IGI Logo

As India doubles down on electrification to connect more rural areas, Adani Energy Solutions Ltd (AESL) -- with its diversified portfolio that includes transmission assets, distribution assets and a smart metering business -- is poised to not only see robust growth over the next four years but also continue to outgrow peers for at least the next decade, according to a new report by global brokerage Cantor Fitzgerald. 

The report forecast the Adani Group company’s total revenue to grow at a CAGR of 20 per cent from FY24 to FY27E and adjusted EBITDA to grow at a CAGR of 28.8 per cent.

This compares to peers growing revenue at low single digits and EBITDA at mid-single digits, said Cantor in its research note.

The global brokerage has set a price target of Rs 2,251 apiece against Rs 979 (as on September 19) for Adani Energy Solutions Ltd.

On Friday, the stock of the company was trading high at Rs 1,011.75.

With an enterprise value of $18.5 billion, "we believe AESL to be a very attractive way to play the rapidly expanding energy markets in India", the report noted.

AESL offers growth unlike any other publicly traded utility/energy company across the US, Europe, or Asia.

"We expect its transmission business will see strong growth as it completes the nine projects it has recently been awarded over the next 18-24 months (and we expect it to win more contracts over the coming years)," said the note. The company’s distribution business should be able to grow at/near double-digit rates as it continues to add to its regulatory asset base (RAB) and its smart metering business is just about to start generating meaningful revenue/profits as it works through its 22.8 million smart meter backlog (to generate $3.2 billion of income), and it could win another 40 million smart meters (which will add another over $6 billion of income), it added.

As the country develops and uses/needs more electricity, AESL's transmission and distribution businesses will stand to benefit.

Moreover, following a recent capital raise (which was meaningfully oversubscribed by 3x, the company is now well-funded to drive growth across all three major segments.

As per the note, "we believe shares are attractive at current levels. On a growth adjusted basis, shares currently trade at a 60 per cent discount to peers, when in our view, it should trade at an in-line multiple (if not a premium)".

On the transmission front, AESL is working on nine additional projects that it expects to complete over the next 18-24 months. These projects will help drive operational revenue from Rs 4,045 crore in FY24 to Rs 7,000 crore in FY27, representing a CAGR of 20.7 per cent.

AESL's profitability is based on its regulatory asset base (RAB) which stood at Rs 8,485 crore (as of Q1 FY25). The company is expecting to add Rs 1,000 crore to its RAB, with targeted returns of high-teens to 20 per cent on additional RAB additions.

"We believe this pace of investment, particularly in India's still developing economy, can continue for many years to come. For each Rs 1,000 crore increase to RAB, AESL's distribution EBITDA should theoretically increase by Rs 200 crore," according to the Cantor note.

Meanwhile, the government has mandated that 250 million households have a smart meter by the year 2025-2026. This is to help the government reduce energy loss by giving the utilities insights into peak consumer demand and consumption patterns.

Adani Energy Solutions has been awarded nine projects to date totalling 22.8 million smart meters, which is 20.2 per cent of the total smart meters that have been awarded. "We believe AESL will be able to maintain its 20 per cent-plus market share, which would translate into 60 million smart meters and ultimately over $9.5 billion of income over the next 8-9 years," the note said.