SJVN Q2 FY26: Profit Plummets 36% Amid Rising Interest Costs and Weak Seasonality

The quarter's performance revealed a stark contradiction: whilst SJVN maintained robust operating margins exceeding 80%, the bottom line suffered significantly due to escalating financial costs. Net sales grew a modest 5.41% year-on-year to ₹917.45 crores in Q2 FY26, but this topline growth was completely overshadowed by a staggering 51.43% surge in interest expenses to ₹215.97 crores, reflecting the burden of aggressive debt-funded capacity expansion. The company's consolidated net profit of ₹227.77 crores represented a sharp reversal from the previous quarter's loss of ₹127.60 crores, though sequential comparisons remain challenging given the extreme volatility in quarterly earnings.

Market sentiment towards SJVN has turned decidedly negative, with the stock delivering a dismal 24.48% decline over the past year, significantly underperforming both the Sensex's 5.09% gain and the broader Power sector's 7.89% decline. The stock's technical indicators paint an equally grim picture, with all major moving averages signalling bearish trends and the stock trading below its 5-day, 20-day, 50-day, 100-day, and 200-day moving averages. Investor confidence appears shaken, with the stock having shed 32.33% from its 52-week high of ₹124.45.

Financial Performance: Strong Operations, Weak Bottom Line

SJVN's Q2 FY26 results revealed a tale of two narratives: operational excellence overshadowed by financial stress. Net sales of ₹917.45 crores in Q2 FY26 represented a sequential surge of 81.89% from the previous quarter's ₹504.40 crores, primarily driven by seasonal factors that favour hydroelectric generation during monsoon months. However, the year-on-year growth of just 5.41% from ₹870.37 crores in Q2 FY25 highlighted the company's struggle to meaningfully expand its revenue base despite capacity additions.

The company's operating performance remained a bright spot, with operating profit (excluding other income) climbing to ₹742.33 crores in Q2 FY26, translating to an impressive operating margin of 80.91%. This represented a substantial 420 basis points improvement from the 76.69% margin recorded in Q2 FY25, reflecting the inherently low variable cost structure of hydroelectric power generation. Employee costs remained well-controlled at ₹74.83 crores, down from ₹80.16 crores in the year-ago quarter, demonstrating operational efficiency.

However, the profit trajectory deteriorated sharply below the operating level. Interest expenses surged to ₹215.97 crores in Q2 FY26, representing a massive 51.43% increase from ₹142.62 crores in Q2 FY25. This escalation in financial costs directly reflects SJVN's aggressive capacity expansion strategy, with long-term debt ballooning to ₹26,220 crores as of March 2025 from ₹19,689.54 crores a year earlier. Depreciation charges also increased to ₹160.40 crores from ₹130.89 crores year-on-year, further pressuring profitability. The net result: profit after tax margin compressed to 27.67% in Q2 FY26 from 43.46% in Q2 FY25, a concerning deterioration of 1,579 basis points.

On a half-yearly basis (H1 FY26), the picture appears even more troubling. Whilst net sales for the six months ended September 2025 stood at ₹1,421.85 crores, consolidated net profit for the period was merely ₹100.17 crores, significantly impacted by the previous quarter's loss. This represents a sharp decline from the ₹418.17 crores consolidated profit recorded in H1 FY25, underscoring the structural challenges facing the company.

The Profitability Puzzle: High Margins, Low Returns

Despite SJVN's ability to maintain industry-leading operating margins exceeding 80%, the company's return metrics tell a sobering story of capital inefficiency. The company's average return on equity (ROE) over recent years stands at just 8.76%, significantly below the 15% threshold typically expected from quality businesses. The latest ROE of 5.78% as of March 2025 represents a further deterioration, suggesting that shareholders are earning minimal returns on their invested capital.

Return on capital employed (ROCE) paints an equally concerning picture at 4.05% for the latest period, with the five-year average languishing at 7.37%. These anaemic returns are particularly troubling for a company trading at elevated valuations. The disconnect stems from SJVN's massive capital base of over ₹44,000 crores (combining shareholder funds and debt), which generates relatively modest operating profits. The company's sales-to-capital employed ratio of just 0.11 times indicates that every rupee of capital generates merely 11 paise of revenue, highlighting severe asset intensity and underutilisation.

