ICICI Securities reinitiated its coverage on Adani Power with a ‘Buy’ rating on the stock and a target price of Rs 600 per equity share. The share price of Adani Power is merely 12% away from its 52-week lows but ICICI Securities sees over 20% upside for the stock. The company’s renegotiation of a few PPAs, procuring cheap coal at attractive prices, improved cash flow, are some of the reasons why ICICI Securities is optimistic about the share price.
Adani resolves major legal cases
Adani Power went through a series of disputes that culminated in prolonged legal cases related to its power purchase agreements. However, it has resolved major cases, winning the majority of them. It experienced difficult periods due to conflicts over power purchase agreements, issues with coal supply, and legal changes regarding imported coal in Indonesia from 2010 to 2023. As a result, the company had huge under-recovery leading to losses. However, “Adani has received compensation for its supply in the past and a higher tariff on its existing PPAs,” said ICICI Securities in a research note.
Adani Power’s strong balance sheet
The company has improved its cash flow, leading to a decline in leverage. This has helped in making the balance sheet strong, which is being utilised for organic and inorganic growth. It has also acquired a few stressed power plants at attractive valuations. Adani Power’s balance sheet has strengthened via infusion of promoter fund and debt reduction. “Adani Power has the most unlevered balance sheet in our entire coverage universe,” said ICICI Securities. It used the healthy balance sheet to purchase stressed coal-based power plants at attractive valuations.
Adani Power ahead in PPAs
Adani has developed 11GW of thermal assets on its own between FY06-12. It has also acquired a host of assets and has successfully turned them around. It has the largest fleet of thermal capacity among private players. Some state discoms are looking to call for long term power purchase agreements. Adani Power has tied up its two power plants. The government has come up with a new model power purchase agreement for sourcing power in the long term. Under the new agreement, the fuel risk is close to NIL.
Revenue to grow by 10% CAGR
With the capacity getting almost doubled from 16GW to 30GW by FY30, the brokerage house estimated Adani Power’s revenue to grow by a compounded annual growth rate of 15% by FY30E. “We expect a majority of the capacity to get a PPA tie up,” said ICICI Securities. In Q3 FY25, the company reported a consolidated revenue of Rs 14,833 crore, an increase of 11% year-on-year due to higher volume.