203.61% demonstrate wealth creation potential despite volatility
- Improving Working Capital: Debtors turnover ratio of 5.88 times reflects efficient receivables management
- Stable Promoter Holding: Consistent 74.96% promoter stake signals long-term commitment and governance stability
⚠ Key Concerns
- Margin Compression: Operating margins declined 202 bps QoQ to 38.27%, signalling mounting cost pressures and pricing challenges
- Negative Financial Trend: Quarterly profit down 17.6% vs four-quarter average with deteriorating ROCE and EPS
- Rising Leverage: Debt-to-equity ratio increased to 0.83x, the highest in recent periods, constraining financial flexibility
- Premium Valuation: Trading at 22x P/E (vs industry 10x) and 4.45x P/BV limits upside potential and margin of safety
- Sector Headwinds: Transition to renewable energy, regulatory uncertainties, and competitive pressures threaten long-term viability
- No Dividend: Zero dividend payout unlike peers reduces total return potential for income-focused investors
- High Volatility: Beta of 1.17 and 40.12% volatility make the stock unsuitable for conservative portfolios
Outlook: What to Watch
Positive Catalysts
- • Stabilisation of coal prices improving input cost dynamics
- • Power Purchase Agreement (PPA) renewals at favourable tariffs
- • Capacity utilisation improvement driving operating leverage
- • Continued mutual fund accumulation signalling institutional confidence
- • Debt reduction initiatives improving leverage ratios
Red Flags
- • Further margin deterioration below 38% levels
- • Consecutive quarters of negative earnings growth
- • Debt-to-equity ratio crossing 1.0x threshold
- • Regulatory changes unfavourable to thermal power generation
- • Stock breaking below 52-week low of ₹93.23
The coming quarters will be critical in determining whether Adani Power can arrest the margin decline and return to profitable growth. Management commentary on coal procurement strategies, capacity utilisation trends, and PPA renewals will provide important clues. Additionally, any announcements regarding debt reduction plans or diversification into renewable energy could alter the investment narrative.
The Verdict: Avoid Fresh Positions, Existing Holders Reduce on Rallies
Score: 42/100
For Fresh Investors: Avoid initiating positions at current levels. The combination of deteriorating financial trends, margin compression, rising leverage, and premium valuation creates an unfavourable risk-reward equation. Wait for sustained improvement in quarterly metrics and meaningful valuation correction before considering entry.
For Existing Holders: Consider reducing exposure on any technical rallies towards ₹145-150 levels. The negative financial trend and margin pressures suggest further near-term weakness is likely. Long-term holders may retain partial positions given the company's market leadership and exceptional ROE, but should closely monitor quarterly performance for signs of stabilisation.
Fair Value Estimate: ₹110-115 (17.5% downside from current levels)
Rationale: Whilst Adani Power's market leadership and strong ROE provide long-term structural advantages, the immediate outlook remains clouded by margin compression, negative earnings momentum, and elevated valuations. The premium pricing at 22x P/E appears unjustified given deteriorating fundamentals and sector headwinds. The stock's technical weakness, with prices below all major moving averages, reinforces the cautious stance. Only a meaningful correction towards ₹110-115 levels would restore attractive risk-reward for fresh accumulation.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
