Buy Adani Power Ltd For Target 259 by Prabhudas Liladhar Capital Ltd
Multi-year Expansion with De-risked Growth
We initiate coverage on Adani Power (ADANI IN) with a BUY rating, supported by a strong earnings growth trajectory as recently signed PPAs offer higher capacity charges, while thermal power remains critical for meeting India’s baseload and reliability requirements. ADANI, India’s second-largest thermal power producer, currently accounts for ~7% of India’s coal-based installed capacity and is targeting a substantial expansion in capacity from 18.3GW in FY26 to 41.9GW by FY32, increasing its market share to ~14%. The ~INR2trn expansion capex (~INR84mn/MW) is manageable, with net debt/EBITDA expected to peak at just 2.5x in FY29E, among the lowest across peers. Importantly, execution risk is relatively contained, with 100% of land and BTG equipment secured, ~60% of capacity additions planned at brownfield sites, and 56% of the expansion pipeline already tied up under long-term PPAs. We forecast 21% EBITDA CAGR over FY26–29E, driven by expected capacity additions of 1.3GW/1.6GW/4.0GW in FY27/28/29E, respectively. We value ADANI at 18x Sep’28E EBITDA, deriving a TP of INR259/share, equivalent to ~10.5x FY32E EBITDA on a 12.5% discount rate. The premium valuation is supported by stronger earnings growth, improving capital efficiency and declining leverage
23.7GW expansion to strengthen ADANI’s baseload position:
ADANI is undertaking a massive thermal expansion, which will take capacity from ~18GW in FY26 to ~42GW by FY32. The program is progressing well, with land secured, BTG orders placed for the entire pipeline, and 12.5GW already tied up under long-term PPAs. The expansion should strengthen ADANI’s position in thermal power amid rising peak demand.
Higher tariffs for upcoming plants to improve profitability:
New PPAs carry an average capacity charge of INR3.9/kWh vs. ~INR1/kWh for the existing fleet. Higher fixed charges should improve ROE to 23% in FY32E vs 19% in FY26.
Exploring nuclear energy as a long-term growth avenue:
ADANI has established Adani Atomic Energy and is evaluating up to 10GW of nuclear capacity by 2035. While still at an early stage, nuclear provides an additional long-term growth avenue.
Strong earnings growth despite elevated capex; leverage manageable:
We forecast EBITDA of 21% over FY26-29E, driven by capacity additions. Despite capex and negative FCF, strong OCF should provide meaningful internal funding support. Net debt is expected to rise, but EBITDA growth keeps leverage (Net/EBITDA) at 2.5x FY29E.
Valuation premium to sustain:
We value ADANI at 18x Sep’28 EBITDA, adjusted for net debt, which yields TP of INR259/share. ADANI currently trades at 14x FY29E EV/EBITDA, while we estimate 21% EBITDA CAGR over FY26–29E. The premium to peers is supported 25% EBITDA CAGR over FY26–32E, while RoE improves to 23% by FY32E from 19% in FY26. And net debt/EBITDA is expected to decline to ~1.0x by FY32E from 2.3x in FY26, providing increasing balance-sheet headroom as the expansion cycle progresses towards nuclear.
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