Morgan Stanley initiated call on Adani Power with an 'overweight' rating, saying that the company is a "good illustration of turnaround in India's corporate history". This comes after market regulator SEBI cleared Gautam Adani and his diversified conglomerate of the stock manipulation charges levelled by US-based short-seller Hindenburg Research.
Morgan Stanley called Adani Power its 'top pick'. "APL will deliver strong earnings growth driven by timely completion of projects & more PPA wins medium term," the international brokerage added.
'EBITDA to jump 3x by FY33'
It forecast Adani Power's capacity to rise 2.5 times, and EBITDA to jump 3 times by financial year 2033. The brokerage kept a target price of Rs 818 for the stock, implying an upside potential of nearly 30 percent from the stock’s previous closing price of Rs 631.35 apiece.
Why is Morgan Stanley overweight on Adani Power?
Explaining why it is overweight on Adani Power, Morgan Stanley listed out the following reasons:
- APL is India's largest IPP and second largest thermal developer (after NTPC), with a market share of 8% in both coal capacity and generation.
- APL has a strong balance sheet (F25 net debt/EBITDA: 1.5x). We expect that 60-65% its US$27bn capex needs to build 23.7GW under construction will be met through internal accruals.
- Key moats include (1) strategic location of its acquisitions to convert merchant into PPAs, (2) strong execution track record in plant commissioning, (3) land availability for expansion, (4) equipment orders are placed ahead of the competition, and (5) strong balance sheet.
- APL has leading return ratios amongst its peer group.
"India's energy demand is set to grow rapidly, driven by urbanization and industrialization. This will require significant investments in generation and grid infrastructure. The country has made notable progress in improving electricity access, with over 700 million people gaining access to electricity since 2000. Further, success of initiatives such as Make in India, operating in a multipolar world and advancing differentiated manufacturing hinges on the availability of accessible, reliable and cost-effective electricity," it added.
On September 19, Adani Power shares jumped more than 13 percent to close at Rs 716.10 apiece. The stock has gained nearly 18 percent in the past one month, and over 37 percent in the past six months.
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