The balance sheet reveals the source of this capital inefficiency. Fixed assets stood at ₹11,610.10 crores as of March 2025, representing a 6.45% increase from ₹10,906.36 crores a year earlier. However, this expanding asset base has failed to translate into proportionate revenue or profit growth. The company's five-year sales growth of 3.30% and EBIT growth of essentially zero (-0.09%) starkly illustrate the challenge: SJVN is pouring capital into new projects that are either taking too long to commission or generating insufficient returns.

Capacity Expansion: Growth Driver or Value Destroyer?

SJVN's ambitious expansion programme represents both its greatest opportunity and its most significant risk. The company is aggressively pursuing capacity additions across hydroelectric, solar, and wind energy projects, with multiple ventures in various stages of development. However, this expansion has come at a steep cost: long-term debt has surged from ₹1,855.68 crores in March 2021 to ₹26,220 crores in March 2025, a staggering 1,313% increase over four years.

Cash flow statements reveal the magnitude of this investment programme. In FY2025, the company deployed ₹6,429 crores in investing activities, primarily for capital expenditure on new projects, whilst raising ₹3,939 crores through financing activities. This pattern of heavy capital deployment funded by debt has persisted for several years, with cumulative investing cash outflows exceeding ₹24,000 crores over the past four fiscal years. Operating cash flow, whilst positive at ₹2,482 crores in FY2025, remains insufficient to fund the company's growth ambitions without significant external financing.

The question facing investors is whether these capacity additions will generate adequate returns to justify the financial risk. Hydroelectric projects typically require 5-7 years from conception to commissioning, with returns materialising only after commercial operations commence. SJVN's current project pipeline includes ventures in Himachal Pradesh, Uttarakhand, Nepal, and Bhutan, alongside renewable energy projects across multiple states. Whilst diversification is prudent, execution risk remains elevated given the company's track record of modest revenue growth despite substantial capital deployment.

Industry Leadership: How SJVN Compares to Peers

Within the Indian power generation sector, SJVN occupies a unique position as a predominantly hydroelectric player in an industry increasingly dominated by thermal and renewable energy. A comparative analysis with sector peers reveals both the company's competitive advantages and its valuation concerns. SJVN's market capitalisation of ₹33,419 crores positions it as a mid-cap player, significantly smaller than industry giant NTPC but larger than specialised peers like NHPC Ltd.

The peer comparison reveals stark valuation disparities. SJVN trades at a price-to-earnings ratio of 48.28 times, substantially higher than NHPC Ltd.'s 25.81 times and Torrent Power's 23.51 times, though below NTPC Green Energy's elevated 170.50 times multiple. This premium valuation appears unjustified given SJVN's inferior return metrics: its ROE of 8.76% lags behind Torrent Power's 16.34%, NHPC's 9.17%, and NLC India's 11.19%. The price-to-book ratio of 2.35 times, whilst lower than Torrent Power's 3.67 times and NTPC Green Energy's 4.51 times, still represents a significant premium to book value for a company generating single-digit returns on equity.

SJVN's debt-to-equity ratio of 1.67 times stands amongst the highest in the peer group, exceeded only by its own half-yearly figure of 1.91 times. This compares unfavourably with JSW Energy's 0.30 times, NTPC Green Energy's 0.26 times, and Torrent Power's 0.43 times. The elevated leverage amplifies financial risk and constrains the company's ability to navigate adverse market conditions or regulatory changes. Only NLC India, with a debt-to-equity ratio of 1.18 times, approaches SJVN's leverage levels amongst major peers.

The dividend yield of 1.65% offers modest income support, higher than JSW Energy's 0.39% and Torrent Power's 1.09%, but below NHPC's 2.38%. However, with a dividend payout ratio of 77.61%, SJVN is distributing the vast majority of its profits to shareholders, leaving limited retained earnings for organic growth. This high payout ratio, combined with aggressive debt-funded expansion, raises questions about the sustainability of the dividend policy if profitability continues to deteriorate.

Valuation Analysis: Premium Without Justification

SJVN's current valuation metrics suggest the stock is trading at levels that are difficult to justify based on fundamental performance. The price-to-earnings ratio of 48.28 times represents a substantial premium to the power sector's average P/E of approximately 10 times, implying that investors are paying nearly five times the sector multiple for SJVN's earnings. This premium appears unjustified given the company's deteriorating profitability trend, with net profit declining 36.21% year-on-year in Q2 FY26 and full-year FY2025 profit falling 10.47% to ₹812 crores from ₹907 crores in FY2024.

