Adani Power target: Strong earnings despite elevated capex! PL Capital says valuation to sustain

PL Capital has initiated coverage on Adani Power Ltd with a 'Buy' rating and a target price of Rs 259 per share, saying the Adani group firm is positioned for a strong earnings growth trajectory as recently signed power purchase agreements (PPAs), offer higher capacity charges.

The domestic brokerage said thermal power remained critical for meeting India’s baseload and reliability requirements, and that Adani Power’s valuation premium is supported by stronger earnings growth, improving capital efficiency and declining leverage.

On Friday, the stock rose 1.54 per cent to Rs 202.50 apiece on NSE. The target suggests 28 per cent potential upside over this price.

According to PL Capital, Adani Power, India’s second-largest thermal power producer, currently accounts for about 7 per cent of the country’s coal-based installed capacity and is targeting a sharp expansion in capacity from 18.3GW in FY26 to 41.9GW by FY32.

This, it said, would raise its market share to about 14 per cent. The brokerage said the company’s planned capex of about Rs 2 lakh crore, or around Rs 8.4 crore per MW, remains manageable, with net debt to Ebitda expected to peak at 2.5 times in FY29E.

PL Capital said execution risk remained relatively contained as 100 per cent of the land and boiler-turbine-generator equipment for the expansion pipeline have already been secured.

It added that about 60 per cent of the planned capacity additions are at brownfield sites and 56% of the expansion pipeline has already been tied up under long-term PPAs.

The brokerage said Adani Power is undertaking a 23.7GW thermal expansion programme that will take capacity from about 18GW in FY26 to about 42GW by FY32, with 12.5GW already linked to long-term PPAs. It said this expansion is expected to strengthen the company’s position in thermal power amid rising peak demand.

The brokerage said upcoming plants will have higher tariffs, with new PPAs carrying an average capacity charge of Rs 3.9 per kWh compared with about Re 1 per kWh for the existing fleet. It said the higher fixed charges should help improve return on equity to 23 per cent in FY32E from 19 per cent in FY26. PL Capital also said it expects Ebitda CAGR of 21 per cent over FY26-FY29E, driven by capacity additions of 1.3GW in FY27, 1.6GW in FY28 and 4.0GW in FY29E.

On funding and leverage, PL Capital said that despite elevated capex and negative free cash flow, strong operating cash flow should provide meaningful internal funding support. It said net debt is expected to rise, but EBITDA growth should keep net debt to EBITDA at 2.5 times in FY29E, among the lowest across peers. It also said net debt to EBITDA is expected to decline to about 1.0 times by FY32E from 2.3 times in FY26, giving the company more balance-sheet headroom as the expansion cycle progresses.

PL Capital said it values Adani Power at 18 times September 2028E EBITDA, adjusted for net debt, which implies a target price of Rs 259 per share and is equivalent to about 10.5 times estimated FY32 Ebitda on a 12.5 per cent discount rate.

It said the stock is currently trading at 14 times FY29E EV/Ebitda, while it estimates Ebitda CAGR of 21 per cent over FY26-FY29E and 25 per cent over FY26-FY32E. The brokerage also noted that Adani Power has set up Adani Atomic Energy and is evaluating up to 10GW of nuclear capacity by 2035, describing it as an early-stage but additional long-term growth avenue.