Jefferies Initiates 'Buy' on Adani Power with Target Price of Rs 660

By siliconindia  |  Tuesday, 04 February 2025, 02:04:42 PM IST

Jefferies Initiates 'Buy' on Adani Power with Target Price of Rs 660
Jefferies initiated coverage on Adani Power Limited, with a 'Buy' rating and a target price of Rs 660, indicating 30% upside from current levels. Adani Power is one of the country's largest thermal power generation companies after NTPC. It will see capacity addition of over 1.7 times. It has been operating at a level of 17.6 GW, but will expand its capacity to 30.7 GW by 2030.
Jefferies has mentioned that Adani Power has already in place its land requirement and finance plan, while it is collaborating with Bharat Heavy Electricals Limited (BHEL) for timely delivery of equipment. Additionally, Adani Power is relying on in-house EPC services to ensure its Capex plans remain on schedule. The brokerage also noted that the company's thermal capacity is placed in a scenario of overall peak demand deficits, which, combined with its merchant power generation exposure, is a good story for the future. Jefferies has set a target price of Rs 660, with a 30% upside.
Adani Power has a presence in eight states through 12 power plants, and the total capacity of about 87% is through PPAs. Additionally, nearly 98% of its open capacity is also placed near the coal mines to cut down the cost of transportation. The company has 43% of the coastal plants with imported coal, where the plants have pass-through fuel cost arrangements and will automatically vary the prices as per market fluctuations.
Jefferies also shared its projections for the company’s future financial performance. The brokerage expects Adani Power’s merchant capacity to grow to 12-13% by FY30, contributing 19-20% to its EBITDA, compared to nearly 30% currently. The brokerage forecasted a slight decline in merchant realisation, assuming Rs 6/unit for FY30 compared to the Rs 7/unit average in FY24. It mentioned that every 5% rise in merchant realisation would lead to a 2% rise in the company's FY27 EBITDA.
Jefferies thinks power demand will return to 7% growth, which is a critical variable that can take the stock for a ride, again in the mould of the erstwhile Capex upcycle of FY03-09. The power demand growth would turn out to be a significant trigger in Adani Power's stock performance going forward.
Adani Power further said that in Q3 FY25, it has seen an increase of 7.4% in its net profit. Its net profit in Q3 FY25 has come in at Rs 2,940 crore against Rs 2,738 crore in Q3 FY24. The company's consolidated EBITDA has seen a 23% rise at Rs 6,185 crore against Rs 5,009 crore of the previous year. Total revenues have increased by 11% to Rs 14,833 crore, which has been largely on account of volume growth. On the reporting day, shares of Adani Power traded at Rs 504 apiece.

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