Why is Reliance Power Ltd falling/rising?

Recent Price Performance and Market Comparison

Reliance Power’s stock has underperformed significantly against the broader market benchmarks. Over the past week, the share price declined by 7.32%, compared to a modest 0.99% fall in the Sensex. The one-month performance is even more stark, with the stock dropping 15.69% while the Sensex fell only 1.20%. Year-to-date, the stock has lost 20.86% of its value, contrasting sharply with the Sensex’s gain of 8.36%. Over the last year, Reliance Power’s shares have declined by 19.58%, whereas the Sensex has risen by 8.21%. This persistent underperformance highlights investor concerns despite some encouraging financial metrics.

Technical and Trading Indicators Signal Weakness

On the day of 30-Dec, the stock’s intraday low touched Rs 33.35, representing a 5.58% drop from the previous close. The weighted average price indicates that a larger volume of shares traded near this low, suggesting selling pressure. Furthermore, Reliance Power is trading below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages, signalling a bearish trend. Investor participation appears to be waning, with delivery volumes on 29-Dec falling by 22.68% compared to the five-day average. Although liquidity remains adequate for trades up to Rs 5.64 crore, the declining volumes and price action point to cautious sentiment among market participants.

Financial Performance: Positive Earnings Amid Structural Challenges

Reliance Power has reported encouraging financial results recently. The company posted a net profit growth of 95.43% in the quarter ending September 2025, marking its third consecutive quarter of positive earnings. Quarterly PAT surged to Rs 87.32 crore, an extraordinary increase of 6859.7% compared to the previous four-quarter average. The company’s return on capital employed (ROCE) for the half-year reached 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 capability in the short term.

Valuation metrics also suggest the stock is attractively priced. With a ROCE of 4.8 and an enterprise value to capital employed ratio of 0.9, Reliance Power trades at a discount relative to its peers’ historical averages. Despite the stock’s negative returns over the past year, profits have risen by 115.4%, resulting in a low PEG ratio of 0.4, which could imply undervaluation based on earnings growth potential.

Long-Term Concerns Weigh on Investor Confidence

However, the company’s long-term fundamentals raise concerns that may be contributing to the stock’s recent decline. Over the last five years, operating profits have contracted at a compound annual growth rate (CAGR) of -7.14%, signalling structural challenges in sustaining growth. The company’s ability to service its debt remains weak, with a high Debt to EBITDA ratio of 9.83 times, indicating significant leverage risk. Additionally, the average return on equity (ROE) stands at a low 0.49%, reflecting limited profitability relative to shareholders’ funds.

Investor sentiment is further dampened by the limited interest from domestic mutual funds, which hold only 0.96% of the company’s shares. Given their capacity for detailed research, this small stake may suggest reservations about the company’s valuation or business prospects. The stock’s underperformance relative to the broader BSE500 index, which has delivered 5.56% returns over the past year, underscores the challenges Reliance Power faces in regaining investor favour.

Conclusion: A Stock Caught Between Earnings Growth and Structural Weakness

Reliance Power’s recent share price decline on 30-Dec reflects a complex interplay of factors. While the company has demonstrated strong profit growth and improved operational metrics in the short term, persistent long-term weaknesses and high leverage continue to weigh on investor confidence. The stock’s consistent underperformance against market benchmarks and falling investor participation suggest that market participants remain cautious. Until the company can address its structural challenges and improve its debt servicing capacity, the stock is likely to face continued pressure despite its attractive valuation and recent earnings momentum.

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