RTS Power Corporation Ltd Quality Grade Upgrade Signals Mixed Business Fundamentals

Quality Grade Upgrade: Context and Implications

On 16 February 2026, RTS Power Corporation Ltd’s quality grade was upgraded from below average to average, reflecting improvements in several core financial metrics. This upgrade comes amid a stable mojo score of 37.0 and a mojo grade of Sell, which, while still cautious, is an improvement from the previous Strong Sell rating. The company operates within the Other Electrical Equipment sector, a segment characterised by moderate growth and competitive pressures.

The quality grade upgrade suggests that RTS Power has addressed some of the fundamental weaknesses that previously weighed on its rating. However, the company’s market capitalisation grade remains low at 4, indicating limited scale and liquidity compared to larger peers. Investors should weigh these factors carefully when considering RTS Power’s stock, currently trading at ₹126.50, close to its recent low of ₹117.05 over the past 52 weeks.

Profitability Metrics: ROE and ROCE Analysis

Return on Equity (ROE) and Return on Capital Employed (ROCE) are critical indicators of a company’s ability to generate profits from shareholders’ funds and overall capital. RTS Power’s average ROE stands at a modest 2.93%, while its average ROCE is even lower at 2.48%. These figures are significantly below industry averages and highlight ongoing challenges in generating efficient returns.

While the upgrade to an average quality grade indicates some improvement, these profitability ratios remain subdued. For context, companies in the Other Electrical Equipment sector typically target ROE and ROCE levels above 10% to demonstrate robust operational performance. RTS Power’s low returns suggest that despite growth in sales and earnings before interest and tax (EBIT), the company struggles to convert these into meaningful shareholder value.

Growth Trends: Sales and EBIT Trajectory

RTS Power has exhibited encouraging growth trends over the past five years, with a sales growth rate of 17.64% and EBIT growth of 23.07%. These figures indicate that the company is expanding its top line and improving operational profitability at a healthy pace. Such growth rates are commendable within the capital-intensive electrical equipment industry, where demand can be cyclical and capital deployment critical.

However, the growth must be contextualised against the company’s returns and leverage. High growth accompanied by low returns can signal inefficiencies or aggressive capital expenditure that has yet to translate into profitability. Investors should monitor whether RTS Power can sustain this growth while improving margins and capital efficiency.

Leverage and Debt Profile: Assessing Financial Risk

One of the more positive aspects of RTS Power’s fundamentals is its relatively conservative net debt to equity ratio, averaging just 0.07. This low leverage indicates that the company has maintained a cautious approach to borrowing, which reduces financial risk and interest burden. The average EBIT to interest coverage ratio of 1.32, however, suggests that earnings are only marginally sufficient to cover interest expenses, signalling some vulnerability if earnings were to decline.

Conversely, the average debt to EBITDA ratio of 4.46 is on the higher side, implying that while net debt is low relative to equity, the company carries a significant debt load compared to its earnings before interest, tax, depreciation, and amortisation. This could reflect capital-intensive operations or working capital requirements that strain cash flows.

Overall, RTS Power’s debt metrics present a mixed picture: low net gearing but relatively high leverage when measured against EBITDA. Investors should remain cautious about the company’s ability to service debt if operational performance weakens.

Operational Efficiency: Capital Employed and Taxation

The company’s sales to capital employed ratio averages 0.81, indicating that for every ₹1 of capital employed, RTS Power generates ₹0.81 in sales. This ratio is modest and suggests room for improvement in asset utilisation. Efficient capital deployment is crucial in the electrical equipment sector, where fixed assets and inventory can tie up significant funds.

RTS Power’s tax ratio stands at 14.78%, which is relatively low compared to the standard corporate tax rates in India. This could be due to tax incentives, carry-forward losses, or other factors that temporarily reduce tax expenses, potentially boosting net profitability.

Shareholding and Market Sentiment

Notably, RTS Power has zero pledged shares and no institutional holding reported, which may reflect limited interest from large investors or mutual funds. The absence of pledged shares is a positive sign, indicating no immediate risk of forced selling by promoters. However, the lack of institutional participation could limit liquidity and market support for the stock.

From a price perspective, RTS Power’s stock has underperformed the Sensex over most recent periods. The one-year return is a steep negative 36.38% compared to Sensex’s 9.66% gain, and the three-year return is down 19.17% versus Sensex’s 35.81% rise. Despite this, the company’s five-year and ten-year returns remain impressive at 178.94% and 347.00%, respectively, highlighting long-term value creation amid short-term volatility.

Peer Comparison and Industry Positioning

Within its sector, RTS Power’s quality grade upgrade places it alongside peers such as Rishabh Instruments, GPT Infraproject, Salzer Electronics, and Vascon Engineers, all rated average in quality. This contrasts with some competitors rated below average or not qualifying, indicating RTS Power’s relative improvement in fundamentals.

However, the company’s mojo grade of Sell and modest market cap grade suggest that it still faces challenges in scaling operations and improving investor sentiment. The sector’s competitive landscape demands continuous operational enhancements and financial discipline to sustain growth and profitability.

Conclusion: Balanced Outlook Amid Gradual Improvement

RTS Power Corporation Ltd’s upgrade in quality grade from below average to average marks a positive step in its financial journey. The company has demonstrated solid sales and EBIT growth, maintained low net debt levels, and avoided share pledging, all of which contribute to a healthier business profile.

Nevertheless, key profitability metrics such as ROE and ROCE remain low, and leverage measured by debt to EBITDA is relatively high, signalling ongoing operational and financial challenges. The stock’s recent underperformance relative to the broader market and limited institutional interest further temper enthusiasm.

For investors, RTS Power represents a company in transition, with improving fundamentals but still significant hurdles to clear before it can be considered a strong buy. Monitoring future earnings trends, capital efficiency, and debt servicing capacity will be crucial to reassessing its investment potential.

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