Adani Green Energy can soar 75% in bull case scenario, says Jefferies; initiates coverage with a ‘buy’

Jefferies has initiated coverage on Adani Green Energy with a "buy" recommendation, citing strong industry tailwinds poised to enhance the green energy player's outlook. The brokerage has set a price target of ₹2,130, implying a potential upside of nearly 18 percent from Friday's closing levels.

A key factor driving this positive outlook is the nearly doubling of Adani Green Energy's profit in Q1FY25. On July 25, 2024, the company reported a 95 percent increase in consolidated net profit, reaching ₹629 crore, for the quarter ended June 30, 2024, up from ₹323 crore in the same period last year. Total income rose 22.5 percent to ₹3,122 crore in Q1FY25, compared to ₹2,550 crore a year ago. This robust growth in revenue, EBITDA, and cash profit was primarily driven by a capacity addition of 2,618 MW over the past year, according to the company's press release.

The above-mentioned target is in Jefferies' base case scenario. In this scenario, it projects Adani Green's installed capacity will reach 29.7 gigawatts by fiscal 2027, with revenue and profit after tax growing at a compound annual growth rate (CAGR) of 38 percent and 70 percent, respectively, over fiscal 2024-2027. The target price of ₹2,130 is based on a 25-times EV/EBITDA multiple for September 2026.

However, in a more optimistic scenario, Jefferies suggests a potential stock price of ₹3,180, a 75 percent upside from the current price. This scenario assumes Adani Green will achieve a 50 gigawatt capacity target by 2030, with higher merchant capacity making up 20 percent of the mix by fiscal 2026, compared to 8 percent in the base case, and a higher capacity utilisation factor at 35 percent versus 30 percent in the base case.

Meanwhile, in the bear case scenario, the brokerage has a target price of ₹1,010 for the stock, implying a potential downside of 45 percent. In this scenario, it assumes a delay in execution of projects over high input costs.

Stock price trend

The stock has jumped 65 percent in the last 1 year and 13 percent in 2024 YTD. The scrip has risen around 3 percent in July so far after an over 6 percent decline in June. The first 5 months also witnessed massive volatility. It gained 4.5 percent and 13.5 percent in January and February, respectively, followed by a 3 percent and 2 percent decline in March and April, respectively. Meanwhile, it rose over 6 percent in May.

The green energy stock is currently 17 percent away from its 52-week high of ₹2,173.65, hit on June 3, 2024 but has rallied 121 percent from its 52-week low of ₹816, hit on October 26, 2023.

Investment rationale

The bullish outlook for Adani Green is supported by strong industry tailwinds and a power demand growth exceeding 7 percent. Jefferies believes power capex investments should rise 2.2 times to $280 billion in fiscal 2024-2030.

The brokerage also highlighted Adani Green's ongoing journey to raise capacity from 11 GW to 50 GW by 2030, with land requirements and financing plans in place. Jefferies praised the company's execution track record, noting the successful setup of 925 MW during the Covid-19 lockdown period in 2021.

Despite a high current net debt-to-equity ratio due to aggressive capacity expansion, Jefferies expects this ratio to decrease to 2.8 times by 2030. The company's capital management has been prudent, including advance land acquisition and securing long-term bond rates.

Khavda factor

Adani Green's significant land holdings, including 538 square kilometers at a single location in Gujarat, which it is developing from scratch will support its ambitious capacity expansion plans. For Jefferies, the 'game-changer' for Adani Green is the Khavda 30 GW execution. 

The Khavda location alone will house 30 GW of the planned 50 GW capacity, driving operating leverage-linked upside. Jefferies anticipates Adani Green's industry market share to rise to 15 percent by 2030, from less than 10 percent currently. The management's strategy to limit volatility through advance land acquisition, back-to-back module tie-ups, locking rates through long-term bonds, and digitalisation enables process-driven execution.

Jefferies values Adani Green at 25x EV/EBITDA on a September 2026 earnings basis, which is a premium compared to JSW Energy's 19x EV/EBITDA, due to Adani Green's higher growth potential and pure renewable exposure.

Potential risks identified by Jefferies include execution delays, particularly at the Khavda project, and aggressive bidding strategies. However, catalysts such as the pickup in renewable project execution and the ramp-up of hydro-pumped storage for round-the-clock bids could drive positive outcomes.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.