SJVN Q3 FY26: Strong Revenue Growth Masks Profitability Concerns Amid Rising Debt

With a market capitalisation of ₹28,295 crores and trading at a price-to-earnings ratio of 55x—significantly above the power sector average of 22x—SJVN finds itself at a critical juncture. The company's impressive revenue expansion during Q3 FY26, which saw net sales reach a record ₹1,081.97 crores, demonstrates strong operational momentum. However, this headline growth story is tempered by concerning undercurrents: interest costs surged 49.12% over the latest six months to ₹559.75 crores, return on capital employed (ROCE) slipped to a multi-quarter low of 4.08% on a half-yearly basis, and the balance sheet leverage has escalated to uncomfortable levels.

The quarter's results present a mixed picture for investors. Whilst topline growth remains robust, driven by enhanced power generation and favourable monsoon conditions, the company's profitability metrics reveal structural pressures that warrant careful examination.

Financial Performance: Revenue Strength Offset by Margin Compression

SJVN's Q3 FY26 revenue performance represents the company's strongest quarterly topline to date, with net sales of ₹1,081.97 crores marking a 61.25% year-on-year surge from ₹670.99 crores in Q3 FY25. The sequential growth of 4.80% from Q2 FY26's ₹1,032.40 crores demonstrates sustained momentum, driven primarily by improved plant load factors and enhanced power evacuation infrastructure. For the nine-month period ending December 2025, the company generated cumulative revenues of ₹3,031.82 crores, positioning it favourably against the full-year FY25 revenue of ₹3,072 crores.

However, profitability metrics paint a more nuanced picture. The standalone net profit for Q3 FY26 stood at ₹286.72 crores, whilst the consolidated profit after tax came in at ₹224.38 crores, reflecting the impact of subsidiary operations. The quarter-on-quarter decline of 27.13% in consolidated profits from Q2 FY26's elevated ₹307.91 crores suggests volatility in earnings quality. The profit after tax margin contracted to 26.66% in Q3 FY26 from 27.67% in Q1 FY26, indicating mounting cost pressures despite strong revenue growth.

The operating profit margin excluding other income remained robust at 77.42% in Q3 FY26, though this represents a sequential decline from 83.30% in Q2 FY26 and 80.91% in Q1 FY26. This margin compression reflects the capital-intensive nature of the power generation business and the impact of rising operational costs. Employee costs of ₹67.13 crores in Q3 FY26 showed improvement from ₹78.40 crores in the previous quarter, suggesting enhanced operational efficiency. However, the significant increase in interest costs—which surged to ₹244.65 crores in Q3 FY26 from ₹215.97 crores in Q1 FY26—poses a material headwind to bottom-line growth.

On an annual basis, FY25 witnessed net sales of ₹3,072 crores, representing a 19.10% growth from FY24's ₹2,579 crores. However, profit after tax declined to ₹812 crores from ₹907 crores in FY24, highlighting the pressure on profitability despite revenue expansion. The tax rate has also increased substantially, reaching 31.47% in Q3 FY26 compared to 20.64% in Q3 FY25, further squeezing net margins.

The Debt Burden: Leveraging for Growth at What Cost?

SJVN's aggressive expansion strategy has come at the cost of a significantly leveraged balance sheet. As of March 2025, the company's long-term debt stood at ₹26,220 crores, representing a staggering 33.22% increase from ₹19,689.54 crores in March 2024. This debt accumulation has pushed the debt-to-equity ratio to 2.03 times on a half-yearly basis for H1 FY26—the highest level in recent quarters and substantially above the comfort threshold for utility companies.

The debt-to-EBITDA ratio of 7.54 times on an average basis signals that the company would require more than seven and a half years of current EBITDA to repay its outstanding debt, assuming no further borrowings. This metric is particularly concerning for a capital-intensive business like hydroelectric power generation, where project gestation periods are long and returns materialise gradually. The net debt-to-equity ratio of 1.82 times further underscores the leverage intensity.

The company's EBIT-to-interest coverage ratio of 7.45 times on an average basis provides some comfort, indicating that operating profits are sufficient to service debt obligations. However, this metric has been under pressure, and with interest costs rising sharply, maintaining adequate coverage will require sustained operational excellence. The balance sheet reveals that shareholder funds stood at ₹14,178.65 crores as of March 2025, whilst total debt obligations exceeded ₹26,220 crores, creating a debt-to-equity ratio exceeding 1.8 times.

Cash and cash equivalents declined to ₹3,058.07 crores on a half-yearly basis for H1 FY26, marking the lowest level in recent periods. This reduction in liquidity, coupled with escalating debt levels, constrains the company's ability to pursue opportunistic investments or weather operational disruptions. The debtors turnover ratio also deteriorated to 3.13 times for H1 FY26, the lowest in recent quarters, suggesting potential working capital management challenges.

