Adani Power shares can deliver 35% return in 24 months; stock price target Rs 707, says Ventura

Ventura Securities has initiated coverage on Adani Power Ltd, the largest private thermal power producer, with a target price of Rs 707 per share based on 22 times EV/Ebitda, suggesting an upside potential of 35 per cent in the next 24 months over Friday's closing price of Rs 523 on BSE.

With the growth in generation capacities being focused on renewable energy (RE), the increasing deficit in peak demand and supply indicates required additions to base load capacity which is catered by conventional fossil energy sources, Ventura said. Adani Power, as the largest private pure play thermal power company, has well aligned capacity expansion plans to fill up the void, the broking firm said.

At present, Adani Power has an installed capacity of 15.2 GW with an additional 1.6 GW under construction, which accounts for 7.1 per cent of India’s total thermal power generation capacity of 214 GW. The company’s installed capacity has grown at a 5 per ecnt CAGR from 12.4 GW in FY21 to 13.6GW at end of FY23 and it is expected to reach more than 16.8 GW by FY27.

Over FY23-26, Ventura expects Adani Power's revenue to grow at 7 per cent compounded annually to Rs 47,000 crore and Ebitda at 12 per cent to Rs 14,080 crore. It sees Ebitda margins for Adani Power to expand 400 basis points during the period, as improvement in domestic coal availability and expected rise in plant load factor (PLF) could improve operating profitability.

"However, PAT is expected to decline at a CAGR of 5 per cent to Rs 9,229 crore and PAT margins are expected to decline 810 bps to 19.6 per cent due to the full utilisation of carry-forward losses in FY24/25. The company has aspirations to increase the total generation capacity by ~6 GW to reach 21 GW of total capacity by 2030," Ventura said.

Ventura said the peak deficit reached 4 per cent in September with the increase in power demand. As the government tries to ramp up the thermal capacity, Adani Power as the largest private thermal power player is placed well to harness the opportunity, Ventura said.

For FY21-23, Adani Power's revenue grew at a 22 per cent CAGR to Rs 38,773 crore from Rs 21,266 crore on account of better utilisation and generation of new assets. The Ebitda for the period grew at an 8 per cent CAGR to Rs 10,045 crore in FY23 from Rs 8,669 crore in FY21  while the Ebitda margins decreased 720 bps on account of increase in mix of international coal due to shortage of domestic coal to cater the rapid demand growth.

The PAT grew multi-fold to Rs 10,727 crore from Rs 1,270 crore, primarily on account of tax benefits of carried forward losses. Ventura, meanwhile, sees change in regulatory policies and fluctuations in raw material supply and prices as key risks to its target for Adani Power.

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