NHPC Ltd is Rated Strong Sell

Current Rating and Its Implications

MarketsMOJO’s Strong Sell rating on NHPC Ltd indicates a cautious stance for investors, signalling concerns about the company’s near-term prospects based on a comprehensive evaluation of its quality, valuation, financial trend, and technical indicators. This rating suggests that investors should consider avoiding new positions or potentially reducing exposure, given the prevailing challenges identified in the company’s fundamentals and market behaviour.

Quality Assessment

As of 18 February 2026, NHPC Ltd’s quality grade is assessed as average. The company’s ability to generate returns on equity remains modest, with an average Return on Equity (ROE) of 9.11%, indicating relatively low profitability per unit of shareholders’ funds. Additionally, the company’s operating profit has declined at an annualised rate of -3.03% over the past five years, reflecting subdued long-term growth prospects. These factors contribute to a cautious view on the company’s operational efficiency and earnings quality.

Valuation Considerations

The valuation grade for NHPC Ltd is classified as very expensive. Despite trading at a discount relative to its peers’ historical valuations, the company’s Return on Capital Employed (ROCE) stands at a low 5.3%, with an Enterprise Value to Capital Employed ratio of 1.4. This combination suggests that the stock’s price does not adequately compensate for the underlying capital efficiency and profitability challenges. Investors should be wary of the premium valuation in the context of the company’s financial performance.

Financial Trend Analysis

Financially, NHPC Ltd is exhibiting negative trends. The company’s debt servicing capacity is strained, with a high Debt to EBITDA ratio of 5.14 times, signalling elevated leverage and potential liquidity risks. Interest expenses have surged by 136.40% in the latest six-month period, reaching ₹587.94 crores, further pressuring profitability. The debt-equity ratio has increased to 1.09 times, the highest in recent periods, while the ROCE for the half-year is at a low 6.50%. These indicators highlight deteriorating financial health and raise concerns about the company’s ability to sustain growth and manage obligations effectively.

Technical Outlook

The technical grade for NHPC Ltd is bearish as of 18 February 2026. The stock has experienced consistent downward momentum, with returns over various time frames reflecting this trend: a 1-day decline of -0.53%, a 1-week drop of -1.64%, and a 1-month fall of -5.01%. Over the past three and six months, the stock has declined by -5.28% and -7.83% respectively, while the year-to-date return stands at -3.64%. Although the stock has delivered a modest 4.51% return over the last year, this has been accompanied by rising profits of 17.1%, resulting in a PEG ratio of 1.4, which suggests that the market is pricing in limited growth potential relative to earnings expansion.

Summary for Investors

In summary, NHPC Ltd’s Strong Sell rating reflects a convergence of factors that warrant caution. The company’s average quality, very expensive valuation, negative financial trends, and bearish technical signals collectively suggest that the stock faces significant headwinds. Investors should carefully weigh these considerations against their risk tolerance and investment horizon. The current rating advises prudence, highlighting the importance of monitoring the company’s financial health and market developments closely before committing capital.

Debt and Profitability Challenges

NHPC Ltd’s elevated leverage remains a critical concern. The Debt to EBITDA ratio of 5.14 times indicates a heavy debt burden relative to earnings before interest, taxes, depreciation, and amortisation. This level of indebtedness limits financial flexibility and increases vulnerability to interest rate fluctuations. The sharp rise in interest expenses by 136.40% in the latest half-year period exacerbates this pressure, reducing net profitability and cash flow available for reinvestment or shareholder returns.

Operating Performance and Growth Prospects

The company’s operating profit trajectory has been negative, with a decline of -3.03% annually over five years. This trend signals challenges in expanding core earnings and maintaining operational efficiency. The recent negative results declared in December 2025, following flat performance in September 2025, underscore the volatility and uncertainty in NHPC Ltd’s earnings stream. Such performance metrics dampen investor confidence and justify the cautious rating stance.

Valuation in Context

Despite the company’s struggles, the stock trades at a discount compared to its peers’ average historical valuations. However, this discount does not fully offset the risks posed by weak profitability and high leverage. The ROCE of 5.3% is low for the sector, and the Enterprise Value to Capital Employed ratio of 1.4 suggests that investors are paying a premium for capital that is not generating commensurate returns. The PEG ratio of 1.4 further indicates that earnings growth is not sufficiently robust to justify current price levels.

Technical Momentum and Market Sentiment

The bearish technical grade reflects ongoing negative momentum in NHPC Ltd’s share price. The consistent declines across short and medium-term periods highlight investor apprehension and selling pressure. While the stock’s 1-year return of 4.51% shows some resilience, it is modest relative to broader market indices and sector peers. This technical backdrop reinforces the Strong Sell rating, signalling that market sentiment remains subdued.

Investor Takeaway

For investors, the Strong Sell rating on NHPC Ltd serves as a clear cautionary signal. The combination of average operational quality, expensive valuation metrics, deteriorating financial trends, and bearish technical indicators suggests that the stock is currently unattractive for accumulation. Investors should prioritise risk management and consider alternative opportunities with stronger fundamentals and more favourable market dynamics.

Outlook and Monitoring

Given the company’s financial challenges and market performance, close monitoring of NHPC Ltd’s debt levels, profitability trends, and operational improvements is essential. Any meaningful turnaround in these areas could warrant a reassessment of the rating. Until then, the Strong Sell recommendation reflects the prevailing risks and advises investors to exercise caution.

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