Operational Dynamics: Power Generation in a Challenging Environment

SJVN operates India's largest operational hydroelectric power generation facility based on installed capacity, with an aggregate generation capacity of 1,912 MW. The company has expanded its horizons beyond traditional hydroelectric projects, venturing into solar, wind, and thermal power generation, positioning itself as a diversified transnational power sector entity. This strategic diversification aims to reduce dependence on monsoon-driven hydroelectric generation and create more stable revenue streams.

The power sector landscape in India presents both opportunities and challenges for SJVN. Whilst the government's thrust on renewable energy and the increasing power demand from industrial and residential consumers provide a favourable backdrop, the sector faces headwinds from aggressive competitive bidding, regulatory uncertainties, and execution risks in large infrastructure projects. SJVN's consultancy business provides an additional revenue stream, though it remains a relatively small contributor to overall revenues.

The company's employee cost management showed improvement in Q3 FY26, with costs declining to ₹67.13 crores from ₹78.40 crores in Q2 FY26. For FY25, total employee costs stood at ₹304 crores, marginally higher than FY24's ₹295 crores, reflecting controlled personnel expense growth despite business expansion. However, total expenditure increased to ₹850 crores in FY25 from ₹737 crores in FY24, indicating rising operational costs across other categories.

Industry Leadership: How SJVN Compares to Peers

When benchmarked against power sector peers, SJVN's valuation premium appears difficult to justify based on fundamental metrics. Trading at a price-to-earnings ratio of 54.52x, SJVN commands a substantial premium over sector stalwarts like NHPC Ltd (24.66x), Torrent Power (22.78x), and NLC India (13.66x). Even JSW Energy, which operates a more diversified portfolio including thermal assets, trades at a more modest 36.19x earnings multiple.

The return on equity comparison is particularly revealing. SJVN's ROE of 7.94% lags behind most peers, with Torrent Power delivering a superior 16.64% ROE, NLC India at 11.02%, and NHPC Ltd at 9.11%. Only JSW Energy (7.78%) and NTPC Green Energy (3.24%) report lower ROE figures. This suggests that SJVN is generating below-average returns on shareholder capital compared to the broader power sector universe, making the elevated P/E multiple even more difficult to rationalise.

On the positive side, SJVN's debt-to-equity ratio of 1.82 times, whilst elevated, remains below JSW Energy's 2.13 times and is comparable to sector averages. However, companies like Torrent Power (0.45x), NHPC Ltd (1.02x), and NTPC Green Energy (1.15x) operate with significantly lower leverage, providing them greater financial flexibility and reduced vulnerability to interest rate movements.

The dividend yield of 1.81% positions SJVN favourably against JSW Energy (0.41%) and Torrent Power (0.98%), but substantially below NHPC Ltd's attractive 4.35% yield. With a dividend payout ratio of 77.61%, SJVN returns a significant portion of earnings to shareholders, though this high payout constrains retained earnings available for debt reduction or organic growth investments.

Valuation Analysis: Premium Pricing for Below-Average Returns

SJVN's current valuation metrics present a challenging picture for prospective investors. At a P/E ratio of 55x trailing twelve-month earnings, the stock trades at a 150% premium to the power sector average of 22x. This valuation multiple appears particularly stretched considering the company's modest 7.94% ROE and declining ROCE trajectory. The price-to-book value ratio of 2.08x, whilst lower than some peers, still implies that investors are paying more than twice the company's net asset value for each share.

The enterprise value-to-EBITDA multiple of 24.59x and EV-to-EBIT of 36.24x further underscore the premium valuation. These multiples suggest that the market is pricing in significant growth expectations that may prove difficult to achieve given the company's capital-intensive business model and elevated debt levels. The EV-to-sales ratio of 18.20x indicates that investors are paying ₹18.20 for every rupee of annual revenue, a steep multiple for a utility business with inherently lower margins than sectors like technology or pharmaceuticals.

The stock's valuation grade has consistently been classified as "Very Expensive" since June 2021, with brief interludes of "Expensive" classification. Currently trading at ₹77.29, the stock has declined 28.10% from its 52-week high of ₹107.50, though it remains 13.38% above its 52-week low of ₹68.17. This price action suggests that the market has begun to reassess the valuation premium, particularly in light of the rising debt burden and margin pressures.

Given SJVN's 5-year sales growth of just 4.07% and EBIT growth of 0.54%, the current valuation multiples appear disconnected from the company's historical growth trajectory. The PEG ratio is not available due to negative or negligible growth rates, further highlighting the valuation-growth mismatch. A more reasonable valuation for SJVN, considering its return profile and growth constraints, would likely be in the range of 25-30x earnings, implying a fair value estimate of approximately ₹40-45 per share—representing a potential downside of 42-48% from current levels.

Shareholding: Stable Promoter Base, Muted Institutional Interest

SJVN's shareholding pattern reflects strong government backing with stable promoter holdings. The President of India holds 55% of the equity, whilst the Governor of Himachal Pradesh holds 26.85%, bringing total promoter holding to a steady 81.85% across the last five quarters. This stable promoter base provides governance comfort and ensures that strategic decisions align with national energy security objectives. Importantly, there is no promoter pledging, eliminating concerns about forced selling or financial distress at the promoter level.

