The quarterly performance presents a tale of two narratives: whilst the company delivered impressive year-on-year profit expansion driven by operational improvements and favourable base effects, the sequential stagnation raises questions about near-term momentum. Revenue of ₹7,876 crores declined marginally by 0.38% QoQ but grew 9.76% YoY, suggesting seasonal demand patterns typical of the power sector. With the stock trading at 25x trailing earnings and institutional holdings at 39.40%, the market appears to be pricing in continued growth despite emerging operational challenges.
The third quarter results reveal a company navigating the complexities of India's evolving power landscape with reasonable success. Operating margins excluding other income improved to 19.12%, expanding 230 basis points year-on-year and 36 basis points sequentially, demonstrating enhanced operational efficiency. However, the near-flat sequential revenue growth and marginal profit decline suggest the company is encountering headwinds in sustaining momentum after a strong first half of FY26.
| Quarter | Revenue (₹ Cr) | QoQ % | Net Profit (₹ Cr) | QoQ % | OPM (Excl OI) % |
|---|---|---|---|---|---|
| Sep'25 | 7,876 | -0.38% | 723.71 | -1.06% | 19.12% |
| Jun'25 | 7,906 | +22.46% | 731.44 | -30.97% | 18.76% |
| Mar'25 | 6,456 | -0.66% | 1,059.57 | +122.76% | 17.51% |
| Dec'24 | 6,499 | -9.43% | 475.66 | -1.12% | 17.10% |
| Sep'24 | 7,176 | -20.57% | 481.03 | -50.52% | 16.82% |
| Jun'24 | 9,034 | +38.37% | 972.24 | +125.98% | 20.57% |
| Mar'24 | 6,529 | — | 430.24 | — | 16.99% |
Financial Performance: Margin Expansion Amidst Revenue Volatility
Torrent Power's Q3 FY26 financial performance showcases the inherent seasonality and operational dynamics of the integrated power utility sector. Revenue of ₹7,876 crores remained virtually flat sequentially (down 0.38%) but demonstrated healthy year-on-year growth of 9.76%, reflecting improved demand conditions compared to the previous year. The quarterly revenue trajectory reveals significant volatility, with Q2 FY26 witnessing a sharp 22.46% QoQ jump to ₹7,906 crores, followed by this marginal decline in Q3.
The standout achievement in Q3 FY26 was margin expansion. Operating profit before depreciation, interest and tax (excluding other income) reached ₹1,505.84 crores, translating to an operating margin of 19.12%—a sequential improvement of 36 basis points and a substantial 230 basis points expansion year-on-year. This margin improvement reflects better cost management, improved plant load factors, and favourable fuel cost dynamics. However, operating profit declined marginally by 1.51% QoQ whilst growing 24.73% YoY, indicating that the company is extracting more profitability from each rupee of revenue despite top-line stagnation.
Net profit after tax of ₹723.71 crores represented a 50.45% surge year-on-year but a marginal 1.06% decline quarter-on-quarter. The PAT margin stood at 9.19% for Q3 FY26, down from 9.25% in Q2 FY26 but significantly ahead of the 6.70% recorded in Q3 FY25. Interest costs declined to ₹215.82 crores from ₹272.34 crores in the year-ago quarter, providing crucial support to bottom-line expansion. Depreciation remained relatively stable at ₹388.83 crores, whilst the effective tax rate normalised to 24.26% after the anomalous negative tax rate in Q4 FY25.
Other income declined sharply to ₹77.91 crores in Q3 FY26 from ₹104.67 crores in Q2 FY26 and ₹124.70 crores in Q3 FY25, representing a 25.56% QoQ decline and 37.53% YoY drop. This reduction in non-operating income highlights the company's increased reliance on core operational performance for profit generation. Employee costs decreased to ₹174.41 crores from ₹190.31 crores in the year-ago quarter, suggesting improved productivity or workforce optimisation initiatives.
Capital Efficiency: Strong ROE Amidst Rising Debt
Torrent Power's capital efficiency metrics paint a picture of a company delivering solid returns whilst managing a substantial debt burden. The company's average return on equity (ROE) over the past five years stands at 16.64%, significantly above the peer average of approximately 8%, demonstrating superior profitability relative to shareholder capital employed. This high ROE is a critical strength, indicating that the company efficiently converts equity capital into profits—a particularly impressive achievement in the capital-intensive power sector.
