Reliance Power, a key company under the Anil Dhirubhai Ambani Group (ADAG), has been making headlines with a strong 20% surge in its share price over the last month, defying the broader volatility in the Indian stock market. From trading at ₹34.65 to climbing up to ₹40 per share, the stock has outperformed major benchmarks like the Nifty 50, BSE Sensex, and Bank Nifty Index. This surprising uptick has sparked widespread interest among retail and institutional investors about whether the rally is sustainable and what the future holds for this once-beleaguered company.

This article dives deep into the reasons behind Reliance Power’s share price jump, evaluates the company’s financial and operational turnaround, and breaks down expert opinions on whether to buy, sell, or hold the stock going forward.

Market Outperformance Despite Volatility

While global market jitters, including tariff-related news from the United States under Donald Trump’s leadership, have kept investors cautious, Reliance Power has delivered alpha returns. In comparison, the Nifty 50 rose by only 1.60%, the Sensex by 1.52%, and Bank Nifty by 6.13% during the same one-month period. Even the Small-cap and Mid-cap indices delivered 3.81% and 2.31% returns, respectively, making Reliance Power’s 20% jump significantly noteworthy.

This isn't just a one-off bounce. Since hitting an all-time low of Re 1 in March 2020, the company’s shares have steadily recovered, although it’s still far from its historic high of ₹375. The massive fall and subsequent rebound are tied deeply to the company’s debt history, operational challenges, and strategic restructuring.

Debt Woes and the Turnaround

Historically, Reliance Power's downfall was due to massive borrowing for setting up thermal power plants. Ambitious expansion, delays in execution, regulatory bottlenecks, and coal supply constraints took a toll. These missteps resulted in heavy debts and a tarnished balance sheet, triggering a prolonged slump in investor sentiment.

However, recent quarters have brought positive signs of a turnaround. Following the sale of Reliance Capital to IndusInd International Holdings (IIHL), the company significantly improved its debt profile. The debt-to-equity ratio improved from 1.61 to 0.86, and it reported a net profit of ₹2,878 crore in Q2FY25, mainly due to an exceptional income of ₹3,000 crore from the deconsolidation of Vidarbha Industries Power Limited (VIPL).

Despite this, it’s important to note that Reliance Power is not completely debt-free. The company still holds around ₹250 crore in Non-Convertible Debentures (NCDs) as per its Q3FY25 financials. While bank loans have been cleared, these residual debts indicate that full financial freedom is yet to be achieved. Moreover, the company has announced plans to issue Foreign Currency Convertible Bonds (FCCBs), which may increase its debt levels in the future.

Nevertheless, improvements in Debt Service Coverage Ratio (DSCR) and Interest Coverage Ratio (ICR) suggest enhanced financial discipline and repayment capacity.

Operational Strength and Clean Energy Focus

From a business operations perspective, Reliance Power’s thermal power plants are among the top performers in India. More importantly, the company is now strategically shifting towards renewable energy, aligning with India’s larger clean energy goals.

A major development in this area includes a large-scale solar and battery storage project, undertaken by a Reliance Power subsidiary. This project is pegged to be one of the largest in Asia, reinforcing the company’s commitment to green energy. Additionally, it plans to invest in clean energy projects in Andhra Pradesh, further expanding its footprint in this growing sector.

Expert Views and Stock Advice

Market analysts are cautiously optimistic. According to Nitin Kotiyal, Senior Research Analyst at Fynocrat Technologies, the improvement in debt metrics, along with the strategic shift towards green energy, has renewed investor confidence. However, he cautions that profitability from core operations is still not robust. For instance, in Q3FY25, the company reported a net profit of only ₹42 crore, primarily due to other income of ₹307 crore.

Despite this, analysts believe the stock has upside potential in the short term. Mahesh M Ojha, AVP – Research at Hensex Securities, says the stock has built a strong base at ₹36, with resistance at ₹44. If it breaks this resistance, it may quickly touch the targets of ₹48 and ₹52.

He adds that high-risk investors can look at momentum buying, provided they maintain a strict stop loss at ₹36.

Should You Buy, Sell, or Hold?

The answer depends on your investment strategy:

• Existing shareholders are advised to hold the stock as short-term targets of ₹48 and ₹52 seem achievable based on technical and fundamental indicators.

• New investors with a high-risk appetite can consider entering the stock now, but only with a firm stop loss at ₹36 to limit downside risk.

• Conservative investors may want to wait for clearer signs of core profitability before taking a position.

Why Is Investor Interest Surging?

1. Debt Reduction Milestones: The company’s improvement from a debt-equity ratio of 1.61 to 0.86 is a strong signal of financial health.

2. Operational Strength: High-performing thermal power plants and new solar ventures paint a picture of diversified strength.

3. Green Energy Push: With a focus on renewable projects in Andhra Pradesh, Reliance Power is moving with the global and national trend toward sustainable energy.

Final Thoughts

Reliance Power’s 20% stock surge isn’t just market noise—it’s supported by tangible improvements in debt reduction, renewable energy investments, and project wins. That said, it still faces challenges, especially regarding core profitability and future debt due to FCCBs.

For long-time followers of Anil Ambani's ventures, this could be the beginning of a turnaround story. But as with any mid-cap power stock that has had a turbulent past, caution and a well-calibrated entry/exit strategy are advised.

Investors should keep a close eye on future earnings, especially from core operations, and track updates regarding new project implementations, fundraising plans, and debt obligations. If the current momentum continues with fundamental backing, Reliance Power may regain a significant portion of its lost value.

As always, investors should consider their risk profile, investment horizon, and consult with certified financial advisors before making any decisions.

The Upcoming IPOs in this week and coming weeks are Aten Papers & Foam.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.

Join our Trading with CA Abhay Telegram Channel for regular Stock Market Trading and Investment Calls by CA Abhay Varn - SEBI Registered Research Analyst.