The US-based Cantor Fitzgerald has initiated coverage on Adani Energy Solutions Ltd with an 'Overweight' recommendation and a target price of Rs 2,251, which suggests a 130 per cent potential upside over Thursday's closing price. Cantor Fitzgerald said Adani Energy Solutions trades at 60 per cent discount to peers on a growth-adjusted basis and that it should trade at an in-line multiple, if not a premium.
On Friday, shares of Adani Energy Solutions were trading 1.77 per cent higher at Rs 996.75. The Adani group stock is down 5.4 per cent year-to-date but up 16.7 per cent in the past one year.
Adani Energy Solutions has a diversified portfolio that includes transmission assets, distribution assets, and a smart metering business. With an enterprise value of $18.5 billion, Cantor believes Adani Energy Solutions is an attractive way to play the rapidly expanding energy markets in India.
Cantor said AESL offers growth unlike any other publicly traded utility or energy company across the US, Europe, or Asia.
"We forecast total revenue to grow at a CAGR of 20 per cent from FY24 to FY27E and adjusted Ebitda to grow at a CAGR of 28.8 per cent. This compares to peers growing revenue at low single digits and Ebitda at mid-single digits. Yes, AESL is more expensive on a multiple basis, but is also growing meaningfully faster than its peers," it said.
To recall, in January this year, the financial services firm became the first broker to initiate coverage on the Adani Enterprises Ltd with a target price of Rs 4,368. The Adani Enterprises scrip traded at Rs 3,017.85 on Friday.
Cantor said Adani Energy Solutions is a more diversified business. It expects the transmission business to see strong growth as the Adani group firm completes the nine projects it has recently been awarded over the next 18-24 months.
The distribution business should be able to grow at or near double-digit rates, as Adani Energy Solutions continues to add to its regulatory asset base (RAB), and its smart metering business is just about to start generating meaningful revenue and profits.
Adani Energy Solutions would works through its 22.8 million smart meter backlog (to generate $3.2 billion of income), and it could win another 40 million smart meters (which will add another $6 billion-plus of income), Cantor said.
"While we see robust growth over the next four years, we believe AESL will continue to outgrow peers for at least the next decade. This is a result of India being still underdeveloped relative to more mature markets, and as it develops and uses/needs more electricity, AESL's transmission and distribution businesses will stand to benefit," it said.
Lastly, following a recent capital raise, Adani Energy Solutions is now well-funded to drive growth across all three major segments, the brokerage said.
Ultimately, it believes Adani Energy Solutions shares are attractive at the prevailing levels, it said.