IIFL Initiates 'Buy' Rating Amidst Ambitious Expansion
IIFL Securities has initiated coverage on Adani Power Ltd. with a 'Buy' rating, setting a 12-month target price of Rs 240 per share. The brokerage firm highlights Adani Power's extensive growth pipeline, which analysts believe outpaces that of state-owned power giant NTPC. This optimistic outlook comes despite acknowledging that a significant portion (60%) of the stock's fair value is currently derived from unexecuted projects.
IIFL's analysis suggests that Adani Power's industry-leading asset base and robust cash flow profile provide strong justification for its growth optionality, even at a current valuation of 4.6 times its estimated FY28 book value.
Doubling Capacity with New Coal Projects
A key factor in IIFL's positive assessment is Adani Power's aggressive expansion strategy. The company is actively developing 23.7GW of new coal capacity, a figure that markedly exceeds NTPC's current pipeline of 17GW. This substantial addition is expected to more than double Adani Power's existing operational base of 18GW, positioning it as one of India's fastest-growing non-renewable power generation companies.
Strategic Asset Acquisition Drives High Returns
Adani Power's strategic acumen is further demonstrated by its successful assembly of a 7.3GW portfolio of stressed assets. These assets were acquired at an average capital cost of Rs 4.2 crore per MW and now generate a median book return on equity (RoE) of 50 percent, significantly outperforming the sector average of 10 percent. Furthermore, the company's proactive approach to ordering boiler, turbine, and generator (BTG) equipment ahead of the coal capex revival locked in capital expenditure at Rs 10 crore per MW, an estimated 20 percent below competitors, translating to a projected 350-400 basis points higher RoE at comparable tariffs.
Strong Financial Projections and Future Ventures
Looking ahead, IIFL forecasts a substantial increase in Adani Power's free cash flow from operations, projecting a rise from Rs 17,000 crore in FY26 to Rs 57,000 crore upon full portfolio buildout. The brokerage also anticipates a 20 percent compounded annual growth in EBITDA between FY26 and FY29, driven by the commissioning of under-construction projects.
Beyond coal, Adani Power is exploring diversification into other energy sources, with a target of 10GW nuclear capacity by 2035 and a 5GW hydro joint venture with Druk Green Power in Bhutan. The company also aims to expand its customer base beyond traditional DISCOMs, venturing into firm power supply for commercial and industrial (C&I) clients.
Valuation and Potential Risks
IIFL's sum-of-the-parts (SoTP) valuation implies an FY28E EV/Ebitda of 20 times for Adani Power, which is above the coverage median of 11.1 times, reflecting its projected faster growth and superior profitability. However, the brokerage also highlighted potential downside risks, including execution delays for new projects, failure to secure Power Purchase Agreements (PPAs), weak spot tariffs, and increased competition from battery storage solutions.