Adani Energy Solutions Ltd Upgraded to Hold on Improved Financial and Quality Metrics

Financial Trend Improvement Spurs Upgrade

One of the primary drivers behind the upgrade is the shift in Adani Energy Solutions’ financial trend from negative to flat over the last quarter ending December 2025. The financial score improved significantly from -8 to -1 in the past three months, indicating a stabilisation in earnings and operational metrics. Notably, the company reported a Profit Before Tax excluding Other Income (PBT LESS OI) of ₹586.26 crores, marking a robust growth of 50.62% quarter-on-quarter. Additionally, the Profit Before Depreciation, Interest and Taxes (PBDIT) reached a record high of ₹2,335.74 crores, underscoring operational strength.

However, certain operational inefficiencies persist. The inventory turnover ratio for the half-year stood at a low 36.05 times, while the operating profit to interest coverage ratio was also subdued at 2.56 times for the quarter, signalling potential liquidity pressures. The debtors turnover ratio was similarly low at 4.16 times, reflecting slower receivables collection. These factors temper the overall financial outlook but do not overshadow the recent improvements that have helped lift the financial grade.

Quality Metrics Show Marked Progress

Adani Energy Solutions’ quality grade has been upgraded from below average to average, reflecting healthier long-term growth and improved capital efficiency. Over the past five years, the company has delivered a compound annual sales growth rate of 20.62% and EBIT growth of 20.08%, signalling consistent expansion in core operations. The average EBIT to interest coverage ratio stands at 1.53, while the debt to EBITDA ratio remains elevated at 6.52, highlighting the company’s leveraged capital structure.

Net debt to equity ratio averages 2.34 times, confirming the company’s status as a high-debt entity. Despite this, the return on capital employed (ROCE) averaged 8.57%, and return on equity (ROE) averaged 10.54%, indicating moderate profitability relative to invested capital. Institutional holding is relatively high at 23.61%, with a slight increase of 0.59% over the previous quarter, suggesting confidence from sophisticated investors. The company’s dividend payout ratio remains unreported, and pledged shares are minimal at 0.55%, reducing concerns over promoter leverage.

Valuation Remains Expensive but Shows Relative Improvement

The valuation grade has shifted from very expensive to expensive, reflecting a slight moderation in market pricing relative to fundamentals. The company’s price-to-earnings (PE) ratio stands at 45.41, which remains elevated compared to industry peers such as NTPC (PE 14.09) and Tata Power (PE 27.54). The enterprise value to EBITDA ratio is 15.36, while the EV to EBIT ratio is 19.45, both indicating a premium valuation. Price to book value is 4.36, and EV to capital employed is 2.26, suggesting the market continues to price in growth expectations despite recent flat financial results.

Return on capital employed for the latest period is 11.31%, and return on equity is 9.65%, which are modest but insufficient to justify a lower valuation grade. The PEG ratio is reported as zero, indicating no meaningful adjustment for growth in the valuation metric. Dividend yield data is not available, which may limit income-focused investor interest. Overall, while valuation remains on the expensive side, the downgrade from very expensive to expensive signals a slight re-rating in line with stabilising fundamentals.

Technical Indicators Signal Sideways Momentum

The technical grade has been revised from mildly bullish to sideways, reflecting a more cautious market stance. Weekly and monthly Moving Average Convergence Divergence (MACD) indicators show mixed signals: weekly is mildly bearish, while monthly is mildly bullish. Relative Strength Index (RSI) on both weekly and monthly charts shows no clear signal, indicating a lack of strong momentum either way.

Bollinger Bands suggest mild bearishness on the weekly timeframe and bearishness monthly, while daily moving averages remain mildly bullish. The Know Sure Thing (KST) indicator is mildly bearish weekly but mildly bullish monthly. Dow Theory analysis shows no clear trend on either timeframe, and On-Balance Volume (OBV) is neutral weekly but mildly bullish monthly. Collectively, these technical signals point to a sideways trading range with limited directional conviction, supporting the Hold rating.

Stock Performance and Market Context

Adani Energy Solutions’ stock price closed at ₹848.95 on 27 Jan 2026, up 4.26% on the day from a previous close of ₹814.25. The 52-week high is ₹1,067.30, while the 52-week low is ₹639.35, indicating significant volatility over the past year. The stock’s returns over various periods show mixed results: a 1-year return of 12.20% outperforms the Sensex’s 8.61%, but shorter-term returns are weaker, with a 1-month return of -16.38% versus Sensex’s -3.74%, and year-to-date return of -17.52% compared to Sensex’s -3.95%.

Longer-term returns remain impressive, with a 5-year return of 83.30% surpassing the Sensex’s 72.66%, and a remarkable 10-year return of 2393.25% compared to Sensex’s 234.22%. However, the stock’s 3-year return of -57.76% lags significantly behind the Sensex’s 37.97%, reflecting past challenges. Profitability has been under pressure, with profits falling by approximately 1.5% over the past year despite the stock’s positive price performance.

Long-Term Considerations and Risks

Despite the upgrade to Hold, investors should remain mindful of several structural challenges facing Adani Energy Solutions. The company’s ROCE remains low at 8.65%, indicating limited efficiency in generating returns from capital employed. Its high debt levels, with an average debt to equity ratio of 2.34 times, expose the firm to interest rate and refinancing risks, especially given the operating profit to interest coverage ratio of just 2.56 times in the latest quarter.

Operational metrics such as inventory turnover and debtor turnover ratios are also at the lower end of industry norms, suggesting room for improvement in working capital management. The flat financial performance in the December 2025 quarter further highlights the need for sustained earnings growth to justify a higher rating.

On the positive side, the company’s strong sales and EBIT growth over five years, coupled with high institutional ownership of 23.61%, provide a foundation for potential recovery. The stock’s valuation, while expensive, has moderated from very expensive levels, and technical indicators suggest a period of consolidation that could precede renewed momentum.

Conclusion

The upgrade of Adani Energy Solutions Ltd from Sell to Hold reflects a balanced reassessment of its current position. Improved financial trends, a better quality grade, and stabilising technical signals have outweighed persistent valuation and operational challenges. Investors are advised to monitor the company’s ability to convert recent operational gains into consistent profitability and to watch for any shifts in debt servicing capacity. While the stock remains expensive relative to peers, the Hold rating recognises the company’s potential to stabilise and possibly improve its fundamentals in the near term.

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