However, the latest ROE figure of 15.90% represents a slight moderation from the five-year average, whilst the return on capital employed (ROCE) stands at 13.48%, below the five-year average of 14.44%. This declining trend in capital efficiency metrics warrants attention, particularly given the company's substantial capital expenditure programme. The ROCE calculation reveals that for every ₹100 of capital employed, the company generates approximately ₹13.48 of operating profit, a respectable but not exceptional figure in the power utility space.
Balance Sheet Dynamics: Deleveraging in Progress
Torrent Power's balance sheet as of March 2025 shows shareholder funds of ₹17,615.31 crores, up substantially from ₹12,061.71 crores in March 2024, reflecting strong profit retention and equity expansion. Long-term debt declined to ₹7,310.21 crores from ₹9,916.40 crores, representing a significant deleveraging of ₹2,606.19 crores or 26.29%. The debt-to-EBITDA ratio of 2.23x and net debt-to-equity ratio of 0.45x indicate moderate leverage levels, providing financial flexibility for future growth initiatives whilst maintaining a comfortable debt servicing cushion. Fixed assets increased to ₹23,886.82 crores from ₹21,543.21 crores, reflecting ongoing capacity expansion.
Operational Efficiency Concerns: The company's half-yearly ROCE of 14.21% represents the lowest level in recent periods, whilst debtors turnover ratio declined to 8.35 times—also the lowest in recent history. These metrics suggest potential working capital management challenges and slower collections, which could impact cash generation efficiency. Additionally, cash and cash equivalents at ₹304.12 crores for the half-year period represent the lowest level observed, raising questions about liquidity management amidst ongoing capital expenditure requirements.
Industry Context: Navigating India's Power Sector Transformation
Torrent Power operates in India's rapidly evolving power sector, characterised by increasing renewable energy penetration, regulatory reforms, and growing electricity demand driven by economic expansion and electrification initiatives. The company's integrated business model—spanning generation (7,992 MWp operational capacity), transmission, distribution, and cable manufacturing—provides diversification benefits and multiple revenue streams, partially insulating it from single-segment volatility.
The company's generation portfolio comprises a balanced mix of coal-based, gas-based, and renewable power plants, positioning it to navigate the energy transition whilst maintaining baseload capacity. However, the power sector faces structural challenges including regulatory uncertainties around tariff structures, fuel cost volatility, and the imperative to increase renewable capacity to meet India's climate commitments. Torrent Power's ability to maintain operating margins above 19% demonstrates operational excellence, but sustaining this performance amidst intensifying competition and regulatory pressures remains critical.
The company's five-year sales growth of 18.69% outpaces the broader power sector, reflecting market share gains and capacity additions. However, the EBIT growth of 12.41% over the same period lags sales growth, indicating margin compression pressures over the longer term. The company's average EBIT-to-interest coverage of 3.79x provides adequate debt servicing capacity but leaves limited cushion during periods of operational stress or elevated interest rates.
Peer Comparison: Premium Valuation Justified by Superior Returns
Torrent Power's positioning within the power sector peer group reveals both strengths and valuation concerns. The company's ROE of 16.64% stands significantly above competitors, with Adani Energy Solutions at 10.54%, Tata Power at 10.20%, JSW Energy at 7.78%, NHPC at 9.11%, and NTPC Green Energy at just 3.24%. This superior capital efficiency justifies a valuation premium, but the extent of that premium requires scrutiny.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| Torrent Power | 24.99x | 3.97x | 16.64% | 0.45 | 0.94% |
| Adani Energy Sol | 54.24x | 5.21x | 10.54% | 1.68 | — |
| Tata Power Co. | 31.26x | 3.13x | 10.20% | 1.56 | 0.61% |
| JSW Energy | 36.31x | 2.92x | 7.78% | 2.13 | 0.41% |
| NHPC Ltd | 24.47x | 1.87x | 9.11% | 1.02 | 4.38% |
| NTPC Green Ene. | 134.97x | 4.02x | 3.24% | 1.15 | — |
At 24.99x trailing earnings, Torrent Power trades at a reasonable multiple relative to several peers, particularly considering its superior ROE. The price-to-book ratio of 3.97x appears elevated compared to NHPC (1.87x) and JSW Energy (2.92x) but remains below Adani Energy Solutions (5.21x). The company's debt-to-equity ratio of 0.45 is the lowest amongst peers, providing a financial stability advantage. However, the dividend yield of 0.94% lags NHPC's sector-leading 4.38%, making Torrent Power less attractive for income-focused investors.
The peer comparison suggests Torrent Power commands a premium for its superior capital efficiency and lower leverage, but the valuation appears stretched relative to growth prospects. With a PEG ratio of 0.92x (below 1.0x typically indicates undervaluation relative to growth), the stock offers reasonable value for growth investors, though not a compelling bargain.
