Adani Energy Solutions: Ventura says 'Buy' Adani stock for 50% upside in 2 years, shares target price

Ventura Securities, which has bullish views on Adani group shares, suggested a 50 per cent upside potential for Adani Energy Solutions Ltd (erstwhile Adani Transmission) from a two-year horizon. The brokerage felt power transmission & distribution (T&D) sector in India is set for expansion, supported by favourable policy environments, substantial capacity enhancements, and increased openings for private sector involvement via tariff-based competitive bidding (TBCB).

Adani Energy Solutions stands out as the premier private T&D entity, managing 20,422 circuit kilometres (ckm) of transmission lines and 54,600 MVA of power transformation capacity, it said.

Adani Energy Solutions has set a goal to establish 30,000 ckm of transmission lines by 2030, capitalising on both organic & inorganic growth prospects, Ventura said. Strong industry tailwinds and leading position in private tariff-based competitive bidding sector offers significant revenue growth, it said.

"We value Adani Energy Solutions at 17 times EV/Ebitda and recommend BUY with a target price of Rs 1,600, which represents an upside potential of 50.4 per cent from the CMP of Rs 1,064," Ventura Securities said.

Ventura said the government’s push to double the power generation & transmission infrastructure along with the replacement of older low KVA lines with higher KVA lines ensures strong growth visibility for Adani Energy Solutions' power transmission business. The Indian government is expected to open bidding for Rs 10 lakh crore worth of power transmission lines in the next 10 years.

"Out of this, 50 per cent is expected to be allocated to private companies through TBCB route. As a result, over FY23-27E, we expect the company’s power transmission revenues and Ebitda to grow at a CAGR of 18.7 per cent and 19.7 per cent to Rs 7,822 crore and Rs 6,649 crore, respectively.

Adani Energy Solutions has power distribution licenses for Mumbai (Adani Mumbai Electricity Ltd - AEML) and Mundra (Mundra Utility Ltd - MUL). Power distribution is a capex led model and generates a fixed annual RoE (15.5 per cent for AEML and 14 per cent for MUL). Citing increased offtake of power, AEML has committed an annual capex of ~INR 1,200 crore, which is to be incurred over FY24-27E to build a future ready infrastructure for power distribution.

"Over FY23-27E, we expect the company’s power distribution revenues and EBITDA to grow at a CAGR of 15.4% and 14.9% to Rs 15,245 crore and Rs 3,659 crore respectively," Ventura said.

Adani Energy Solutions is also exploring several areas in the power distribution segment and have applied for licenses in several geographies like Navi Mumbai in Maharashtra, Greater Noida (Gautam Buddha Nagar) in Uttar Pradesh, and Mundra subdistrict (excluding MUL’s existing area) in Gujarat. Ventura said it has not factored in the growth and revenue prospects from these areas.

"The fast-emerging business segment of smart meters in India is showing promising development and is expected to significantly contribute to the company's revenue in the upcoming years. By utilising smart meters, the company is able to observe and forecast electricity usage trends across small geographic areas, thereby enhancing its management of retail distribution," it said.