Adani Green shares jump 2% on strong Q1; Jefferies sees 17% upside

Shares of Adani Green Energy (AGEL) rose over 2% on Monday after the Adani Group company reported strong earnings in June quarter. The sentiment was further lifted after foreign brokerage Jefferies initiates coverage on AGEL with a ‘Buy’ call and a target price of ₹2,130, an upside potential of 17% from the current market price, expecting premium valuations to sustain on the back of strong growth with visibility.

Jefferies in a note says that AGEL’s journey to raise capacity by 4.6x from 11 GW to 50 GW by 2030 is underway. “Land requirements and financing plan are in place. Execution track record has been good, reiterated with the 925 MW set up in Covid lockdown period of 2021. Management focus is profitable growth and healthy internal rate returns (IRRs) while bidding.”

Boosted by the development, Adani Green shares opened higher at ₹1,825 on the BSE after ending 0.81% lower at ₹1,806 on Friday. During the session so far, the largecap stock gained as much as 2.5% to ₹1,851, while the market capitalisation climbed to ₹2.91 lakh crore.

At the day’s high level, AGEL shares trade 15% lower than its 52-week high of ₹2,173.65 touched on June 3, 2024, while it has rebounded 126% from its 52-week low of ₹816 hit on October 26, 2023. The Adani group stock has risen 15% in the calendar year 2024, while it surged over 68% in the past one year. The counter added 7% in six months and 3.5% in a month.

For the first quarter ended June 30, 2024, Adani Green, India’s largest listed pure renewable energy (RE) generation company, posted a 38% year-on-year (YoY) growth in its consolidated net profit at ₹446 crore compared to ₹322 crore a year ago. Revenue from operations jumped 31% YoY to ₹2,834 crore, from ₹2,162 crore in the same period last year.

Revenue from the power supply increased 24% YoY to ₹2,528 crore in Q1 FY25 as against ₹2,045 crore in the previous year quarter. EBITDA from power supply rose 23% YoY to ₹2,374 crore, while margin improved marginally to 92.6% from 92.5% in the corresponding period last year.

Jefferies in its report says that AGEL has an installed capacity of 10.9 GW, and another 11 GW is under construction as of March 2024. “We expect $140 bn investments in renewable energy (RE) generation capacity over FY24E-30E, as we forecast 321 GW RE capacity by 2030 vs 144 GW in FY24.”

On AGEL's target of achieving 50 GW capacity by 2030, Jefferies said that it will account for 19% of India's RE capacity addition over FY24-30E. “The company's execution track record has been good, further reiterated with the 925 MW setup in the 2021 Covid lockdown period. A 4.6x rise in capacity target provides visibility to our 70% CAGR in PAT over FY24-27E.”

The brokerage in its report says that AGEL's refinancing in the current fiscal will be on watch. Around 30% of the company's ₹58,600 crore gross debt (₹17,700 crore) is due to be repaid in FY25E with another 8% in FY26E. This includes, ₹6,300 crore Holdco bonds, due in Sep 2024 and, ₹9,700 crore construction facility and other ECB's which the company intends to refinance. The company has refinanced its $409 million RG1 bond in FY24.

In January 2024, the company had secured funds for repaying the Holdco bond due in Sep 2024 by divesting 50% stake in 1.05 GW RE projects to Total Energies for $300 million and $281 million funding from promoter group of total $1.1 billion commitment by AGEL's promoter.

“FY25E interest payment and equity infusion for new project development can be met from ₹8,800 crore CFO and ₹11,400 crore cash on books. After factoring ₹7,000 crore balance proceeds from the promoter group, AGEL will need to refinance around ₹13,300 crore of debt, which should be business as usual,” it says in a note.

(DISCLAIMER: The views and opinions expressed by investment experts on fortuneindia.com are either their own or of their organisations, but not necessarily that of fortuneindia.com and its editorial team. Readers are advised to consult certified experts before taking investment decisions.)