The June 2025 quarter witnessed robust revenue momentum, with net sales surging 36.93% quarter-on-quarter to ₹3,213.77 crores, driven by improved power generation and favourable monsoon conditions. However, this topline strength was partially offset by a sharp contraction in PAT margins, which declined from 36.90% in Q1 FY26 to 29.48% in Q2 FY26, primarily due to elevated interest costs and normalised tax rates. The company's standalone net profit stood at ₹946.78 crores, up 9.35% sequentially but down marginally year-on-year.
Operating profit before depreciation, interest, and tax (excluding other income) reached ₹1,801.51 crores in Q2 FY26, reflecting healthy operational performance despite the challenging margin environment. The company maintained its position as a Mini-Ratna Category-I enterprise with stable promoter holding at 67.40%, whilst institutional investors have been gradually increasing their stakes, with FII holdings rising to 10.05% in September 2025.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | Operating Margin | PAT Margin |
|---|---|---|---|---|---|---|
| Jun'25 | 3,213.77 | +36.93% | 1,065.02 | +24.76% | 56.06% | 29.48% |
| Mar'25 | 2,346.97 | +2.63% | 853.64 | +269.17% | 46.45% | 36.90% |
| Dec'24 | 2,286.76 | -25.07% | 231.23 | -74.31% | 44.67% | 12.96% |
| Sep'24 | 3,051.93 | +13.28% | 900.03 | -11.91% | 58.94% | 31.36% |
| Jun'24 | 2,694.20 | +42.78% | 1,021.77 | +87.86% | 59.74% | 37.67% |
| Mar'24 | 1,886.94 | -8.20% | 543.90 | +11.74% | 61.03% | 22.18% |
| Dec'23 | 2,055.50 | — | 486.74 | — | 36.59% | 25.86% |
Financial Performance: Topline Strength Overshadowed by Margin Compression
NHPC's Q2 FY26 results presented a mixed picture, with strong revenue growth failing to translate into proportionate bottom-line expansion. Net sales of ₹3,213.77 crores marked a substantial 36.93% sequential improvement and 19.28% year-on-year growth, reflecting enhanced power generation capacity and improved realisations. However, the company's profitability metrics revealed underlying pressure points that warrant closer scrutiny.
Operating profit excluding other income stood at ₹1,801.51 crores, delivering an operating margin of 56.06% in Q2 FY26, up from 46.45% in the previous quarter. Whilst this represented a sequential improvement of 961 basis points, the margin remained below the levels achieved in the comparable year-ago period when the company posted 59.74% operating margins. The quarter witnessed employee costs rising to ₹423.50 crores from ₹421.15 crores sequentially, though this increase was marginal in percentage terms.
The most significant concern emerged in the net profit margin trajectory. Despite robust operating performance, PAT margins contracted sharply to 29.48% in Q2 FY26 from 36.90% in Q1 FY26, representing a decline of 741 basis points. This compression was primarily attributable to normalised interest expenses of ₹260.80 crores (compared to a reversal of ₹12.09 crores in Q1 FY26) and a higher effective tax rate of 29.01% versus 22.20% in the preceding quarter.
Other income, a historically significant contributor to NHPC's profitability, declined to ₹228.99 crores in Q2 FY26 from ₹325.44 crores in Q1 FY26, representing a sequential contraction of 29.65%. This decline in treasury income further pressured overall profitability despite the improvement in core operational metrics. Depreciation charges increased to ₹435.77 crores from ₹314.74 crores quarter-on-quarter, reflecting ongoing capacity additions and asset capitalisation.
Capital Efficiency: Weak Returns Signal Structural Challenges
NHPC's capital efficiency metrics reveal persistent challenges that distinguish it unfavourably from higher-quality infrastructure peers. The company's average return on equity (ROE) stands at 9.57%, whilst return on capital employed (ROCE) languishes at just 6.85% on average. These subdued returns reflect the capital-intensive nature of hydropower projects, extended gestation periods, and relatively modest pricing power in the regulated power sector.
