RattanIndia Power Downgraded to 'Sell' by MarketsMOJO, High Debt and Pledged Shares Raise Concerns

RattanIndia Power, a midcap company in the power generation and distribution industry, has recently been downgraded to a 'Sell' by MarketsMOJO on 28th November 2024. This decision was based on weak long-term fundamental strength, with an average Return on Capital Employed (ROCE) of 5.03%. Additionally, the company has a high Debt to EBITDA ratio of 9.44 times, indicating a low ability to service debt.
One concerning factor for investors is that 88.65% of the promoter shares are pledged. This means that in falling markets, there is added downward pressure on the stock prices due to the high percentage of pledged shares.

On a positive note, RattanIndia Power has declared positive results for the last 3 consecutive quarters, with the highest operating cash flow of Rs 1,305.76 crore and a higher profit after tax of Rs 91.65 crore in the last half-year. However, the technical trend for the stock is currently sideways, indicating no clear price momentum. The technical trend has also deteriorated from mildly bullish on 28th November 2024, generating only 1.96% returns since then.

Despite the current downtrend, RattanIndia Power has an attractive valuation with a ROCE of 4.9 and an enterprise value to capital employed ratio of 1.4. The stock is also trading at a discount compared to its average historical valuations. Over the past year, while the stock has generated a return of 44.91%, its profits have risen by 78.3%.

Moreover, RattanIndia Power has consistently generated positive returns over the last 3 years and has outperformed BSE 500 in each of the last 3 annual periods. However, considering the recent downgrade and the high percentage of pledged shares, investors may want to approach this stock with caution.