Adani Power: IIFL says growth pipeline larger than NTPC's, sets target price

IIFL Securities has initiated coverage on Adani Power Ltd with a 'Buy' rating, despite noting that 60 per cent of its fair value for the stock is derived from unexecuted projects. The domestic brokerage said the Adani Group company trades at a rich valuation of 4.6 times its estimated FY28 book value, but believes its industry-leading asset base and cash flow profile justify the growth optionality.

IIFL noted that Adani Power is building 23.7GW of new coal capacity, which is more than NTPC’s pipeline of 17GW. This capacity is expected to more than double Adani Power's 18GW operating base. 

"We expect Adani's free cash flow from operations to rise from Rs 17,000 crore in FY26 to Rs 5,7000 crore on full portfolio buildout, with optionality from planned moves into nuclear (10GW capacity target by 2035) and hydro (5GW JV with Druk Green Power, Bhutan) as well. Additionally, we expect Adani to expand its customer base beyond DISCOMs, foraying into firm power supply to C&I customers," IIFL said.

The brokerage has forecast a 20 per cent Ebitda growth compounded annually over FY26–29, as some under-construction projects commission, making it among the fastest-growing non-renewable power generation company in India.

"Our SoTP-based 12-month target of Rs 240 per share values Adani at an implied FY28E EV/Ebitda of 20 times, above the coverage median of 11.1 times, reflecting its faster growth and superior profitability. Downside risks: Execution delays, failure to sign PPAs, weak spot tariffs, competition from battery storage," it said.

IIFL said Adani's willingness to take anti-consensus, counter-cyclical bets has translated into the best returns in the segment. 

Adani Power assembled a 7.3GW portfolio of stressed assets at an average capital cost of Rs 4.2 crore per MW, which now earn a median book return on equity (RoE) of 50 per cent against an average of 10 per cent for the sector. 

"On the same logic, ordering boiler, turbine, generator (BTG) equipment ahead of the coal-capex revival locked in capex of Rs 10 crore per MW, 20 per cent below peers, which, we estimate, yields 350-400bps higher RoE at comparable tariffs," IIFL said.