The enterprise value metrics further underscore the valuation concern. SJVN's EV-to-EBITDA multiple of 24.97 times and EV-to-EBIT multiple of 36.16 times indicate that the market is valuing the company at elevated multiples despite modest growth prospects. The EV-to-sales ratio of 18.27 times appears particularly stretched for a utility company with single-digit revenue growth. These multiples suggest that significant growth expectations are embedded in the current stock price, expectations that appear increasingly difficult to meet given the company's track record.

Historical valuation trends provide additional context. The stock has been classified as "Very Expensive" since June 2021, with brief interludes in "Expensive" territory. The current price of ₹84.21 represents a 32.33% decline from the 52-week high of ₹124.45, yet the stock remains 4.61% above its 52-week low of ₹80.50. This suggests that whilst some valuation correction has occurred, the stock may still have further downside if fundamentals continue to deteriorate.

A fair value analysis based on peer multiples and return metrics suggests significant downside risk. If SJVN were to trade at the sector average P/E of 10 times (a 79% discount to current levels), the stock would be valued around ₹17-18 per share. Even applying a 50% premium to the sector average (15 times P/E) to account for SJVN's government ownership and asset quality would imply a fair value of approximately ₹25-30 per share, representing 64-70% downside from current levels. Whilst such dramatic revaluations are unlikely in the near term given government shareholding support, the analysis underscores the extent of valuation risk.

Shareholding: Stable Government Control, Minimal Institutional Interest

SJVN's shareholding pattern reflects its status as a government-controlled entity, with promoter holding remaining rock-solid at 81.85% across the past five quarters. The President of India holds 55% directly, whilst the Governor of Himachal Pradesh maintains 26.85%, ensuring complete government control over strategic decisions. This ownership structure provides stability and eliminates concerns about hostile takeovers or management changes, but it also limits potential catalysts for improved corporate governance or shareholder-friendly policies.

Institutional participation in SJVN remains remarkably low, with total institutional holdings at just 6.87%. Foreign institutional investors hold a mere 2.55%, having increased their stake marginally by 0.03 percentage points in the September 2025 quarter. Mutual fund holdings stand at 1.48%, up from 1.37% in the previous quarter, though this remains negligible for a company of SJVN's size. Insurance companies hold 2.84%, representing the largest institutional category, with holdings increasing by 0.13 percentage points quarter-on-quarter.

The minimal institutional interest is particularly telling, as sophisticated investors appear reluctant to build meaningful positions despite the government ownership backstop. The presence of 133 FIIs and 19 mutual funds holding SJVN shares suggests broad but shallow interest, with no single institutional investor likely holding a significant stake. This lack of institutional conviction reflects concerns about valuation, returns, and growth visibility that are evident in the company's financial performance.

Non-institutional investors, comprising retail shareholders and smaller entities, hold 11.28%, down from 11.53% in the previous quarter. This declining retail interest, combined with lacklustre institutional participation, suggests that investor enthusiasm for SJVN is waning as the stock's underperformance persists. The absence of promoter pledging is a positive factor, eliminating concerns about forced selling or financial distress at the promoter level.

Stock Performance: Relentless Underperformance Across Timeframes

SJVN's stock price performance has been dismal across virtually all meaningful timeframes, with the company significantly underperforming both the broader market and its sector peers. Over the past year, the stock has declined 24.48% whilst the Sensex gained 5.09%, resulting in a negative alpha of 29.57 percentage points. This underperformance has intensified in recent months, with the stock down 8.56% over three months versus the Sensex's 4.61% gain, and down 6.58% over one month against the Sensex's 1.25% rise.

The year-to-date performance is particularly concerning, with SJVN down 19.34% in 2025 whilst the Sensex has gained 6.91%, representing a negative alpha of 26.25 percentage points. Compared to the broader Power sector, which itself has declined 7.89% over the past year, SJVN's 24.48% decline represents an underperformance of 16.59 percentage points, suggesting company-specific issues beyond sector headwinds.

Longer-term returns paint a more favourable picture, with the stock delivering 127.90% returns over three years and 278.47% over five years, significantly outperforming the Sensex in both periods. However, these historical gains increasingly appear to be a function of the initial low base and the 2020-2021 rally in PSU stocks rather than sustainable fundamental improvement. The recent sharp reversal suggests that the market is reassessing SJVN's long-term value proposition.

