Abstract

This study examines the impact of financial leverage on the profitability of major Indian electricity companies, a sector characterized by capital-intensive operations and long-term infrastructure financing. The analysis employs a balanced panel dataset of six leading firms NTPC, Tata Power, JSW Energy, NHPC, Adani Power and Power Grid Corporation covering the period 2021–2025. Financial leverage is measured using Debt-to-Equity Ratio, Debt Ratio, and Interest Coverage Ratio, while profitability is captured through Return on Equity (ROE), Return on Assets (ROA), and Net Profit Margin. Ordinary Least Squares (OLS) regression models are estimated to evaluate the relationship between leverage and profitability, controlling for firm size, revenue growth, and year effects. The findings reveal a predominantly negative association between leverage (Debt-to-Equity and Debt Ratio) and profitability measures (ROE and ROA), suggesting that firms with higher debt burdens experience declining financial performance. Conversely, the Interest Coverage Ratio shows a positive and significant relationship with profitability, indicating that firms with higher ability to service interest obligations generate better returns. The study confirms the relevance of capital structure theories such as the trade-off theory and pecking order theory in the Indian electricity sector, particularly under evolving regulatory frameworks and fluctuating energy demands. This study contributes to existing literature by offering comparative cross-company insights, updating the empirical scope to the latest financial period, and contextualizing capital structure dynamics within India’s power sector. The results emphasize the need for balanced leverage decisions, improved operational efficiency, and prudent financing strategies to sustain long-term profitability. The study also highlights future research possibilities using non-linear models, firm fixed effects, and regulatory risk variables.