ICICI Securities has lowered its price target for Adani Power to Rs 210 from Rs 233 following the company’s recent quarterly performance. The brokerage maintained an 'Add' rating, citing rising coal costs, increased interest expenses, and a delay in the commissioning of the Mahan Phase-II project. Investors are monitoring these cost factors alongside the company's ongoing expansion.
ICICI Securities has updated its outlook on Adani Power, reducing the price target for the stock to Rs 210 from the previous Rs 233. This adjustment followed the company’s second-quarter earnings report. Despite the lower target price, the brokerage has kept an 'Add' rating on the stock, indicating it remains cautiously optimistic about the company's role in India's power sector.
The change in valuation reflects a reassessment of several financial factors. Analysts noted that higher coal procurement costs are expected to impact the company's profit margins. Additionally, the company faces rising interest and depreciation expenses as it continues its capital-intensive expansion. The timeline for the Mahan Phase-II project has also been pushed to the second quarter of the 2028 financial year, a change that weighed on the updated financial projections.
Adani Power currently manages an operational capacity of 18.3 gigawatts. The company is in the process of expanding this footprint significantly, with an additional 23 gigawatts of capacity currently under construction. Management has reportedly secured the necessary boiler-turbine-generator orders for these new projects, which helps in managing construction execution.
From a revenue stability perspective, the company has locked in 62% of its total capacity through long-term Power Purchase Agreements. These agreements are designed to provide consistent, agreed-upon rates for power supply, acting as a buffer against volatility in the merchant power market where prices can fluctuate.
The company’s growth plan hinges on India’s rising power requirements. With national peak electricity demand reaching 270 gigawatts and base demand continuing to rise, the country relies heavily on thermal power to meet the gap. Adani Power is currently one of the larger private-sector providers aiming to meet this demand.
For investors, the key monitoring points will be the successful commissioning of the ongoing 23 gigawatt expansion projects and the company's ability to manage costs amidst fluctuations in coal prices. Potential risks that could affect future performance include further delays in project execution, volatility in merchant power prices, constraints in fuel supply, and the ability of counterparties to pay for the power supplied.