Why is Reliance Power falling/rising?

Recent Price Movement and Market Comparison

Reliance Power’s shares have experienced a notable decline over the past week, dropping 12.17%, significantly underperforming the Sensex’s modest 0.52% fall during the same period. This negative momentum extends over the last month and year, with the stock falling 18.55% and 23.82% respectively, while the Sensex has gained 1.13% and 4.04% over these intervals. Year-to-date, the stock is down 21.17%, contrasting sharply with the Sensex’s 8.55% rise. Despite this recent weakness, the stock has delivered impressive long-term returns, rising 111.01% over three years and an extraordinary 751.52% over five years, outperforming the benchmark significantly in the longer term.

Technical Indicators and Trading Activity

On 10 Dec, investor participation increased, with delivery volume rising by 41.34% to 1.87 crore shares compared to the five-day average, indicating heightened trading interest. However, the stock remains below all key moving averages—5-day, 20-day, 50-day, 100-day, and 200-day—signalling a bearish technical outlook. The stock’s liquidity supports trades up to ₹2.81 crore based on 2% of the five-day average traded value, ensuring reasonable market depth despite the recent price weakness.

Financial Performance: A Tale of Contrasts

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

Valuation metrics also suggest the stock is attractively priced relative to peers, with an enterprise value to capital employed ratio of 0.9 and a PEG ratio of 0.4, indicating potential undervaluation given the profit growth. Despite these positives, the stock’s one-year return remains negative at -23.82%, highlighting a disconnect between earnings performance and market valuation.

Long-Term Challenges Weighing on Investor Sentiment

Despite recent earnings improvements, Reliance Power faces significant long-term fundamental headwinds. The company’s operating profits have declined at a compound annual growth rate (CAGR) of -7.14% over the past five years, signalling structural challenges in sustaining profitability. Moreover, the firm’s debt burden remains a concern, with a high Debt to EBITDA ratio of 9.83 times, indicating limited ability to comfortably service its liabilities. Return on equity (ROE) is also low, averaging just 0.49%, which suggests weak profitability relative to shareholders’ funds.

Investor confidence appears muted, as evidenced by domestic mutual funds holding a mere 0.96% stake in the company. Given their capacity for detailed research, this low institutional interest may reflect reservations about the company’s valuation or business prospects. The stock’s persistent underperformance relative to the broader market, including the BSE500’s 0.62% gain over the past year, further underscores investor caution.

Conclusion: Why Reliance Power Is Falling

The recent decline in Reliance Power’s share price on 11-Dec reflects a complex balance between encouraging short-term profit growth and persistent long-term structural weaknesses. While the company’s latest quarterly results demonstrate significant earnings improvement and operational efficiency gains, these have not translated into positive market sentiment or price momentum. The stock’s consistent underperformance against key benchmarks, combined with technical weakness and concerns over high leverage and low return on equity, continue to weigh heavily on investor confidence.

In essence, Reliance Power’s share price is falling because the market remains cautious about the sustainability of its turnaround amid ongoing fundamental challenges. Until the company can demonstrate consistent long-term growth and improved financial health, the stock is likely to face pressure despite its recent earnings gains.

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