RTS Power Corporation Ltd Upgraded to Sell on Improved Quality but Bearish Technicals Persist

Quality Grade Improvement: From Below Average to Average

The primary catalyst for the upgrade in RTS Power Corporation’s rating is the notable improvement in its quality grade. The company’s five-year sales growth stands at a robust 17.64%, complemented by an even stronger EBIT growth of 23.07% over the same period. These figures indicate a steady expansion in operational scale and profitability, which have contributed to the quality grade moving from below average to average.

Further supporting this upgrade is the company’s improved capital structure and operational efficiency. RTS Power’s average EBIT to interest coverage ratio is 1.32, suggesting it generates sufficient earnings to cover interest expenses, albeit modestly. The average debt to EBITDA ratio of 4.46 times indicates a moderate leverage level, while the net debt to equity ratio remains low at 0.07, reflecting a conservative approach to borrowing.

Operational efficiency metrics such as sales to capital employed average 0.81, signalling reasonable utilisation of capital in generating revenue. However, profitability ratios remain subdued, with an average return on capital employed (ROCE) of 2.48% and return on equity (ROE) of 2.93%, both indicating limited returns relative to invested capital and shareholder equity.

Dividend payout ratios and institutional holdings remain negligible, with pledged shares at zero, suggesting no immediate concerns over promoter encumbrances or institutional confidence. Overall, these factors have collectively lifted the company’s quality assessment, justifying the upgrade in its investment grade.

Valuation: Attractive Despite Recent Underperformance

RTS Power Corporation’s valuation remains appealing relative to its peers and historical averages. The company’s enterprise value to capital employed ratio stands at 0.8, indicating that the stock is trading at a fair value compared to the capital it employs. This valuation metric suggests that investors are not overpaying for the company’s asset base, which could provide a margin of safety for long-term investors.

Despite this, the stock price has underperformed significantly over the past year, with a return of -36.38% compared to the Sensex’s positive 9.66% return. Over three years, the stock has declined by 19.17%, while the Sensex gained 35.81%, highlighting a persistent lag in market performance. The 52-week price range of ₹117.05 to ₹224.45 further illustrates the volatility and downward pressure on the stock.

Profitability challenges have compounded valuation concerns, with profits falling by 45.9% over the last year. The company’s flat financial performance in Q3 FY25-26, including a 20% decline in net sales to ₹36.04 crores compared to the previous four-quarter average, underscores the ongoing operational difficulties.

Financial Trend: Flat to Weak Performance Amid Low Returns

RTS Power Corporation’s financial trend remains subdued, with flat quarterly results and low returns on capital. The company reported a ROCE of just 2.69% in the half-year period, signalling poor management efficiency in generating profits from its capital base. Non-operating income accounted for a striking 90.38% of profit before tax in the latest quarter, indicating that core business operations are underperforming.

Long-term returns also paint a challenging picture. While the company has delivered impressive cumulative returns over 5 and 10 years (178.94% and 347.00% respectively), recent performance has been disappointing. The stock’s one-year return of -36.38% and three-year return of -19.17% lag behind benchmark indices, reflecting deteriorating fundamentals and investor sentiment.

Debt levels remain manageable, with a low average debt to equity ratio of 0.07, which could provide some financial flexibility. However, the company’s inability to translate this into improved profitability and growth remains a concern for investors.

Technical Analysis: Bearish Signals Dominate

On the technical front, RTS Power Corporation’s trend has shifted from mildly bearish to outright bearish, signalling increased downside risk in the near term. Key technical indicators reinforce this negative outlook:

• MACD readings are bearish on both weekly and monthly charts, indicating downward momentum.
• Relative Strength Index (RSI) shows no clear signal on the weekly chart but is bullish monthly, suggesting some longer-term strength that is currently overshadowed by short-term weakness.
• Bollinger Bands are mildly bearish on both weekly and monthly timeframes, reflecting price pressure near the lower band.
• Daily moving averages are bearish, confirming the short-term downtrend.
• KST (Know Sure Thing) oscillator is bearish on weekly and monthly charts, reinforcing the negative momentum.
• Dow Theory analysis shows no clear trend weekly and mildly bearish monthly, indicating uncertainty but with a bias towards weakness.

Price action today ranged between ₹123.10 and ₹131.75, closing slightly higher at ₹126.50, up 0.12% from the previous close of ₹126.35. Despite this minor uptick, the technical landscape remains unfavourable for a sustained rally.

Contextualising RTS Power Corporation’s Position

RTS Power Corporation operates within the Other Electrical Equipment sector, classified under Capital Goods. Its current Mojo Score is 37.0, with a Mojo Grade upgraded to Sell from Strong Sell as of 16 Feb 2026. The company’s market capitalisation grade is 4, reflecting its micro-cap status and relatively modest market presence.

Comparing RTS Power’s returns to the Sensex highlights its underperformance in recent years. While the Sensex has delivered a 5-year return of 59.83% and a 10-year return of 259.08%, RTS Power has outperformed over these longer horizons with 178.94% and 347.00% respectively. However, the recent one-year and three-year returns of -36.38% and -19.17% respectively indicate a reversal of fortunes, with the stock lagging behind the broader market.

Promoters remain the majority shareholders, with no pledged shares, which may provide some stability in ownership. Institutional holding is currently zero, reflecting limited institutional interest or confidence at this stage.

Given the mixed signals from quality improvements and valuation attractiveness against weak financial trends and bearish technicals, investors should approach RTS Power Corporation with caution. The upgrade to Sell suggests a less negative outlook than before but still advises prudence given the company’s operational challenges and market risks.

Conclusion: Balanced Upgrade Amid Lingering Risks

The upgrade of RTS Power Corporation Ltd’s investment rating from Strong Sell to Sell is primarily driven by improved quality metrics, including stronger sales and EBIT growth, better capital structure, and an attractive valuation relative to peers. However, the company’s financial performance remains flat to weak, with low returns on capital and declining profits, while technical indicators signal bearish momentum.

Investors should weigh these factors carefully. The company’s improved quality grade and fair valuation offer some upside potential, but the persistent financial and technical headwinds suggest that RTS Power remains a risky proposition in the near term. Monitoring upcoming quarterly results and technical developments will be crucial for reassessing the stock’s outlook.

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