NLC India Ltd. Upgraded to Hold by MarketsMOJO on Improved Fundamentals

Quality Grade Improvement Spurs Upgrade

The primary catalyst behind the rating change is the upgrade in NLC India’s quality grade from below average to average. Over the past five years, the company has delivered a steady sales growth rate of 10.08% and an EBIT growth of 9.60%, indicating consistent operational expansion. The average EBIT to interest coverage ratio stands at 2.82, suggesting moderate ability to service interest expenses, although the debt burden remains a concern with a Debt to EBITDA ratio averaging 5.64 times and a Net Debt to Equity ratio of 1.30.

Return metrics have also improved, with an average Return on Capital Employed (ROCE) of 6.52% and Return on Equity (ROE) of 11.02%. While these returns are modest, they represent an improvement over previous periods and compare favourably with several industry peers such as CESC and Nava, which also hold average quality grades. The company’s tax ratio of 15.7% and a dividend payout ratio of 15.87% reflect a balanced approach to reinvestment and shareholder returns. Importantly, NLC India has zero pledged shares, and institutional holdings remain healthy at 21.25%, signalling strong backing from informed investors.

Valuation Remains Attractive Amid Sector Peers

NLC India’s valuation metrics have also contributed to the upgrade. The stock currently trades at ₹257.15, slightly down from the previous close of ₹258.00, and well below its 52-week high of ₹292.35. The company’s Enterprise Value to Capital Employed ratio stands at a modest 1.4, indicating that the stock is trading at a discount relative to its peers’ historical valuations. This valuation appeal is reinforced by a PEG ratio of 0.9, suggesting that the stock’s price growth is reasonable relative to its earnings growth potential.

Over the last year, NLC India has delivered a total return of 26.74%, significantly outperforming the broader market benchmark BSE500’s 13.00% return. This market-beating performance underscores the stock’s resilience and appeal to investors seeking exposure to the power sector with a value tilt. Despite a recent one-week dip of 2.85%, the stock’s one-month return remains positive at 1.78%, and its year-to-date return is 2.90%, further supporting the Hold rating.

Financial Trend: Mixed Signals with Flat Quarterly Performance

While the long-term financial trends have shown improvement, the latest quarterly results for Q3 FY25-26 were relatively flat. Profit Before Tax excluding other income (PBT less OI) declined by 11.9% to ₹478.55 crores compared to the previous four-quarter average. Non-operating income accounted for 43.21% of PBT, indicating a significant contribution from non-core activities, which may not be sustainable.

The company’s ability to service debt remains a concern, with a high Debt to EBITDA ratio of 5.01 times, reflecting elevated leverage. This limits financial flexibility and could constrain growth initiatives. However, the steady operating profit growth rate of 9.60% over five years and an average ROCE of 6.66% suggest that the company is generating returns on capital, albeit at a modest level.

Technicals: Short-Term Volatility Amid Long-Term Strength

Technically, NLC India’s stock price has shown some volatility in the short term, with a day change of -0.33% and a recent trading range between ₹252.80 and ₹258.00. The stock’s 52-week low of ₹185.85 provides a significant cushion, while the 52-week high of ₹292.35 marks a resistance level to watch. The current momentum is mixed, with short-term dips offset by strong long-term returns of 226.95% over three years and 386.11% over five years, far exceeding the Sensex’s respective returns of 38.81% and 63.46%.

Institutional investors’ 21.25% holding suggests confidence in the stock’s fundamentals, which may provide support during periods of volatility. The company’s market cap grade of 3 reflects its mid-cap status, which often entails higher volatility but also greater growth potential compared to large-cap peers.

Comparative Industry Position and Outlook

Within the power generation and distribution industry, NLC India’s quality grade upgrade to average places it alongside peers such as CESC and Nava, while companies like Reliance Power and RattanIndia Power remain below average. This relative improvement is significant given the sector’s capital-intensive nature and regulatory challenges.

Despite the flat quarterly results and high leverage, the company’s long-term growth prospects remain intact, supported by steady sales and EBIT growth, improving returns, and a valuation discount. The stock’s outperformance relative to the Sensex and BSE500 over multiple time horizons highlights its potential as a core holding for investors seeking exposure to the power sector with a balanced risk profile.

Conclusion: Hold Rating Reflects Balanced View

The upgrade of NLC India Ltd. from Sell to Hold by MarketsMOJO on 11 Feb 2026 reflects a nuanced assessment of the company’s fundamentals. Improvements in quality metrics, attractive valuation, and strong institutional support have outweighed concerns around debt servicing and recent flat financial performance. Investors should monitor upcoming quarterly results and debt reduction efforts closely, but the current rating suggests the stock is fairly valued with potential for moderate appreciation.

Given the company’s market-beating returns over the past year and solid five-year growth, NLC India remains a viable option for investors favouring steady, value-oriented power sector stocks. However, the elevated leverage and mixed short-term technical signals counsel caution and justify the Hold stance rather than a more aggressive Buy rating at this stage.

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