Jefferies Initiates Buy Rating for Adani Power with Target Price of Rs 660, Signaling 30% Upside
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Synopsis
Jefferies has started its coverage on Adani Power Limited, assigning it a buy rating and a target price of Rs 660, indicating a potential upside of 30 percent. The brokerage highlights the company's plans to significantly increase its capacity and the favorable market conditions.
Key Takeaways
- Jefferies gives Adani Power a buy rating.
- Target price set at Rs 660, implying a 30% upside.
- Company aims to increase capacity from 17.6 GW to 30.7 GW by 2030.
- 87% capacity secured with Power Purchase Agreements.
- Projected EBITDA growth of 10% from FY24-27E and 19% from FY27E-30E.
New Delhi, Feb 4 (NationPress) The global investment firm Jefferies has recently initiated its coverage on Adani Power Limited (APL), assigning it a buy rating along with a target price of Rs 660, which suggests a potential upside of 30 percent from its current valuation.
Adani Power stands as India’s second-largest thermal energy producer, following NTPC, and aims to enhance its capacity by 1.7 times, increasing from 17.6 GW to 30.7 GW by the year 2030.
Jefferies noted, “The necessary land acquisitions and financing strategies are well-established. Our close collaboration with BHEL for timely delivery of equipment and in-house EPC operations are ensuring that capital expenditures remain on track. The thermal capacity in a scenario of overall peak deficits, coupled with merchant exposure, is favorable. We commence coverage with a Buy recommendation, highlighting a 30 percent upside potential,” as mentioned in their analysis.
This company of the Adani Group manages 12 power plants spread across eight states, with 87 percent of its capacity secured through Power Purchase Agreements (PPA).
Additionally, about 98 percent of its uncontracted capacity is located near coal mines, facilitating cost-effective coal procurement. The coastal plants, which account for 43 percent of the capacity, rely on imported coal but benefit from a fuel cost passthrough or index-linked price escalation.
As per the brokerage’s insights, Adani Power’s merchant capacity is projected to be 12-13 percent by FY30E, contributing 19-20 percent to EBITDA compared to nearly 30 percent currently.
“We estimate Rs 6/unit merchant realizations, in contrast to the Rs 7/unit average realization for APL in FY24. A 5 percent increase in merchant realization translates to a 2 percent increase in FY27E EBITDA,” remarked Jefferies. They further indicated, “We expect a rebound in power demand to 7 percent, akin to the prior Capex upcycle phase of FY03-09, serving as a significant catalyst for the stock.”
Jefferies anticipates a 10 percent CAGR in EBITDA for APL from FY24-27E, escalating to 19 percent CAGR from FY27E-30E as new capacity becomes functional.
On Tuesday, APL's shares were trading at Rs 504 each.
In the meantime, Adani Power recorded a 7.4 percent increase in net profits, reaching Rs 2,940 crore for Q3 FY25, up from Rs 2,738 crore in the same quarter of the previous fiscal year (FY24).
The consolidated EBITDA for Q3 FY25 surged 23 percent to Rs 6,185 crore, compared to Rs 5,009 crore in Q3 FY24, attributed to a rise in one-time income, as reported by the Adani Group in its stock exchange disclosures.
Total revenue saw an 11 percent increase, amounting to Rs 14,833 crore against Rs 13,355 crore in Q3 FY24, mainly driven by higher volumes.
