Cantor initiates 'Overweight' rating on AESL in expanding energy markets

New Delhi [India], September 20 : Adani Energy Solutions Limited (AESL) is an attractive player in the rapidly expanding energy markets in India, and it offers growth unlike any other publicly traded utility or energy company across US, Europe, or Asia, asserted investment solutions provider Cantor.
AESL has a diversified portfolio that includes transmission assets, distribution assets, and a smart metering business, with an enterprise value of USD 18.5 billion.
Cantor in a report forecast that the Adani Group company's total revenue will grow at a CAGR of 20 per cent from 2023-24 to 2026-27 and adjusted EBITDA to grow at a CAGR of 28.8 per cent. In comparison, the revenue of peers growing at low single digits and EBITDA at mid-single digits.
"Yes, AESL is more expensive on a multiple basis, but is also growing meaningfully faster than its peers. Secondly, we believe AESL is a more diversified business. We expect its transmission business will see strong growth as it completes the nine projects it has recently been awarded over the next 18-24 months (and we expect it to win more contracts over the coming years)," the Cantor report asserted.
While Cantor sees robust growth over the next four years, it also believes AESL will continue to outgrow peers over the next decade.
"This is a result of India being still underdeveloped relative to more mature markets, and as it develops and uses/needs more electricity, AESL's transmission and distribution businesses will stand to benefit," the Cantor report read.
Following a recent capital raise, AESL is now well-funded to drive growth across all three major segments, it added.
Cantor said distribution business should be able to grow at double-digit rates as it continues to add to its regulatory asset base (RAB). Smart metering business is just about to start generating meaningful revenue/profits as it works through its 22.8 million smart meter backlog (to generate USD 3.2 billion of income), and it could win another USD 40 million smart meters (which will add another USD 6 billion plus of income).
In fiscal year 2023-24, the company's transmission business accounted for 28.4 per cent of revenue and 52.6 per cent of EBITDA, while its distribution business accounted for 71.6 per cent of revenue and 36.3 per cent of EBITDA.
Its revenue has grown from USD 1.18 billion in 2020-21 to USD 1.98 billion in 2023-24 and EBITDA has grown from USD 603 million in 2020-21 to USD 753 million in 2023-24.
"As more electricity is generated from renewables, infrastructure to transmit and distribute that electricity will only become more important, and that is entirely where AESL lies," the report noted. India is a country that needs more electrical infrastructure, and AESL is uniquely positioned to benefit from this trend.
Against this backdrop, brokerage house Cantor has initiated coverage on Adani Energy Solutions with an 'Overweight' rating.
At the time of filing this report, the shares of Adani Energy Solutions Ltd (AESL) were trading at Rs 1,013.20, up 3.49 per cent.