However, institutional participation remains notably weak. Foreign institutional investor (FII) holdings increased marginally from 2.42% in December 2024 to 2.70% in December 2025, representing tepid interest from global investors. Mutual fund holdings declined from 1.48% in September 2025 to 1.15% in December 2025, suggesting domestic fund managers are reducing exposure. Insurance company holdings remained flat at 2.84% in the last two quarters after increasing from 2.71% in June 2025. Other domestic institutional investor holdings are negligible at effectively 0%.

The total institutional holding of just 6.68% is remarkably low for a company of SJVN's market capitalisation, indicating that professional investors remain sceptical about the risk-reward proposition at current valuations. The presence of 139 FIIs and 20 mutual funds suggests that whilst there is awareness of the stock, conviction levels are insufficient to drive meaningful accumulation. Non-institutional holdings of 11.47% have remained relatively stable, indicating retail investor participation but without significant momentum.

Stock Performance: Underperformance Across Multiple Timeframes

SJVN's stock performance over the past year has been disappointing, with the stock declining 15.11% compared to the Sensex's 10.41% gain, resulting in a negative alpha of 25.52 percentage points. This underperformance is even more pronounced when compared to the broader power sector, which delivered returns of 18.64% over the same period—meaning SJVN lagged its sector by 33.75 percentage points.

The two-year performance is particularly concerning, with the stock declining 45.03% whilst the Sensex gained 17.65%, creating a negative alpha of 62.68 percentage points. This substantial underperformance suggests that the market has been progressively de-rating the stock as concerns about leverage, return on capital, and growth sustainability have mounted. The three-year returns of 138.92% appear impressive in absolute terms, but much of this gain occurred during the 2021-2023 period when renewable energy stocks enjoyed a valuation re-rating.

From a risk-adjusted perspective, SJVN's one-year performance is classified as "High Risk Low Return," with a negative risk-adjusted return of -0.46 compared to the Sensex's positive 0.90. The stock's volatility of 32.68% is nearly three times higher than the Sensex's 11.52%, indicating substantial price fluctuations. With a beta of 1.34, SJVN is classified as a high-beta stock, meaning it tends to amplify market movements—falling more during downturns and potentially rising more during rallies.

Technical indicators paint a mixed picture. The stock is currently in a "Mildly Bearish" trend as of February 10, 2026, having transitioned from a "Bearish" trend. The stock trades below all key moving averages—the 5-day (₹72.92), 20-day (₹73.30), 50-day (₹74.79), 100-day (₹81.08), and 200-day (₹89.09) moving averages—suggesting sustained selling pressure. Immediate support lies at the 52-week low of ₹68.17, whilst resistance is clustered around the 20-day moving average of ₹73.30 and the 100-day moving average of ₹81.08.

Investment Thesis: Quality Concerns Outweigh Growth Potential

SJVN's investment thesis rests on several pillars: the company's position as India's largest hydroelectric power generator, its diversification into renewable energy segments, strong government backing, and the structural growth in India's power demand. However, these positives are substantially offset by concerning fundamental weaknesses that make the stock unattractive at current valuations.

The company's quality grade of "Average" reflects its long-term financial performance, which has been characterised by modest sales growth of 4.07% annually over five years and negligible EBIT growth of 0.54%. The return on equity of 7.94% and return on capital employed of 6.45% are materially below benchmarks for quality capital-intensive businesses, suggesting that SJVN is not generating adequate returns on the substantial capital it deploys.

The financial trend is classified as "Flat" for Q3 FY26, reflecting the mixed quarterly performance—strong revenue growth offset by margin compression and rising interest costs. The technical trend remains "Mildly Bearish," with the stock trading below all major moving averages and showing limited buying interest despite the recent 6.17% single-day gain. The valuation assessment of "Very Expensive" at a P/E of 55x for a company with sub-8% ROE and declining ROCE creates an unfavourable risk-reward equation.

The proprietary Mojo score of 35 out of 100 places SJVN firmly in "SELL" territory, with the recommendation to "Consider selling and look for exit opportunities." This score reflects the confluence of expensive valuation, flat financial performance, weak long-term growth, and bearish technical setup. The score has remained in the "Strong Sell" or "Sell" range since October 2024, indicating persistent fundamental concerns.

Outlook: What Lies Ahead for SJVN

Looking forward, SJVN faces a challenging operating environment characterised by rising interest rates, elevated debt levels, and intensifying competition in the power sector. The company's ability to commission new projects on time and within budget will be critical to improving return ratios and justifying the current valuation premium. Any delays in project execution or cost overruns could further pressure already weak ROCE metrics.

The power sector's structural growth provides a tailwind, but SJVN's ability to capture this opportunity is constrained by its balance sheet leverage and suboptimal return profile. The company needs to demonstrate marked improvement in capital efficiency, margin expansion, and debt reduction to warrant a re-rating. Until such improvements materialise, the stock is likely to remain under pressure, particularly if broader market conditions deteriorate or interest rates rise further.