Why is Reliance Power falling/rising?

Recent Price Movement and Market Context

Reliance Power’s stock closed at ₹38.20 on 04-Dec, down by ₹0.19 or 0.49% from the previous session. This decline continues a short-term downward trend, with the stock falling nearly 1.95% over the last two days. The recent weekly performance has been notably weaker than the benchmark Sensex, with Reliance Power losing 5.05% compared to the Sensex’s marginal 0.53% decline. Over the past month, the stock has dropped 6.19%, while the Sensex gained 2.16%. Year-to-date, Reliance Power’s returns stand at -10.24%, contrasting sharply with the Sensex’s positive 9.12%.

Technical indicators also highlight the stock’s current weakness. Reliance Power is trading below its 5-day, 20-day, 50-day, 100-day, and 200-day moving averages, signalling bearish momentum. However, investor participation has increased, with delivery volumes rising by 18.55% to 1.6 crore shares on 03-Dec compared to the five-day average, suggesting heightened trading interest despite the price decline. The stock remains sufficiently liquid, supporting trade sizes of approximately ₹3.11 crore based on recent average traded values.

Strong Quarterly Earnings Contrasted by Long-Term Weakness

Reliance Power has reported very positive financial results recently, with net profit growth of 95.43% in the quarter ending September 2025. The company has posted positive earnings for three consecutive quarters, with quarterly PAT reaching ₹87.32 crore, an extraordinary increase of 6859.7% compared to the average of the previous four quarters. Additionally, the company’s return on capital employed (ROCE) for the half-year period hit a high of 6.49%, and its operating profit to interest coverage ratio improved to 1.56 times, indicating better operational efficiency and debt servicing capacity in the short term.

Valuation metrics also appear attractive. The stock’s ROCE stands at 4.8, and it trades at an enterprise value to capital employed ratio of 1, suggesting a discount relative to peer valuations. Despite the stock’s negative return of 6.99% over the past year, profits have risen by 115.4%, resulting in a low PEG ratio of 0.5, which may appeal to value investors seeking growth at a reasonable price.

However, the company’s long-term fundamentals remain a concern. Over the last five years, operating profits have declined at a compound annual growth rate (CAGR) of -7.14%, signalling structural challenges. The company’s ability to service debt is weak, with a high Debt to EBITDA ratio of 9.83 times, raising questions about financial leverage and risk. Furthermore, the average return on equity (ROE) is a mere 0.49%, reflecting low profitability relative to shareholders’ funds. These factors contribute to a cautious outlook among investors.

Another notable point is the limited interest from domestic mutual funds, which hold only 0.96% of the company’s shares. Given their capacity for detailed research and due diligence, this small stake may indicate reservations about the company’s valuation or business prospects.

Balancing Growth Potential with Risk

In summary, Reliance Power’s recent price decline reflects a market grappling with mixed signals. On one hand, the company’s recent earnings growth and improved operational metrics provide a positive narrative. On the other, persistent long-term weaknesses, high leverage, and limited institutional endorsement weigh on investor confidence. The stock’s underperformance relative to the Sensex and its position below key moving averages suggest that investors remain cautious despite the company’s turnaround in profitability.

For investors, the key consideration is whether the recent profit surge can be sustained and translated into stronger long-term fundamentals. Until then, the stock’s price movements are likely to remain volatile, influenced by both short-term trading activity and broader market sentiment towards the power sector.

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