Elara Capital Assigns 'BUY' Rating to Adani Energy Solutions with Target Price of Rs 930, Indicating 37% Upside

Synopsis

Global brokerage Elara Capital has given a 'BUY' rating to Adani Energy Solutions Ltd with a target price of Rs 930, suggesting a potential upside of 37%. The company is expected to see significant growth in its transmission and distribution sectors, supported by the government's renewable energy initiatives.

Key Takeaways

Elara Capital initiates coverage on AESL with a 'BUY' rating.
Target share price set at Rs 930, indicating 37% upside.
Transmission EBITDA projected to reach Rs 76 billion by FY27E.
Strong market share in smart meters with 17%.
Government aims for 500GW of renewable energy capacity.

Ahmedabad, Feb 20 (NationPress) - Global brokerage Elara Capital on Thursday began its coverage of Adani Energy Solutions Ltd (AESL) with a 'BUY' rating and a target share price of Rs 930, which suggests a potential upside of 37 percent from the current market value.

Adani Energy Solutions is poised to experience significant growth in its transmission, distribution, and smart meter sectors. The transmission EBITDA is anticipated to double to Rs 76 billion by FY27E, fueled by India’s ambitious renewable energy (RE) goals, a 20-25 percent market share in the Rs 840 billion near-term transmission bidding arena, and a project pipeline worth Rs 548 billion.

In the distribution segment, demand at Mundra SEZ is projected to soar from 50MW to 5GW, increasing the regulated asset base (RAB) to Rs 15-20 billion. Meanwhile, operations in Mumbai are set to receive annual capex ranging from Rs 12-15 billion, which is expected to boost regulated equity to Rs 60 billion by FY27E, as per the brokerage.

“AESL also maintains a stronghold in the smart meter sector with a 17 percent market share, boasting 23 million meters and an EBITDA margin of 85 percent. We begin our coverage of AESL with a Buy rating and a sum-of-the-parts (SOTP)-based target price of Rs 930,” stated Elara Capital in its report.

The company's extensive transmission pipeline and significant market share in transmission bids, coupled with the emerging smart metering business and ongoing RAB expansion opportunities in distribution, remain pivotal segments for the Adani Group entity.

The brokerage emphasized that the government’s ambition to reach 500GW of renewable energy capacity necessitates a robust transmission network for green power evacuation, leading to increased bidding for transmission projects.

Industry projections indicate a near-term bidding opportunity valued at Rs 840 billion, with AESL expected to capture a 20-25 percent market share.

Presently, the company is engaged in transmission projects valued at Rs 548 billion, expected to conclude in the next 18-24 months.

Post its Qualified Institutional Placement (QIP) in FY25, AESL has secured an additional five projects worth Rs 388 billion.

These new projects are anticipated to bring in an incremental EBITDA of Rs 70 billion, effectively propelling EBITDA from the current Rs 40 billion to approximately Rs 76 billion by FY27E, according to the report from Elara Capital.

“Moreover, we assign an option value of Rs 196 per share for its forthcoming smart meter initiatives and Rs 156 per share for new transmission projects under the National Electricity Plan,” it further noted.