Jefferies sees 15% upside in Adani Power on capacity expansion drive

Jefferies maintained a 'buy' call on Adani Power, citing strong capacity addition. It sees 15 per cent upside for the stock

Jefferies remains bullish on Adani Power, citing strong capacity addition and a declining risk profile as key drivers of further upside in the stock price.

 

The Adani Group firm is poised for strong capacity addition on a comfortable balance sheet, the global brokerage firm said in a note on July 7. The risk profile is also reducing gradually as incremental capacity is being locked in with profitable power purchase agreements (PPAs), it said. 

 

The brokerage maintained its 'buy' rating on the stock with a target price of ₹690 per share, implying an upside of 15 per cent from Tuesday's close. This comes after the brokerage met with the management for a business update. 

 

Adani Power’s capacity has increased by 29 per cent between the financial year 2023 (FY23) and FY25. Of the 3.9 Gigawatt (Gw) added during this period, 2.3 Gw came through acquisitions, which are expected to ramp up between FY25 and FY27, Jefferies said, adding that the management has set a target of reaching 30 GW capacity by FY30.

 

Equipment for 11.2 Gw has already been ordered at competitive rates from Bharat Heavy Electricals, the note said. "Faster execution is being ensured as APL’s in-house teams are handling site erection and setup upon equipment delivery." 

Earnings volatility to reduce 

Management highlighted that Adani Power’s earnings volatility is expected to reduce as merchant capacity declines to around 10–12 per cent by FY30, compared to 18 per cent at the end of FY25, Jefferies noted. 

 

"Interestingly, despite nearly doubling its capacity, the company’s net debt-to-equity ratio is projected to improve to 0.6x by FY30 from the current 0.7x, supported by strong operational cash flow generation."

Adani Power’s to grow its capacity by 1.7 times

The Adani Group firm remains a listed pure play on India’s thermal energy growth story, the note said. While NTPC is expanding its thermal capacity by 1.3 times, APL is set to grow its capacity by 1.7 times, Jefferies added. 

 

With peak power containment continuing to be a government priority, India’s thermal targets may be revised upwards, potentially increasing the company's capacity targets as the opportunity set expands.

 

Key downside risks for the firm include resurfacing of past power purchase agreement (PPA) issues that could impact Ebitda and a sharp decline in merchant power realisations. 

Share price history

Shares of Adani Power rose as much as 1.38 per cent on Wednesday to ₹608.3 per share. The stock trimmed gains to trade 1.1 per cent higher compared to a 0.05 per cent advance in the Nifty50 index, as of 11:20 AM. 

 

Shares of the company have recovered nearly 40 per cent since its November 2024 lows, and have a market capitalisation of ₹2.34 trillion. The counter has risen 14 per cent this year, compared to an 8 per cent advance in the benchmark Nifty 50.