Valuation Analysis: Fair Value with Limited Upside
Torrent Power's current valuation metrics suggest the stock is trading near fair value with limited margin of safety. At ₹1,483.30, the stock trades at 25x trailing twelve-month earnings, slightly above the industry P/E of 22x, reflecting a premium for quality and execution track record. The price-to-book ratio of 3.97x appears elevated for a capital-intensive utility, though it's justified by the company's ROE of 16.64%—substantially above the typical 12-15% threshold for premium valuations in the power sector.
The enterprise value-to-EBITDA multiple of 15.92x and EV-to-EBIT of 22.59x indicate the stock is priced for continued operational improvement and growth. The EV-to-sales ratio of 2.90x reflects the market's confidence in the company's ability to maintain healthy margins. However, these multiples leave limited room for disappointment, particularly given the flat financial trend assessment for recent quarters.
The stock's valuation grade history reveals volatility, oscillating between "Fair" and "Expensive" over recent months, most recently assessed as "Fair" since August 2025. This fluctuation reflects market uncertainty about the company's growth trajectory and valuation sustainability. The PEG ratio of 0.92x suggests the stock is reasonably priced relative to expected growth, though not deeply undervalued.
Based on the company's current earnings trajectory, quality metrics, and sector positioning, a fair value estimate for Torrent Power centres around ₹1,450-1,550, implying limited upside of 0-5% from current levels of ₹1,483.30. The dividend yield of 0.94% provides modest income support but insufficient compensation for holding through potential volatility.
Shareholding Pattern: Stable Promoter Base, Declining FII Interest
Torrent Power's shareholding structure reflects a stable promoter base with gradually shifting institutional dynamics. Promoter holding has remained rock-solid at 51.09% over the past five quarters, demonstrating unwavering commitment from the controlling shareholders—Torrent Investments Limited. This stable promoter holding with zero pledging provides governance comfort and reduces concerns about management alignment with minority shareholders.
| Quarter | Promoter % | FII % | MF % | Insurance % | Other DII % |
|---|---|---|---|---|---|
| Dec'25 | 51.09% | 8.32% | 16.12% | 5.13% | 9.83% |
| Sep'25 | 51.09% | 8.81% | 16.18% | 5.10% | 9.22% |
| Jun'25 | 51.09% | 9.80% | 16.02% | 4.73% | 9.02% |
| Mar'25 | 51.09% | 9.43% | 16.26% | 4.76% | 9.22% |
| Dec'24 | 51.09% | 10.05% | 15.77% | 4.84% | 8.92% |
Foreign institutional investor (FII) holdings have declined consistently over the past year, dropping from 10.05% in December 2024 to 8.32% in December 2025—a cumulative reduction of 173 basis points. This steady FII exodus raises concerns about international investor confidence, potentially reflecting valuation concerns, sector rotation, or specific company-related reservations. The sequential decline of 49 basis points from September to December 2025 suggests this trend remains intact.
Conversely, mutual fund holdings have remained relatively stable around 16%, oscillating between 16.02% and 16.26% over the past five quarters, indicating domestic institutional investors maintain conviction in the stock. Insurance company holdings increased modestly from 4.73% in June 2025 to 5.13% in December 2025, whilst other domestic institutional investors (DIIs) increased their stake from 8.92% to 9.83% over the past year, partially offsetting FII selling.
The aggregate institutional holding of 39.40% provides reasonable liquidity and professional investor validation, though the declining FII interest warrants monitoring. With 438 FIIs and 31 mutual funds holding the stock, the shareholder base appears well-diversified, reducing single-investor concentration risk.
Stock Performance: Strong Long-Term Returns, Recent Momentum
Torrent Power's stock performance reveals a compelling long-term wealth creation story with recent momentum acceleration. The stock has delivered exceptional returns over extended periods: 227.22% over three years, 192.77% over four years, 349.14% over five years, and an outstanding 576.23% over ten years. These returns substantially outpace the Sensex across all timeframes, generating alpha of 188.34% (3Y), 149.75% (4Y), 284.89% (5Y), and 321.53% (10Y), demonstrating consistent outperformance.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 8.27% | 0.64% | +7.63% |
| 1 Month | 12.31% | 0.83% | +11.48% |
| 3 Months | 13.08% | 0.88% | +12.20% |
| 6 Months | 11.24% | 5.53% | +5.71% |
| YTD | 13.54% | -1.11% | +14.65% |
| 1 Year | 9.89% | 9.01% | +0.88% |
| 3 Years | 227.22% | 38.88% | +188.34% |
| 5 Years | 349.14% | 64.25% | +284.89% |
Recent momentum has been particularly strong, with the stock gaining 8.27% over the past week, 12.31% over one month, and 13.08% over three months, significantly outpacing the broader market. Year-to-date returns of 13.54% contrast sharply with the Sensex's decline of 1.11%, highlighting the stock's defensive characteristics and sector-specific strength. However, the one-year return of 9.89% underperforms the power sector return of 15.69% by 5.80%, suggesting relative weakness within the sector despite absolute gains.