The latest financial year (FY25) witnessed ROE declining to 7.58% and ROCE dropping to 5.66%, indicating deteriorating capital productivity despite stable operational performance. This trend is particularly concerning given the company's substantial debt burden, with long-term debt increasing to ₹35,681.73 crores as of March 2025 from ₹29,381.73 crores a year earlier—a sequential rise of 21.44% that funded ongoing project expansions.
Capital Efficiency Concerns
Critical Observation: NHPC's ROE of 9.57% and ROCE of 6.85% remain significantly below the threshold levels typically associated with quality capital allocation. The company's debt-to-equity ratio has climbed to 1.00 times in H1 FY26, whilst the average debt-to-EBITDA ratio of 5.22 times indicates elevated leverage that constrains financial flexibility and return potential.
The company's EBIT-to-interest coverage ratio, whilst adequate at 6.70 times on average, has shown volatility across quarters. In Q2 FY26, operating profit to interest stood at a robust 7.30 times, the highest level in recent quarters, providing some comfort on debt servicing capability despite the elevated borrowing levels.
Balance sheet quality presents a mixed picture. Shareholder funds increased to ₹39,668.16 crores as of March 2025 from ₹38,668.59 crores a year earlier, reflecting retained earnings accumulation despite the dividend payout of 52.66%. Current assets of ₹11,259.63 crores comfortably exceed current liabilities of ₹10,176.42 crores, ensuring adequate liquidity for operational requirements. However, the company's sales-to-capital-employed ratio of just 0.15 times underscores the asset-heavy business model characteristic of the power generation sector.
Sector Dynamics: Navigating India's Renewable Energy Transition
NHPC operates in India's evolving power sector, where hydropower plays a crucial balancing role alongside solar and wind capacity additions. The company's position as a government-owned enterprise provides strategic advantages in project acquisition and regulatory approvals, though it also constrains pricing flexibility and return optimisation. India's push towards 500 GW of non-fossil fuel capacity by 2030 creates opportunities for hydropower expansion, particularly in pumped storage projects that address grid stability concerns.
The broader power sector witnessed subdued performance over the past year, with the sector index declining 9.43% whilst NHPC outperformed marginally with a 4.90% relative advantage. This outperformance, however, should be contextualised against NHPC's own 4.53% absolute decline over the same period, indicating that the entire sector faced headwinds from regulatory uncertainties, coal price volatility, and concerns about power demand growth sustainability.
Seasonal Revenue Patterns
NHPC's quarterly results exhibit pronounced seasonality, with June and September quarters typically delivering stronger performance due to monsoon-driven water availability. The March quarter often witnesses subdued revenues as water levels decline, whilst December quarters show variable performance depending on early winter precipitation. This seasonal pattern necessitates full-year analysis rather than quarter-to-quarter extrapolation when assessing the company's underlying business trajectory.
Competition in the hydropower segment remains moderate given the specialised nature of project development and limited availability of suitable sites. However, NHPC faces indirect competition from solar and wind developers who offer lower tariffs and faster project execution timelines. The company's ability to position pumped storage projects as grid balancing solutions will be critical to maintaining relevance in India's increasingly renewable-dominated power mix.
Peer Comparison: Premium Valuation Despite Modest Returns
NHPC's valuation metrics reveal a significant premium relative to its capital efficiency and growth profile when compared against power sector peers. Trading at a price-to-earnings ratio of 27.29 times trailing twelve-month earnings, NHPC commands a substantial premium over the sector average P/E of 10 times, despite delivering ROE of just 9.57% compared to peers with similar or superior return profiles.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| NHPC Ltd | 27.29 | 2.10 | 9.57 | 0.93 | 2.34 |
| Tata Power Co. | 30.29 | 3.49 | 9.49 | 1.39 | 0.57 |
| JSW Energy | 44.67 | 0.31 | 6.53 | 0.30 | 0.39 |
| Adani Green | 76.53 | 0.88 | 11.49 | 0.71 | — |
| Adani Energy Sol | 51.56 | 5.27 | 10.65 | 1.56 | — |
| NTPC Green Ene. | 171.71 | 4.54 | 4.28 | 0.26 | — |
NHPC's price-to-book value ratio of 2.10 times appears relatively attractive compared to peers like Adani Energy Solutions (5.27 times) and NTPC Green Energy (4.54 times), though this metric must be interpreted cautiously given the capital-intensive nature and long depreciation schedules in the power sector. The company's dividend yield of 2.34% stands out favourably in the peer group, with most renewable-focused competitors reinvesting cash flows rather than distributing dividends.
