Stock to buy: Global brokerage Jefferies has emerged as the latest bullish voice on Gautam Adani-led power manufacturer Adani Power.
According to the brokerage, Adani Power, India’s second-largest thermal power company after NTPC, is on track for significant growth.
The Adani Group company plans to boost its capacity by 1.7 times, from 17.6 GW to 30.7 GW, by 2030. With land, financing, and strategic partnerships already in place, Adani Power is set to meet its expansion goals, believes Jefferies. Close coordination with BHEL for equipment delivery and in-house EPC teams ensures that its capital expenditure (capex) remains on schedule, strengthening its conviction on the stock.
Against this backdrop, Jefferies initiated coverage on the stock with a ‘Buy’ rating and a target price of ₹660, signalling a potential 30% upside from Saturday’s closing price of ₹509.
Key Growth Drivers
Capacity expansion: The brokerage expects 1.7x capacity rise in FY25E-30E. APL operates 12 power plants across eight states, with 87% of its capacity secured through Power Purchase Agreements (PPAs). The company is well-positioned to source coal economically, as most of its open capacity is located near coal mines.
Merchant Capacity Upside: Adani Power’s merchant capacity (capacity sold at market prices) should be 12-13% by FY30E, said Jefferies. A 5% rise in merchant realisation could boost EBITDA by 2% by FY27E, it added. The potential for higher merchant realisations —driven by increased power demand—is a key trigger for the stock.
Reduced debt levels: Even though Adani Power’s capacity will nearly double, its debt levels are expected to decrease after the peak phase of investment. The company will need about ₹260 billion each year to fund the 13.1 GW of new capacity planned between FY24 and FY30. However, its average yearly cash flow from operations is expected to be ₹234 billion. This means that debt will reach its highest point in FY26-27, at 1.4 times the company’s equity, but after that, the debt is expected to decrease by FY30.
Strong EBITDA Growth: With its capacity addition plans, APL is expected to see a 10% compound annual growth rate (CAGR) in EBITDA between FY24-27E, rising to 19% CAGR from FY27-30E. The company’s valuation at 15x EV/EBITDA is competitive, especially when compared to peers like JSW Energy, which trades at a premium due to its renewable energy focus.
Possible Risks
Past PPA issues cropping up again and impacting EBITDA, sharp drop in merchant realisations, demand disappointment and payment delays for 1.6 GW Godda power plant that has PPAs with Bangladesh, are among some concerns that may impact Adani Power’s growth outlook.
Disclaimer: The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.