Tata Power Company Ltd Upgraded from Strong Sell to Sell on Technical and Valuation Improvements

Technical Trend Improvement Spurs Upgrade

The most significant catalyst behind the rating change is the technical grade adjustment. Tata Power’s technical trend has shifted from bearish to mildly bearish, signalling a tentative improvement in market sentiment. Key technical indicators present a mixed but cautiously optimistic picture. The Moving Average Convergence Divergence (MACD) remains bearish on a weekly basis but has softened to mildly bearish on the monthly chart. Similarly, Bollinger Bands and the KST (Know Sure Thing) indicator show mildly bearish tendencies on monthly timeframes, while weekly readings remain bearish.

Notably, the Dow Theory indicator has turned mildly bullish on a weekly basis, and the On-Balance Volume (OBV) also shows mild bullishness weekly, suggesting some accumulation by investors. The Relative Strength Index (RSI) remains neutral with no clear signal on both weekly and monthly charts. Daily moving averages indicate a mildly bearish stance, but the overall technical momentum has improved enough to warrant a positive revision in the technical grade.

Price action supports this view, with the stock closing at ₹375.30 on 12 February 2026, up 1.46% from the previous close of ₹369.90. The stock’s 52-week range stands between ₹326.25 and ₹416.70, indicating room for recovery from recent lows.

Valuation Grade Upgraded to Attractive

Alongside technical improvements, Tata Power’s valuation grade has been upgraded from fair to attractive. The company currently trades at a price-to-earnings (PE) ratio of 31.73, which, while elevated compared to some peers, is considered reasonable given its growth prospects and sector dynamics. The price-to-book value stands at 3.18, and the enterprise value to EBITDA ratio is 13.20, both indicating a valuation discount relative to other power sector companies such as Adani Power and Adani Green, which are classified as very expensive.

Return on Capital Employed (ROCE) is reported at 9.69%, a modest figure but sufficient to support the attractive valuation grade. The company’s dividend yield remains low at 0.60%, reflecting a cautious payout policy amid ongoing capital expenditure and debt servicing requirements.

Comparatively, NTPC, a key peer, trades at a PE of 14.78 and EV/EBITDA of 11.04, while Adani Green’s valuation metrics are significantly higher, underscoring Tata Power’s relative value appeal. The PEG ratio is reported as 0.00, indicating either zero or negative earnings growth expectations, which tempers enthusiasm but does not negate the valuation upgrade.

Financial Trend Remains Challenging

Despite the positive shifts in technical and valuation parameters, Tata Power’s financial trend continues to show signs of strain. The company reported a 23.5% decline in PAT for Q3 FY25-26, with profits at ₹771.98 crore, marking a significant drop compared to the previous four-quarter average. Operating profit to interest coverage ratio has deteriorated to 2.23 times, signalling a low ability to service debt comfortably.

The company’s Debt to EBITDA ratio remains high at 5.03 times, underscoring elevated leverage and financial risk. Return on Capital Employed (average) is a modest 8.07%, reflecting limited profitability per unit of capital invested. The half-year ROCE has also hit a low of 10.50%, further highlighting operational challenges.

Nonetheless, Tata Power has demonstrated healthy long-term growth, with net sales increasing at an annualised rate of 17.41% and operating profit growing at 15.71%. Over a five-year horizon, the stock has delivered a remarkable 327.69% return, significantly outperforming the Sensex’s 63.46% gain. Over ten years, the stock’s return of 566.61% dwarfs the Sensex’s 267.00%, reflecting strong long-term value creation despite recent headwinds.

Quality Parameters and Institutional Confidence

The company’s overall quality grade remains low, reflected in a MarketsMOJO Mojo Score of 34.0 and a Mojo Grade of Sell, albeit improved from a previous Strong Sell. The market capitalisation grade is at the lowest level of 1, indicating a relatively small market cap compared to larger peers.

Institutional investors hold a significant 27.54% stake in Tata Power, with their holdings increasing by 0.68% over the previous quarter. This suggests that well-resourced investors see potential value or strategic merit in the company despite its financial challenges. Institutional backing often provides a stabilising influence and can be a positive signal for longer-term investors.

However, the company’s ability to service debt and generate consistent returns remains a concern. The negative quarterly financial results and high leverage weigh on the quality assessment, limiting the scope for a more positive rating upgrade at this stage.

Long-Term Performance and Market Context

Examining Tata Power’s returns relative to the broader market provides additional context. Over the past week and month, the stock has outperformed the Sensex, delivering returns of 1.08% and 2.86% respectively, compared to the Sensex’s 0.50% and 0.79%. Year-to-date, the stock’s return of -1.12% is marginally better than the Sensex’s -1.16%, indicating relative resilience amid broader market volatility.

However, over the one-year period, Tata Power’s 7.52% return lags the Sensex’s 10.41%, reflecting recent profit pressures. The company’s strong multi-year performance, with 83.25% over three years and 327.69% over five years, highlights its capacity for long-term value creation despite short-term setbacks.

Technically, the stock’s recent trading range between ₹366.75 and ₹377.50 on 12 February 2026 suggests consolidation near current levels, with potential upside towards the 52-week high of ₹416.70 if positive momentum sustains.

Conclusion: A Cautious Upgrade Reflecting Mixed Signals

The upgrade of Tata Power Company Ltd’s investment rating from Strong Sell to Sell reflects a cautious but meaningful improvement in technical indicators and valuation attractiveness. While the company’s financial performance remains challenged by declining profits, high leverage, and modest returns on capital, the improved technical trend and relative valuation discount provide a foundation for potential recovery.

Investors should weigh the company’s long-term growth prospects and institutional backing against ongoing financial risks. The stock’s recent outperformance relative to the Sensex in the short term and its attractive valuation compared to peers may offer selective buying opportunities for those with a higher risk tolerance. However, the overall Mojo Score of 34.0 and Sell grade underscore the need for prudence and close monitoring of financial developments.

In summary, Tata Power’s rating upgrade signals a tentative shift in market perception, driven by technical and valuation factors, but tempered by persistent financial headwinds and quality concerns.

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