The company's debt-to-equity ratio of 0.93 times positions it in the middle of the peer range, below highly leveraged players like Adani Energy Solutions (1.56 times) but above cleaner balance sheet operators like JSW Energy (0.30 times). NHPC's government ownership provides implicit support for its borrowing programmes, though this advantage is already reflected in its cost of capital and does not justify the valuation premium over better-returning private sector peers.
Valuation Analysis: Premium Multiples Offer Limited Margin of Safety
NHPC's current valuation presents a challenging risk-reward proposition for investors seeking exposure to India's power sector. Trading at ₹80.70 as of November 7, 2025, the stock commands a market capitalisation of ₹81,063.43 crores and an enterprise value that reflects 27.41 times EBIT and 21.02 times EBITDA—multiples that appear demanding given the company's modest growth trajectory and weak capital returns.
The stock's price-to-earnings ratio of 27 times compares unfavourably to the industry average of 10 times, representing a premium of 170% that is difficult to justify based on fundamental metrics. NHPC's five-year sales growth of just 1.38% annually and EBIT growth of 2.31% annually fall well short of the growth rates typically associated with premium valuations. The company's PEG ratio is marked as not available, reflecting the mismatch between valuation multiples and underlying growth fundamentals.
The stock's valuation grade has been consistently assessed as "Very Expensive" since April 2023, with brief interludes of "Expensive" classification. This persistent premium valuation has been sustained primarily by NHPC's government ownership, stable cash flows, and positioning in the renewable energy narrative. However, the 12.57% decline from its 52-week high of ₹92.30 suggests that market participants are beginning to question the sustainability of these elevated multiples.
At current prices, NHPC offers limited margin of safety for fresh investors. The stock trades 13.65% above its 52-week low of ₹71.01, suggesting that whilst some downside cushion exists, the risk-reward ratio remains tilted unfavourably. A fair value estimate based on peer multiples, adjusted for NHPC's lower ROE and growth profile, would place the stock in the ₹65-72 range, implying 10-19% downside risk from current levels.
Shareholding Dynamics: Institutional Interest Builds Gradually
NHPC's shareholding pattern reveals a stable promoter base with gradually increasing institutional participation over recent quarters. The President of India maintains a steady 67.40% stake, unchanged across the past five quarters, providing governance stability and implicit government backing for the company's strategic initiatives. This dominant promoter holding, whilst offering certain advantages, also limits free float and can constrain stock liquidity during periods of heightened volatility.
| Quarter | Promoter | FII | Mutual Funds | Insurance | Other DII |
|---|---|---|---|---|---|
| Sep'25 | 67.40% | 10.05% (+0.74%) | 3.78% (-0.20%) | 6.59% (+0.07%) | 1.30% (+0.03%) |
| Jun'25 | 67.40% | 9.31% (+0.51%) | 3.98% (-0.55%) | 6.52% (+0.55%) | 1.27% (+0.02%) |
| Mar'25 | 67.40% | 8.80% (+0.02%) | 4.53% (+0.15%) | 5.97% (+1.40%) | 1.25% (-0.97%) |
| Dec'24 | 67.40% | 8.78% (-0.60%) | 4.38% (+0.75%) | 4.57% (-0.42%) | 2.22% (-0.06%) |
| Sep'24 | 67.40% | 9.38% | 3.63% | 4.99% | 2.28% |
Foreign institutional investors have demonstrated consistent accumulation, with holdings rising from 9.38% in September 2024 to 10.05% in September 2025. The sequential increase of 74 basis points in the latest quarter signals growing international interest in NHPC's renewable energy positioning and stable cash generation profile. This FII accumulation, backed by 545 foreign institutional holders, provides some support for the stock's valuation premium, though it also raises questions about sustainability if earnings growth fails to materialise.
