Buy Adani Green Energy Ltd For Target Rs. 1,500 By Emkay Global Financial Services
We maintain our constructive view on Adani Green Energy on the back of attractive valuation and robust growth outlook. Operationally, FY25 saw an extended and severe monsoon in Khavda, which affected project work, with stabilization limiting CUF increase. Slowdown in power demand growth in H2 also impacted broader merchant rates. Nevertheless, the management is confident about cumulatively adding 5GW, and the 2030 target of 50GW remains intact. AGEL’s focus on storage solutions is also increasing with BESS being included in the strategy. It recently won a PSP storage capacity tender of 1.25GW from UPPCL for 40 years, while hybrid MSEDCL and NHPC tender wins also add to the round-the-clock ecosystem. It also refinanced the USD1.06bn CY21 Rajasthan construction facility through a domestic lender with a 19-year tenor; funding channels are also adequately available for future requirements. We still take a conservative stance and tweak our project phasing, thereby lowering our effective capacity assumptions during FY25-30, besides building in over 50GW in FY31. We also moderate our CUF and merchant tariff assumptions. We reduce our annual EBITDA estimates 25-30% each and TP by ~40% to Rs1,500 with a lower 13x FY31E target EV/EBITDA multiple (vs 15x earlier), which provides ~75% upside from the CMP. Our bull case TP is Rs2,530, if the company is able to execute its volume targets by FY29-30. We reiterate BUY on the stock.
FY25 saw monsoon impact Khavda project, but growth plans intact
AGEL added 675MW of generation capacity in 9MFY25, while Q4FY25 saw ~1GW being added so far. Khavda saw a severe extended monsoon, which impacted project work, but the management is optimistic of adding 5GW this year and 5-6GW annually thereafter, with the target of 50GW remaining intact for 2030. PSP projects totaling 5.5GW of capacity are also on schedule with the first 500MW to come by 2027-28.
Focus on storage solutions increasing with BESS included in the mix
AGEL has also included BESS in its overall strategy, though PSP could still take precedence. It aims to enhance storage solutions and provide round-the-clock power as the C&I portfolio is expected to expand. It recently won a plain vanilla PSP tender for a 1.25GW project at Sonbhadra (UP) from UPPCL for 40 years at an annual rental of Rs77mn/MW. This could be commissioned by 2030 though we have not factored in the same, nor have we included any BESS capacity in our earnings model.
Funding channels are adequately available for future requirements
Financing and refinancing options are adequately available for AGEL, as was demonstrated by the recent long-term refinancing of the USD1.06bn CY21 Rajasthan construction facility through a domestic lender. We have slightly increased the cost of debt assumptions but the same would continue to decline going ahead.
1-Year share price trend (Rs)
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