The stock currently trades above all key moving averages—5-day (₹1,409.99), 20-day (₹1,349.84), 50-day (₹1,323.32), 100-day (₹1,303.82), and 200-day (₹1,343.87)—indicating strong technical momentum. The technical trend recently shifted to "Mildly Bullish" on February 10, 2026, from "Sideways," suggesting improving sentiment. However, the stock remains 9.55% below its 52-week high of ₹1,640.00, whilst trading 24.86% above its 52-week low of ₹1,188.00.
Risk metrics reveal a beta of 1.23, indicating the stock is 23% more volatile than the broader market—a "high beta" classification typical of mid-cap stocks. The one-year volatility of 28.12% substantially exceeds the Sensex volatility of 11.54%, whilst the risk-adjusted return of 0.35 lags the Sensex's 0.78, suggesting investors are not being adequately compensated for the additional volatility undertaken.
Investment Thesis: Quality Company at Fair Valuation Facing Growth Challenges
Torrent Power presents an investment case characterised by solid fundamentals, proven execution capabilities, and reasonable valuation, tempered by near-term growth concerns and operational headwinds. The company's investment thesis rests on four key pillars: quality, valuation, financial trend, and technical positioning.
Quality Assessment: Good. The company demonstrates good quality fundamentals with a five-year sales growth of 18.69%, healthy average ROE of 16.64% (well above peer average), no promoter pledging, and substantial institutional holdings of 39.40%. The integrated business model provides diversification benefits, whilst the balanced generation portfolio positions the company to navigate the energy transition. However, declining capital efficiency metrics (ROCE down to 13.48% from 14.44% average) and weakening working capital indicators (lowest debtors turnover ratio) suggest emerging quality concerns.
Valuation: Fair. At 25x trailing earnings and 3.97x book value, the stock trades near fair value with limited margin of safety. The valuation reflects the company's superior ROE and execution track record but leaves little room for disappointment. The PEG ratio of 0.92x suggests reasonable pricing relative to growth expectations, though not a compelling bargain. Recent oscillation between "Fair" and "Expensive" valuation grades indicates market uncertainty about sustainable premium justification.
Financial Trend: Flat. The most concerning aspect of the investment thesis is the flat financial trend assessment for recent quarters. Whilst Q3 FY26 delivered strong year-on-year growth, the sequential stagnation in revenue and profit raises questions about near-term momentum. The company's inability to sustain the strong growth trajectory from earlier quarters, coupled with declining ROCE and working capital metrics, suggests operational challenges that could persist.
Technical Trend: Mildly Bullish. Recent technical indicators have turned positive, with the stock breaking above key moving averages and the trend shifting to "Mildly Bullish." However, weekly MACD remains bullish whilst monthly indicators show mixed signals, suggesting the technical picture remains uncertain. The stock's high beta of 1.23 and elevated volatility of 28.12% indicate potential for sharp moves in either direction.