Domestic institutional participation presents a more nuanced picture. Mutual fund holdings declined from 4.53% in March 2025 to 3.78% in September 2025, with a sequential reduction of 20 basis points in the latest quarter. This trimming by domestic fund managers, who typically maintain longer investment horizons, suggests concerns about valuation sustainability and growth visibility. The presence of 29 mutual fund schemes indicates reasonably broad domestic institutional coverage, though the declining stake percentage warrants monitoring.
Insurance companies have been steady accumulators, increasing their holdings from 4.99% in September 2024 to 6.59% in September 2025. The 140-basis-point surge in March 2025 marked the most significant institutional activity, followed by continued accumulation in subsequent quarters. This insurance sector interest aligns with NHPC's profile as a stable, dividend-paying infrastructure asset suitable for long-duration liabilities. Non-institutional holdings have declined marginally from 12.32% to 10.87% over the past year, reflecting some retail investor profit-booking at elevated price levels.
Stock Performance: Underperformance Reflects Valuation Concerns
NHPC's stock price performance over the past year reflects the market's reassessment of the company's growth prospects and valuation sustainability. Trading at ₹80.70 as of November 7, 2025, the stock has declined 4.53% over the trailing twelve months, underperforming the Sensex's 4.07% gain by 860 basis points. This underperformance has accelerated in recent months, with the stock declining 6.69% over the past month whilst the Sensex gained 1.04%, resulting in negative alpha of 773 basis points.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -4.86% | -1.38% | -3.48% |
| 1 Month | -6.69% | +1.04% | -7.73% |
| 3 Months | -3.24% | +2.67% | -5.91% |
| 6 Months | -3.23% | +2.52% | -5.75% |
| 1 Year | -4.53% | +4.07% | -8.60% |
| 2 Years | +60.57% | +27.47% | +33.10% |
| 3 Years | +84.04% | +35.29% | +48.75% |
| 5 Years | +271.89% | +97.60% | +174.29% |
The near-term technical picture appears challenging, with NHPC trading below all key moving averages. The stock closed below its 5-day moving average of ₹84.65, 20-day average of ₹85.75, 50-day average of ₹84.25, 100-day average of ₹84.56, and 200-day average of ₹83.10. This alignment of moving averages in a descending pattern typically signals sustained selling pressure and lack of immediate positive catalysts.
Longer-term performance metrics paint a more favourable picture, with NHPC delivering 271.89% returns over five years compared to the Sensex's 97.60% gain. This substantial outperformance of 174.29 percentage points reflects the stock's re-rating from depressed valuations in 2020 as investors recognised the renewable energy opportunity and government support for hydropower development. However, the recent reversal in momentum suggests that much of this valuation expansion may have run its course.
The stock's beta of 1.20 indicates higher volatility than the broader market, with annualised volatility of 29.22% compared to the Sensex's 12.39%. This elevated volatility, combined with negative risk-adjusted returns of -0.16 over the past year, places NHPC in the "Medium Risk Low Return" category—an unfavourable quadrant for risk-conscious investors. The stock's immediate support lies at the 52-week low of ₹71.01, whilst resistance is encountered at the 20-day moving average of ₹85.75.
"NHPC's valuation premium appears increasingly difficult to justify given single-digit ROE, anaemic growth, and mounting competitive pressures from faster-growing renewable peers."
Investment Thesis: Quality Concerns Outweigh Dividend Appeal
NHPC's investment case rests on three primary pillars: government ownership providing strategic support, stable cash flows from long-term power purchase agreements, and positioning in India's renewable energy transition. However, these positives are substantially offset by weak capital returns, premium valuation, and limited growth visibility that constrain the stock's attractiveness for value-conscious investors.
The company's overall quality grade of "Average" reflects persistent challenges in capital efficiency and growth generation. With ROE of just 9.57% and ROCE of 6.85%, NHPC struggles to generate returns that meaningfully exceed its cost of capital. The five-year sales growth of 1.38% annually and EBIT growth of 2.31% annually fall well short of the double-digit expansion typically required to justify premium valuations in the Indian equity market.
