Jefferies initiates coverage on Adani Power (APEL) with Buy and target price of Rs 660, 30% upside from current levels. Adani Power is second largest thermal power generator in India after NTPC (NTPC) and aims to increase capacity 1.7 times from 17.6 GW to 30.7 GW by 2030.
“Land requirements and financing plans are in place. Close co-ordination with BHEL for equipment delivery and inhouse EPC are ensuring Capex is on schedule. Thermal capacity in an overall peak deficit scenario with merchant exposure is a positive. Initiate coverage at Buy, with 30 per cent potential upside,” said Jefferies.
The Adani Group company has 12 power plants across 8 states with 87% capacity tied up with Power Purchase Agreements (PPA).
About 98% of the open capacity is nearby coal mines, so coal sourcing will be economical. Coastal plants (43% capacity) are dependent on imported coal but have fuel cost pass through/index linked price escalation.
According to the brokerage, Adani Power’s merchant capacity should be 12-13% by FY30E, with EBITDA contribution of 19-20% vs 30% currently.
“We assume Rs 6/unit merchant realisations, vs Rs 7/unit average realisation for APL in FY24. Every 5 per cent rise in merchant realisation is a 2 per cent rise in FY27E EBITDA,” said Jefferies, adding that “we believe power demand should recover back to 7 per cent levels vs recent weakness, which is similar to the past Capex upcycle phase of FY03-09. This is a key trigger for the stock.”
The brokerage estimates 10% EBITDA CAGR for APL in FY24-27E and 19% CAGR in FY27E-30E as new capacity comes up.
The stock was trading at Rs 504 today.
Meanwhile, Adani Power reported 7.4% growth in net profit at Rs 2,940 crore in Q3 FY25 vs Rs 2,738 crore in same quarter last year (FY24).Consolidated EBITDA was up 23% at Rs 6,185 crore vs Rs 5,009 crore in Q3 FY24 due to higher one time income. Total revenue was up 11% at Rs 14,833 crore vs Rs 13,355 crore in Q3 FY24.