From a risk-adjusted perspective, SJVN's performance is deeply troubling. The one-year risk-adjusted return of -0.73 indicates that investors have lost money on a volatility-adjusted basis, with the stock exhibiting high volatility of 33.66% compared to the Sensex's 12.35%. The negative Sharpe ratio confirms that SJVN falls into the "HIGH RISK LOW RETURN" category, the worst possible combination for investors. The stock's beta of 1.20 indicates above-average market sensitivity, amplifying losses during market downturns.

Technical indicators uniformly point to continued weakness. The stock is trading below all major moving averages, including the 5-day MA (₹86.84), 20-day MA (₹88.58), 50-day MA (₹91.21), 100-day MA (₹94.09), and 200-day MA (₹94.28). The overall technical trend is classified as "BEARISH," with MACD, Bollinger Bands, KST, Dow Theory, and OBV all signalling bearish or mildly bearish trends. The immediate support level at ₹80.50 (52-week low) appears vulnerable, whilst resistance exists at multiple levels above, suggesting a challenging path for any potential recovery.

Investment Thesis: Quality Concerns Trump Government Backing

SJVN's investment thesis rests on several pillars: government ownership providing stability, India's growing power demand offering long-term tailwinds, the company's focus on renewable energy aligning with national priorities, and a portfolio of projects under development promising future capacity additions. However, each of these positives is undermined by more compelling negatives that dominate the investment equation.

The company's quality grade of "AVERAGE" reflects its mixed fundamental profile. Whilst SJVN benefits from strong interest coverage (41.56 times), no promoter pledging, and consistent dividend payments, these strengths are overshadowed by weak return metrics (ROE of 8.76%, ROCE of 7.37%), high leverage (debt-to-equity of 1.67), and anaemic growth (5-year sales growth of 3.30%, EBIT growth of -0.09%). The recent upgrade from "Below Average" to "Average" quality in August 2025 appears premature given the deteriorating quarterly performance.

The financial trend classification of "NEGATIVE" since December 2024 captures the deteriorating earnings trajectory. Key negative factors include a 24.56% decline in profit before tax (excluding other income) to ₹376.01 crores, a 30.2% fall in PAT to ₹307.91 crores, and record-high interest expenses of ₹315.10 crores. Whilst some positive factors exist, such as highest-ever operating cash flow and quarterly revenue, these are insufficient to offset the profit pressures.

The valuation assessment of "VERY EXPENSIVE" is perhaps the most damning indictment. With the stock trading at 48.28 times earnings, 2.35 times book value, and enterprise value multiples in the mid-20s to mid-30s range, SJVN is priced for perfection despite delivering imperfect results. The combination of expensive valuation, average quality, negative financial trend, and bearish technicals results in an overall Mojo Score of just 21 out of 100, firmly in "STRONG SELL" territory.

Key Strengths & Risk Factors

Outlook: What Lies Ahead

SJVN's near-term outlook remains clouded by multiple headwinds. The company faces the challenge of commissioning new projects whilst managing an increasingly burdensome debt load. Interest expenses are likely to remain elevated as the company continues to service debt from its expansion programme, constraining profitability even if operating performance improves. The seasonal nature of hydroelectric generation means that Q3 and Q4 results may show sequential improvement, but year-on-year comparisons are likely to remain challenging given the high base of previous years.

The power sector backdrop presents both opportunities and challenges. Whilst India's electricity demand continues to grow at a healthy pace, driven by economic expansion and rising per capita consumption, the sector faces intense competition from private players and other PSUs. Renewable energy capacity additions are accelerating across the industry, potentially leading to oversupply in certain regions and pressure on power purchase agreement (PPA) rates. SJVN's ability to secure favourable PPAs for its under-construction projects will be critical to ensuring adequate returns on invested capital.

From a technical perspective, the stock's bearish trend is likely to persist unless it can reclaim the 20-day moving average at ₹88.58, which now serves as immediate resistance. A sustained move above this level could trigger short-covering and attract momentum buyers, potentially leading to a rally towards the 50-day MA at ₹91.21. However, given the negative fundamental backdrop and lack of institutional support, any technical bounce is likely to be short-lived and should be viewed as a selling opportunity rather than a buying signal.

The valuation multiple is unlikely to expand meaningfully unless the company demonstrates a clear path to improved returns on capital. Even if earnings stabilise, the stock's P/E ratio would need to compress significantly to align with sector averages, implying substantial downside risk. The government ownership provides a floor on how far the stock can fall, as forced selling is unlikely, but this support is a double-edged sword that may prevent the stock from reaching attractive valuation levels that would interest value investors.