Key Strengths & Risk Factors
KEY STRENGTHS
- Superior Capital Efficiency: ROE of 16.64% substantially exceeds peer average of ~8%, demonstrating effective capital deployment and profitability generation
- Strong Long-Term Growth: Five-year sales CAGR of 18.69% and EBIT CAGR of 12.41% reflect consistent expansion and market share gains in competitive power sector
- Improving Operating Margins: Operating margin (excluding other income) expanded to 19.12%, up 230 bps YoY, demonstrating operational efficiency and cost management excellence
- Reduced Leverage: Debt-to-equity ratio of 0.45 (lowest amongst peers) and successful deleveraging of ₹2,606 crores in FY25 provide financial flexibility for growth investments
- Integrated Business Model: Presence across generation, transmission, distribution, and cable manufacturing provides diversification and multiple revenue streams, reducing single-segment risk
- Stable Governance: Promoter holding of 51.09% with zero pledging and high institutional holdings of 39.40% provide governance comfort and professional investor validation
- Exceptional Long-Term Returns: Stock delivered 349.14% returns over five years and 576.23% over ten years, substantially outpacing broader market indices
KEY CONCERNS
- Flat Sequential Growth: Revenue declined 0.38% QoQ and net profit fell 1.06% QoQ in Q3 FY26, indicating momentum loss after strong first half performance
- Declining Capital Efficiency: Latest ROCE of 13.48% below five-year average of 14.44%, with half-yearly ROCE at lowest recent level of 14.21%, suggesting deteriorating asset productivity
- Working Capital Concerns: Debtors turnover ratio declined to lowest level of 8.35 times, whilst cash position of ₹304.12 crores represents lowest recent level, raising liquidity questions
- FII Exodus: Foreign institutional holdings declined from 10.05% to 8.32% over past year, suggesting international investor confidence erosion potentially linked to valuation or growth concerns
- Sector Underperformance: One-year return of 9.89% lags power sector return of 15.69% by 5.80%, indicating relative weakness despite absolute gains
- Limited Dividend Yield: Yield of 0.94% lags peer NHPC's 4.38% and provides insufficient income compensation for volatility (28.12% vs Sensex 11.54%)
- Regulatory Risks: Power sector faces ongoing regulatory uncertainties around tariff structures, fuel cost pass-through, and renewable energy mandates that could impact profitability
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained Margin Expansion: Operating margins sustaining above 19% or expanding further would validate operational efficiency improvements and pricing power
- Revenue Growth Acceleration: Sequential revenue growth returning to positive territory in Q4 FY26, indicating demand recovery and capacity utilisation improvement
- Working Capital Improvement: Debtors turnover ratio improving from current 8.35x low, coupled with cash position strengthening, would ease liquidity concerns
- Renewable Capacity Additions: Successful commissioning of new renewable projects enhancing generation mix and positioning for energy transition opportunities
- Institutional Buying Return: FII holdings stabilising or increasing after year-long decline would signal renewed international investor confidence
RED FLAGS
- Continued Sequential Stagnation: Further QoQ revenue or profit declines in coming quarters would confirm momentum loss and raise concerns about FY27 growth trajectory
- ROCE Deterioration: Capital efficiency metrics declining below 13% would indicate serious asset productivity issues requiring management attention
- Cash Flow Stress: Operating cash flows weakening or free cash flow turning negative amidst ongoing capex would heighten financial stress concerns
- Accelerated FII Selling: Foreign institutional holdings declining below 8% would represent significant loss of international investor confidence
- Margin Compression: Operating margins reverting below 18% would signal competitive pressures or cost inflation challenges undermining profitability
The forward outlook for Torrent Power hinges critically on the company's ability to reignite sequential growth momentum whilst maintaining the margin expansion achieved in recent quarters. Management commentary on demand trends, capacity utilisation rates, and the pipeline of new projects will provide crucial insights into near-term trajectory. Investors should closely monitor quarterly revenue growth patterns, ROCE trends, and working capital metrics as key indicators of operational health.
The broader power sector dynamics—including regulatory developments on tariff structures, renewable energy mandates, and fuel cost pass-through mechanisms—will significantly influence the company's ability to sustain profitability. Additionally, the company's capital allocation decisions, particularly regarding renewable capacity additions versus thermal plant maintenance, will shape long-term competitiveness in India's evolving energy landscape.
The Verdict: Quality Company Facing Growth Inflection
Score: 60/100
For Fresh Investors: Not recommended for fresh purchases at current levels. Whilst Torrent Power demonstrates good quality fundamentals with superior ROE and strong long-term track record, the flat financial trend in recent quarters, fair valuation with limited upside (0-5%), and declining capital efficiency metrics suggest limited margin of safety. Fresh investors should await clearer evidence of sequential growth resumption and ROCE stabilisation before initiating positions. A 10-15% correction towards ₹1,300-1,350 levels would offer more attractive entry points with better risk-reward.
For Existing Holders: Continue to hold with close monitoring of quarterly performance trends. The company's solid fundamentals, proven execution capabilities, and strong long-term wealth creation track record justify maintaining positions. However, set a stop-loss mentally around ₹1,280 (approximately 13-14% below current levels) to protect against sustained momentum loss. Monitor Q4 FY26 results closely for signs of sequential growth recovery—failure to demonstrate revenue and profit acceleration would warrant reassessing the holding thesis. The dividend yield of 0.94% provides modest income support during the holding period.
Fair Value Estimate: ₹1,450-1,550 (0-5% upside from current ₹1,483.30)
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. Past performance does not guarantee future results. The views expressed are based on analysis of publicly available information as of February 10, 2026, and are subject to change based on market conditions and company developments.
