Adani Green Energy newly rated 'Buy' at JM Financial; 18% upside seen

JM Financial Services has initiated coverage on Adani Green Energy with a ‘Buy’ rating, with a target of ₹1,289 per share, implying 18.3 per cent upside from the previous close on Monday.

 

At 9:23 AM, Adani Green Energy shares were trading 0.5 per cent lower at ₹1083.8 per share. In comparison, BSE Sensex was down 0.21 per cent at 84,774.95.

Why is JM Financial bullish on Adani Green Energy?

Strong execution record

Over the years, according to JM Financial, Adani Green Energy has shown a strong track record in execution - adding almost 14 GW in the last 10 years, and leveraging synergies with other Adani Group businesses spanning transmission, distribution, and infrastructure development. The company has secured over 2.5 lakh acres of high-quality renewable energy sites (superior solar irradiation and wind speed) across India. 

 

 

The operating assets have consistently met or exceeded P-90 benchmarks over the last 4 years. Nearly 81 per cent of its 16.8 GW of operational portfolio has 25-year power purchase agreements (PPAs) ensuring cash flows. 

Change in portfolio mix to improve Ebitda profile

Analysts at JM Financial believe that Adani Green is capable of achieving its 50GW of installed renewable energy and storage capacity target by FY30. The company’s plans to change the portfolio mix from the current 81 per cent/19 per cent of 25-year long-term PPAs/ merchant to 75 per cent/25 per cent by 2030 will improve the Earnings before interest, tax, depreciation and amortisation (Ebitda) profile. 

 

Additionally, the company is growing its presence in the Commercial & Industrial (C&I) segment, securing its first-ever agreement to supply 61 MW of renewable energy to power Google’s data centre, according to the brokerage note, which is also a big positive.   ALSO READ | Why did analysts downgrade SKF India to Reduce? Here's what drove the call

Healthy financials 

Adani Green Energy has shown strong financial performance with revenue growing at a three-year compound annual growth rate (CAGR) of 30 per cent to ₹11,210 crore in FY25 and Ebitda margin improving from 69 per cent in FY22 to 79 per cent in FY25, according to JM Financial. Strong internal accruals and infusion of $1.1 billion promoters’ warrant have also ensured adequate equity for expansion plans and moderation in net debt/ Ebitda from 10.1 in FY20 to 6.4 in FY25.

Valuation and outlook 

JM Financial estimates the company to deliver a CAGR of 29 per cent/32 per cent/41 per cent in revenue /Ebitda/PAT over FY25-28E, accompanied by stable Ebitda/MW at ₹0.7-0.8 crore and further improvement in net debt/Ebitda to 5.3 by FY28. Considering the company’s strong execution track record and group synergies, the brokerage values the stock at 14x FY28 EV/Ebitda.