Adani Energy Has Jefferies Bullish As Double-Digit Growth Seen In Medium Term

Jefferies has maintained a 'buy' stance on Adani Energy Solutions Ltd. with a target price of Rs 1,150, post the first quarter business update. The company is locked-in for double-digit medium-term growth, according to the brokerage.

"It has Rs 61,600 crore transmission projects on hand, up 3.6 times year-on-year. While, distribution growth is steady in Mumbai, with Mundra having potential to offer upside," it added.

Smart meters is seeing progress in commissioning, which is a key growth driver going forward, the brokerage further added.

The brokerage's price target multiple is 15 times EV/Ebitda FY27E. This is a premium to its implied 10 times target EV/Ebitda multiple for Power Grid Corp., given the much higher growth in AESL, compared to Power Grid's 7% PAT CAGR in FY25-27E, it said.

In FY25-27E, Adani Energy Solutions should see 34% Ebitda CAGR and 57% EPS CAGR driven by execution of its transmission portfolio and also smart meter installations. "Medium term, the company's Ebitda should rise 2.9 times in FY25-30E which compares with just 1.5 times for Power Grid," the brokerage said.

AESL's premium to PGCIL has reduced to 50% versus 991% in January 2023, which makes it look attractive relatively. Also, execution momentum sustains, it added.

Jefferies highlighted that the company's valuation is at a 79% discount to its January 2023 peak one-year forward EV/Ebitda. "Ebitda delivery should drive upside," it noted.

As per the brokerage, the company is comfortable expanding its transmission gross block 2.5 times in FY25-30E, apart from ramping up its smart meter gross block to Rs 24,200 crore versus Rs 1,800 crore at the end of FY25 on this equity base. Net debt to equity ratio should remain within 2 times post execution of existing plans. Additionally, Rs 8,500 crore borrowed to purchase Mumbai distribution circle in 2018 is gradually being paid off with cash flows generated, it added.

The key downside risks include inability to maintain interest rate and market share loss.

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