Adani Energy Solutions (AESL), part of the Adani Group, has had a rocky year in 2024, with its stock down over 6% so far. In the last year, it only gained 14.5%. However, the brokerage firm Cantor believes the stock has the potential to become a multibagger.
Cantor has given AESL an ‘overweight’ recommendation and set a target price of ₹2,251, suggesting a potential rise of 130% from its current price of ₹979.
AESL has a diverse portfolio that includes transmission and distribution assets, as well as a smart metering business. With an enterprise value of about $18.5 billion, the company presents a strong opportunity in India’s growing energy sector.
Cantor predicts that AESL’s total revenue will grow at a rate of 20% annually from FY24 to FY27. Adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) are expected to grow at nearly 29%. In comparison, similar companies are projected to grow revenue in the low single digits and EBITDA in the mid-single digits. Although AESL might seem more expensive compared to peers, its growth rate is expected to be much faster.
Stock Performance
The stock climbed as much as 3.6% to an intra-day high of ₹1,019.60. It remains 24% below its peak of ₹1,347.90 from last month, but has bounced back over 48% from its 52-week low of ₹686.90 recorded last October.
Diverse Business Model
Cantor points out that AESL’s varied business model will drive strong growth. The transmission segment is expected to benefit from the completion of nine new projects in the next 18-24 months, with more contract wins likely. The distribution segment is projected to grow at nearly 10%, while the smart metering division is set to generate significant revenue from a backlog of 22.8 million smart meters.
Key Investment Points
AESL is the largest private power transmission and distribution company in India. Its ability to supply electricity to major areas like Mumbai and the Mundra Special Economic Zone (SEZ) positions it well for future growth. Additionally, the government aims to deploy 250 million smart meters by 2030, creating strong demand for AESL’s services.
Competitive Valuation
Cantor compares AESL to peers in developed markets, noting that while those companies are expected to grow revenue at around 3% and EBITDA at about 11%, AESL’s higher growth potential justifies a higher valuation. Currently, AESL trades at a 60% discount based on growth-adjusted metrics, indicating it deserves a better valuation given its growth prospects.
Risks and Challenges
Despite its strengths, AESL faces risks, including political changes that could impact private sector development and competition for new contracts. Challenges also include the risk of not securing more smart meter contracts and foreign exchange risks related to USD-denominated debt.
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