Motilal Oswal has initiated coverage on Adani Power with a 'Buy' rating and a target price of Rs 250. The brokerage highlights the company’s aggressive plan to scale capacity to 42GW by FY32 and its history of turning around distressed power assets. Investors should also note the potential risks related to project execution, regulatory shifts, and leverage.
Motilal Oswal has initiated coverage on Adani Power, issuing a 'Buy' rating for the stock with a target price of Rs 250 per share. The brokerage identifies the company as a strong player in the power sector, supported by an ambitious growth strategy focused on increasing capacity to 42GW by the fiscal year 2032.
Growth Strategy and Capacity Expansion
The brokerage’s positive outlook is based on Adani Power's consistent ability to expand its power generation capacity. The company aims to add significant capacity in the coming years, with planned additions of 1.3GW, 1.6GW, and 3.2GW scheduled for fiscal years 2027, 2028, and 2029, respectively. This expansion is expected to support an estimated 21% annual growth rate in earnings before interest, taxes, depreciation, and amortization (EBITDA) between FY26 and FY29.
A key driver of this growth, according to the report, is the company's capital allocation strategy. Unlike many competitors that focus on building new power plants from scratch, Adani Power has a proven track record of acquiring distressed power assets at a much lower cost. The brokerage notes that the company acquires these plants at approximately Rs 35 million per megawatt, significantly lower than the cost of developing new, greenfield thermal projects, which can run as high as Rs 120 million per megawatt. This cost advantage allows the company to operate with better financial efficiency than some of its peers in the thermal power space.
Valuation and Market Context
Currently, Adani Power trades at a valuation premium compared to industry peers like NTPC and JSW Energy. While this higher valuation reflects investor confidence in the company's ability to execute its expansion plans and turn around stressed assets, it also suggests that the market has priced in strong growth expectations. The stock has recently traded near its 52-week high of Rs 254.20, indicating active interest from market participants.
Risks and Monitoring
While the growth outlook is positive, investors must remain aware of the inherent risks in the power generation sector. The brokerage report and broader market data highlight several areas that could impact future performance. These include potential delays in the commissioning of new projects, which could push back the projected earnings growth. Regulatory changes, particularly those impacting coal pricing, remain a significant risk for all thermal power producers. Additionally, the broader energy sector is undergoing a structural shift toward renewable sources. While Adani Power is exploring new energy avenues, including nuclear, a rapid transition away from coal-based power could compress margins for merchant power in the long run.
Investors should also watch the company's debt levels. While the firm maintains a disciplined debt-to-EBITDA ratio, aggressive expansion plans require significant capital. If project costs exceed initial guidance, the company may need to use more borrowed capital, which could pressure the balance sheet. The key monitorable for shareholders will be the actual execution and commissioning dates of the planned capacity, as well as any updates on regulatory policies affecting thermal power.