Buy Adani Power Ltd for the Target Rs. 178 by JM Financial Services Ltd
First & fast to ride the new wave of power demand
Seeing the indispensability of thermal power in India’s growth story and projected peak power demand of 700GW+ by 2047, Adani Power gradually built capacities and is now India’s largest private sector thermal power producer with 18.1GW capacity (10.8GW organic + 7.3GW inorganic) and is targeting a capacity of 41.9GW by FY32. The company continues to create execution benchmarks like synchronisation of 4,620MW Mundra within 36 months and pre-ordering of critical power equipment. With key enablers in place (land, EC, PPA, equipment) and superior operating metrics (71% PLF, 91% PAF), we expect operational capacity to reach 41.3GW by FY32 and EBITDA/MW to grow from INR 13mn/MW in FY25 to INR 18mn/MW by FY32. Net debt/EBITDA is likely to rise from the current low of 1.6x in FY25 to 3.0x by FY29 due to incremental debt raised to fund the capex of INR 2trln over FY25-32; but, it will moderate to 1.6x by FY31 as new capacity becomes operational. We initiate coverage on the stock with a BUY rating and value it at 13x FY28 EV/EBITDA (considering the improvement in EBITDA/MW) with a TP of INR 178 per share (20% upside), implying 3.4x P/B FY28.
Uninterrupted thermal opportunities: Peak power demand in the country is expected to rise from 250GW in FY24 to 386GW by FY32 and further to 700GW+ by FY47. Ensuring grid reliability, which is being challenged by increasing VRE (variable renewable energy, solar and wind), will require a combination of long-duration energy storage and dependable base load thermal generation. India is estimated to have coal-fired generation capacity of 340GW by 2047 requiring addition of 97GW by 2035 and another net addition of 137GW by 2047 to compensate retirements.
First to see & fast to execute: Post-Covid, when peak power demand grew 6.7%/6.3%/12.7% during FY22/FY23/FY24, Adani Power was the first one to see the indispensability of thermal power in India’s growth story. It gradually built capacities and has become India’s largest private sector thermal power producer with 18.1GW capacity, which is targeted to increase to 41.9GW by FY32. With a record of execution benchmarks, pre-ordering of critical power equipment - an industry first, in-house project management and logistics, secured land, PPA and other clearances, there is high probability that it will achieve its 41.9 GW target around FY32/FY33.
Valuation: We expect the company to deliver a revenue / EBITDA CAGR of 15% / 18% over FY25–28 vs. 21% / 25% during FY20-25, driven by robust capacity addition, taking the installed capacity to 39.5GW by FY32 as per our estimates. EBITDA/ MW is estimated to improve from INR 13mn/MW in FY25 to INR 18.3mn/MW in FY32. The stock has traded at 10x trailing EV/EBITDA and 4.7x P/B during the last 5 years. Considering the company’s strong execution track record and better operational metrics, we value the stock at 13x FY28 EV/EBITDA (considering the improvement in EBITDA/MW) with a TP of INR 178 per share (20% upside) implying 3.4x P/B FY28.
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SEBI Registration Number is INM000010361
