Adani Power: A fundamental analysis
Adani Power Limited (APL), a part of the diversified Adani Group, is a private thermal power producer in India. Their first power plant was established in Mundra, Gujarat. Here, we will scrutinise their performance over the past year and their strengths and concerns.
Adani Power Limited (APL) specialises in power generation, distribution, and supply, mainly dealing in electricity. It has significant thermal and solar power projects across multiple states in India.
In Q1 FY24, APL’s net profit surged by 83.30% to INR 8,759 crore, compared to INR 4,780 crore in the previous year. Consolidated revenue rose by 16.80% to INR 18,109 crore due to increased volumes, one-time revenue recognition, and late payment surcharges. The consolidated EBITDA also increased by 41.50%, reaching INR 10,618 crore, supported by income recognition and contributions from the Godda power plant. CEO SB Khyalia has emphasised their commitment to advancing India’s climate goals through efficient technologies. The company achieved a 60.10% consolidated plant load factor (PLF) in operating performance, exceeding the previous year’s 58.60% consolidated PLF.
Let us deep dive into the opportunities and challenges that the firm is looking at in the days ahead.
Adani Power Limited
|Market Cap||INR 1,10,520.59 crore|
|Debt||INR 32,806.35 crore|
|Cash||INR 1,692.34 crore|
|52 week high/low||INR 432.50/132.40|
|Debt to equity||1.16|
|Source: https://ticker.finology.in/company/ADANIPOWER (as on August 17, 2023)|
What gives Adani Power the edge?
Established on August 22, 1996, the company brings years of industry experience, effective business models, and service excellence. Here are some highlights of APL’s journey in the recent past:
- Production scale: According to the most recently published results, the company achieved robust sales figures of 17.5 billion units with an installed capacity of 15,250 MW in Q1 FY24. This impressive performance surpasses the previous year’s sale of 16.3 billion units and the capacity of 13,650 MW.
- A significant deal: On August 16, Goldman Sachs GQG Partners International Opportunities Fund orchestrated a substantial single seller-buyer transaction worth INR 2,876 crore. This transaction should bolster investor confidence in the stock.
- Substantial capacity: As a leading thermal power producer in the country, the company boasts a substantial power generation capacity of around 12,450 MW, which includes 12,410 MW from thermal power plants and a 40 MW solar power project. Their operational units span over 9,240 MW of thermal power capacity, encompassing plants in Mundra (Gujarat), Tiroda (Maharashtra), Kawai (Rajasthan), Udupi (Karnataka), Raipur (Chhattisgarh), and Raigarh (Chhattisgarh).
Concerns for the company
While there are several positive aspects, the company does face persistent challenges. The parent entity, Adani Group, has been grappling with turbulence throughout the year, prompted by allegations of misgovernance and corporate fraud by the US-based short-seller group, Hindenburg Research. The Finance Minister of India, Nirmala Sitharaman has indicated that the Adani matter will be addressed by the market regulator, ruling out government intervention. Yet, a prevailing lack of investor trust in the Adani Group remains.
Additionally, the management of employee attendance and schedules presents an ongoing difficulty for the parent company due to its numerous business units and ports. Also, the mounting expenses have emerged as a notable concern for Adani Power.
Despite the prevailing obstacles, Adani Power is expected to persevere in delivering robust results in the times ahead. The company has already initiated strategies to confront existing challenges, with further actions planned for resolution. Promising indications of sustained future expansion are evident.
As of March 2023, the company's earnings per share (EPS) stood at INR 24.57, registering an impressive 155.1% year-on-year increase. The commendable three-year average return on equity (ROE) of 61% further enhances their credibility. Notably, the company’s EPS ratio has been consistently ascending over the past three years, fostering an appealing and robust trend. This trajectory, if maintained, will undoubtedly fortify its prospects, as substantial EPS growth serves as an alluring and vital characteristic. A heightened EPS will inherently catalyse significant financial metrics, thereby fortifying sustainable long-term growth.
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