The stock's current Mojo score of 57 out of 100 places it in "HOLD" territory, reflecting the balanced assessment of near-term positive financial trends offset by valuation concerns and quality limitations. The financial trend has turned positive based on Q2 FY26's strong operational performance, with operating profit to interest reaching the highest level at 7.30 times and quarterly net sales hitting record levels. However, this near-term strength must be weighed against the longer-term trajectory of modest growth and margin pressures.
Technical indicators present a mixed picture, with the overall trend classified as "Mildly Bullish" despite the stock trading below all major moving averages. Weekly MACD signals remain bullish, whilst monthly indicators show mildly bearish tendencies. The Relative Strength Index provides no clear directional signal, suggesting the stock is in a consolidation phase following its recent decline from the 52-week high.
Key Strengths & Risk Factors
KEY STRENGTHS ✓
- Government Backing: 67.40% promoter holding by President of India provides strategic support and funding access
- Stable Cash Flows: Long-term power purchase agreements ensure revenue predictability and consistent cash generation
- Dividend Consistency: 2.34% dividend yield with 52.66% payout ratio demonstrates commitment to shareholder returns
- No Promoter Pledging: Zero pledged shares indicate clean governance and financial stability
- Strong Interest Coverage: Operating profit to interest of 7.30 times in Q2 FY26 ensures comfortable debt servicing
- Rising Institutional Interest: FII holdings increased from 9.38% to 10.05% over past year, insurance holdings up to 6.59%
- Renewable Energy Positioning: Hydropower's role in grid balancing creates strategic value in India's energy transition
KEY CONCERNS ⚠
- Weak Capital Returns: ROE of 9.57% and ROCE of 6.85% significantly below quality thresholds
- Anaemic Growth: Five-year sales growth of just 1.38% annually, EBIT growth of 2.31% annually
- Premium Valuation: P/E of 27x vs industry 10x, classified as "Very Expensive" consistently since April 2023
- High Leverage: Debt-to-EBITDA of 5.22 times, debt-to-equity at 1.00 times limits financial flexibility
- Margin Volatility: PAT margins fluctuate significantly across quarters due to interest and tax rate variations
- Execution Risks: Long gestation periods for hydropower projects create uncertainty around capacity addition timelines
- Competitive Pressures: Solar and wind developers offer lower tariffs and faster execution, challenging hydropower economics
Outlook: What to Watch
POSITIVE CATALYSTS
- Commissioning of under-construction projects adding to generation capacity
- Pumped storage project approvals addressing grid balancing requirements
- Improvement in power demand growth sustaining higher realisations
- Reduction in debt levels improving interest coverage and ROE
- Favourable monsoon patterns enhancing generation volumes
RED FLAGS
- Further margin compression if interest costs remain elevated
- Mutual fund stake reduction continuing, signalling institutional concerns
- Project execution delays extending capital deployment timelines
- Regulatory changes affecting power tariff structures
- Stock breaking below ₹71 support level triggering technical selling
The Verdict: Hold for Existing Investors, Avoid Fresh Purchases
Score: 57/100
For Fresh Investors: NHPC's premium valuation of 27 times earnings, combined with single-digit ROE and anaemic growth, offers limited margin of safety for new entrants. The stock's 10-19% downside risk to fair value estimates of ₹65-72 makes it unattractive at current levels. Investors seeking power sector exposure would be better served waiting for a meaningful correction below ₹72 or considering peers with superior capital efficiency.
For Existing Holders: The stable dividend yield of 2.34%, government backing, and positive near-term financial trends justify maintaining positions, though expectations should be tempered. The stock's classification in "Medium Risk Low Return" territory suggests limited upside potential. Consider trimming positions on any rally towards ₹88-90 levels and redeploying capital into higher-quality infrastructure opportunities.
Fair Value Estimate: ₹68-72 (12-16% downside from current price of ₹80.70)
NHPC remains a hold for income-focused investors comfortable with modest capital appreciation prospects, but the risk-reward equation favours patience over aggressive accumulation at current valuations. The company's strategic positioning in renewable energy provides long-term relevance, though translating this into shareholder value requires meaningful improvement in capital returns and growth acceleration that appears unlikely in the near term.
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.
