Adani Energy's Unstoppable Growth: Expanding Networks and Revenues

Adani Energy Solution's growth trajectory remains robust, adding 225 km to its network with a total of 26,485 km. Two new projects have increased the pipeline business significantly. The company is set to see considerable revenue and profit growth, targeting new project commissions worth Rs 273 billion by 2026.

Adani Energy Solution Limited (AESL) is demonstrating a strong growth story, according to a report by Jefferies. In the third-quarter update, AESL revealed an addition of 225 km to its substantial transmission network, pushing the total to 26,485 km. At the commencement of fiscal year 2025, two new projects have energized the pipeline business, escalating it to Rs 547 billion from its previous Rs 170 billion. Impressively, the company maintained a robust system availability rate of 99.7 percent.

AESL's capital management strategy is focused on stabilizing interest cost volatility through the employment of long-duration bonds. During the third quarter of fiscal year 2025, the company secured two transmission projects worth Rs 250 billion related to renewable energy parks in Rajasthan, thereby increasing its market share in competitive projects to 24 percent from the prior 17 percent. The near-term tendering outlook shows a promising pipeline valued at Rs 590 billion, marking a 55 percent increase year-on-year, as reported in the company's second-quarter call.

Jefferies projects a promising financial future for AESL, estimating a 16 percent compound annual growth rate (CAGR) in revenues and a 62 percent CAGR in profit after tax (PAT) from fiscal years 2024 to 2027E. AESL aims to commission projects valued at Rs 273 billion by October 2026.

The cancellation of Tamil Nadu smart meter tenders does not affect AESL's existing project pipeline, which involves executing 22.8 million meters valued around Rs 272 billion. Despite the Tamil Nadu government retracting its 8.2 million smart meter bid citing high prices, AESL remains unaffected as these projects fall outside its current executions, and it continues to make headway with ongoing smart metering initiatives.

AESL anticipates adding 4.5 million smart meters by the fiscal year 2025E and setting a goal of 10 million meters by fiscal 2026E. These efforts are a blend of existing contracts and new project winnings. Additionally, AESL aims to mitigate volatility across its asset base, with strategic refinancing of debt, fixed-rate arrangements, and anticipating impacts of commodity price changes.

Jefferies appreciates AESL's capability in realizing business potential in both smart metering and distribution sectors, noting a decline in distribution losses by 80 basis points year-on-year to 4.66 percent, attributed to stable collection efficiency. In a base case scenario, AESL is expected to witness a 16 percent and 31 percent CAGR in revenues between FY24 to FY27, with transmission projects worth Rs 274 billion anticipated to become operational in the near future.

Jefferies suggests an optimistic outlook for AESL, especially with potential advantages arising from the Distribution Amendment Act and prospective project wins.

(With inputs from agencies.)