GE Power India Ltd Upgraded to Sell on Technical Improvements Despite Lingering Fundamental Concerns

Quality Assessment: Weak Long-Term Fundamentals Persist

Despite the recent upgrade in rating, GE Power India Ltd’s quality parameters remain under pressure. The company’s long-term fundamental strength is notably weak, with an average Return on Capital Employed (ROCE) stagnating at 0%. This indicates that the firm has struggled to generate adequate returns on its invested capital over recent years.

Moreover, the company’s net sales have declined at an annualised rate of -16.40% over the past five years, while operating profit has deteriorated sharply by -188.58% in the same period. Such negative growth trends highlight persistent operational challenges and raise concerns about sustainable profitability.

Adding to the risk profile, GE Power’s debt servicing capability is limited, with a Debt to EBITDA ratio of -1.00 times, signalling potential financial strain. The company’s negative EBITDA further emphasises the precarious nature of its earnings quality, making it a risky proposition for investors focused on stable cash flows and debt management.

Valuation Metrics: Trading at Riskier Levels Despite Profit Growth

From a valuation standpoint, GE Power India Ltd is currently trading at levels considered risky relative to its historical averages. Over the last year, the stock has delivered a negative return of -17.01%, underperforming the broader market benchmark BSE500, which posted a positive 5.24% return during the same period.

Interestingly, the company’s profits have surged by 168.8% over the past year, resulting in a low Price/Earnings to Growth (PEG) ratio of 0.3. This suggests that while earnings growth is robust, the market has not fully rewarded the stock, possibly due to concerns over sustainability and broader fundamental weaknesses.

Institutional investor participation has also waned, with a decline of -0.51% in their stake over the previous quarter, leaving them holding a mere 0.91% of the company’s shares. Given that institutional investors typically possess superior analytical resources, their reduced involvement may reflect scepticism about the company’s medium to long-term prospects.

Financial Trend: Mixed Signals Amid Quarterly Improvement

GE Power India Ltd’s recent quarterly results for Q2 FY25-26 have been encouraging, with a 2.35% growth in operating profit and a remarkable 563.5% increase in PAT to ₹44.37 crores compared to the previous four-quarter average. Net sales for the latest six months have also grown by 22.33% to ₹567.37 crores, signalling some operational recovery.

Additionally, the company’s debt-equity ratio has improved to a low 0.05 times as of the half-year mark, indicating a more conservative capital structure and reduced leverage risk in the short term. These positive financial trends provide some support to the stock’s outlook, though they remain insufficient to offset the longer-term fundamental weaknesses.

Technical Analysis: Upgrade Driven by Mildly Bullish Indicators

The primary catalyst for the upgrade from Strong Sell to Sell is the improvement in technical indicators. The technical trend has shifted from sideways to mildly bullish, reflecting a more positive market sentiment towards the stock in the near term.

Key technical signals include a mildly bullish daily moving average and a weekly Dow Theory indicator signalling mild bullishness. However, some indicators remain mixed or bearish: the weekly MACD is mildly bearish while the monthly MACD is bullish; Bollinger Bands on both weekly and monthly charts remain bearish; and the KST indicator is mildly bearish on both weekly and monthly timeframes.

Relative Strength Index (RSI) readings on weekly and monthly charts show no clear signal, while On-Balance Volume (OBV) indicates no trend, suggesting limited conviction among traders. The stock price currently trades at ₹315.85, down 1.19% on the day, with a 52-week range between ₹196.00 and ₹393.75.

Despite the mixed technical picture, the mild bullish tilt has been sufficient to improve the overall technical grade, prompting the rating upgrade.

Comparative Performance: Underperformance Against Benchmarks

GE Power India Ltd’s stock returns have lagged behind key market indices over multiple time horizons. Year-to-date, the stock has declined by -16.93%, while the Sensex has gained 8.39%. Over the last one year, the stock’s return of -17.01% contrasts sharply with the Sensex’s 7.62% gain.

Longer-term performance is mixed; the stock has outperformed the Sensex over three years with a 126.42% return versus 38.54% for the benchmark, but has underperformed over five and ten years, with returns of 11.92% and -52.59% respectively, compared to Sensex gains of 77.88% and 224.76%.

This uneven performance history underscores the stock’s volatility and the challenges investors face in timing entry and exit points.

Conclusion: A Cautious Sell Rating Reflecting Mixed Signals

GE Power India Ltd’s upgrade from Strong Sell to Sell reflects a nuanced investment stance. While technical indicators have improved to a mildly bullish posture, providing some near-term optimism, the company’s fundamental and valuation metrics remain weak and risky. Long-term growth has been negative, debt servicing capacity is limited, and institutional investor interest is declining.

Investors should weigh the recent positive quarterly financial results and technical improvements against the backdrop of poor long-term fundamentals and underperformance relative to market benchmarks. The stock’s current Mojo Score of 44.0 and Mojo Grade of Sell (up from Strong Sell) encapsulate this cautious outlook.

Given these factors, GE Power India Ltd may appeal to investors with a higher risk tolerance seeking potential turnaround opportunities, but it remains a speculative choice compared to more stable heavy electrical equipment peers and broader market options.

Only Rs. 9,999 - Get MojoOne + Stock of the Week for 1 Year (MRP = Rs. 34,999) Start Today