Adani Energy Solutions Ltd, the power transmission company of the Adani group, is valued at $18.5 billion at the enterprise level and strong business growth is likely to drive a 29 per cent compounded growth in its pre-tax profit over the next three years, according to a report.
AESL has a diversified portfolio that includes transmission assets, distribution assets and a smart metering business.
“At an enterprise value of $18.5 billion, we believe AESL is a highly attractive way to participate in India’s rapidly expanding energy markets,” global brokerage Cantor Fitzgerald said in initiating coverage of the company.
The company believes AESL offers growth that no other publicly traded utility or energy company in the US, Europe or Asia can offer. “We forecast total revenue to grow at a CAGR of 20 percent between FY24 and FY27 and Adjusted EBITDA to grow at a CAGR of 28.8 percent.”
This compares to peers growing low single-digit revenue and mid-single-digit EBITDA.
Stating that it is growing significantly faster than its peers, the brokerage said it believes AESL is a more diversified business.
“We expect its transmission business to see strong growth as it completes the nine projects it has been recently awarded over the next 18-24 months (and we expect it to win more contracts in the coming years), its distribution business should be able to grow at near double-digit rates as it continues to grow its regulatory asset base (RAB), and its smart metering business is poised to start generating significant revenue/earnings as it works through its portfolio of 22.8 million smart meters (to generate $3.2 billion of revenue), and could win another 40 million smart meters (adding another $6 billion+ of revenue),” he said.
It experienced solid growth over the next four years as AESL will continue to outperform its peers for at least the next decade.
This, he said, is a result of India still being underdeveloped relative to more mature markets, and as it develops and uses/needs more electricity, AESL’s transmission and distribution businesses will benefit.
“Following a recent capital raise (which was significantly oversubscribed by 3x), it is now well funded to drive growth across all three core segments,” Cantor said, adding that AESL shares currently trade at a 60 percent discount to its peers.
AESL was formed when Adani Enterprises spun off transmission assets into a new entity called Adani Transmissions in 2015. Adani Transmissions then acquired distribution assets from Reliance Infrastructure in 2018 and acquired distribution assets from MPSEZ Utilities in 2021.
It announced that it would enter the smart metering industry in 2022 and formed a new cooling solutions business in 2023, which ultimately led to the company changing its name to Adani Energy Solutions as it now has a much broader portfolio relative to being a pure transmission/distribution company.
In AESL’s most recent fiscal year, FY24 (April 2023 to March 2024), its transmission business accounted for 28.4 percent of revenue and 52.6 percent of EBITDA, while its distribution business accounted for 71.6 percent of revenue and 36.3 percent of EBITDA.
His activity is linked to India’s need for more electrification infrastructure. India has 1.4 billion people and is the most populous country in the world. “We continue to believe that India as a nation is just getting started when it comes to energy demand,” he said.
As more homes become connected to the grid, incomes rise, and those homes become filled with more products that use electricity (refrigerators, air conditioners, etc.), the demand for electricity will only increase.
To meet this growing demand, India has invested heavily in and promoted renewable energy. As more electricity is generated from renewables, the infrastructure to transmit and distribute that electricity will become increasingly important, and that is what AESL is focused on.
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