Domestic brokerage firm ICICI Securities announced coverage of Adani Energy Solutions (AESL), India's largest private transmission provider, with a buy rating and a target price of Rs 1,318. The target price indicates that the stock has an upside potential of 30%.
With India planning to bid Rs 1.6 lakh crore for new transmission assets, ICICI Securities sees Adani Energy as a good investment to capitalise on this development opportunity.
"India is aiming to bid INR 1.6 trillion for new transmission assets. A sizable opportunity will raise growth expectations. In addition, the INR 1.2 trillion smart meter auction is expected to be completed over the next 12-18 months. Thus, we expect unregulated industries to develop strongly in the future," according to an ICICI Securities research.
The corporation has expanded into unregulated companies and capitalized on developing new prospects.
It operates a combination of regulated and unregulated operations, having progressed from operating regulated transmission assets to being a leader in competitively built transmission, and from operating regulated distribution assets to emerging as a leader in smart metering assets.
"Earnings growth might be generated by: a) new transmission possibilities, b) growth in Mumbai DISCOM, or c) current smart meter wins and new prospects. We expect EBITDA to expand at a 32% CAGR between FY24 and FY27E: 1) + Rs 30 billion from new transmission bids, 2) + Rs 40 billion from smart meters, and 3) + Rs 5 billion from distribution regions, according to the local brokerage business.
Adani Energy accounts for 20% of the unregulated transmission assets market. It has emerged as the largest private participant in transmission assets, having won Rs 17,000 crore from FY16 to FY25. It has leveraged its expertise managing Mumbai DISCOM to launch a sizable smart meter business of Rs 27,200 crore (unregulated).
The business had raised Rs 8,300 crore in August through a QIP at Rs 970 per share. As a result, the company's net debt to equity ratio has fallen to 1.6x (from 2.7x). Adani Energy Solutions' shares were trading 3% higher at Rs 1,039.35 on the BSE around 1:30 p.m. today.
