Adani Energy Solutions Ltd., the power transmission arm of the Adani Group, is valued at $18.5 billion at the enterprise level. A robust business growth trajectory is expected to drive a 29% compound annual growth in its pre-tax profits over the next three years, according to a report.
AESL boasts a diverse portfolio that encompasses transmission and distribution assets, along with a smart metering division.
“With an enterprise value of $18.5 billion, we consider AESL a highly appealing opportunity in the fast-growing energy markets of India,” stated Cantor Fitzgerald, a global brokerage that has initiated coverage of the company.
The brokerage believes AESL has exceptional growth potential relative to other publicly traded utility and energy companies in the US, Europe, and Asia. “We project total revenue to increase at a compound annual growth rate (CAGR) of 20% from FY24 to FY27, with adjusted EBITDA expected to grow at a CAGR of 28.8%.”
This contrasts with peers experiencing low single-digit revenue growth and mid-single-digit EBITDA growth.
Highlighting its faster growth compared to competitors, the brokerage noted that AESL is a more diversified enterprise.
After it completes nine newly granted projects in the next 18 to 24 months, we expect the transmission sector to grow rapidly (and expect it to gain further contracts in the next years). Its distribution business should maintain growth at or near double-digit rates by expanding its regulatory asset base (RAB). Additionally, its smart metering division is set to start generating significant revenue and profits, working through a backlog of 22.8 million smart meters (expected to yield $3.2 billion in income), with potential to win another 40 million smart meters, which could add over $6 billion in income,” the report stated.
AESL is expected to experience strong growth over the next four years, continuing to outpace its peers for at least the next decade. The reason for this increase is that, in comparison to other established markets, India is still relatively undeveloped. The transmission and distribution operations of AESL stand to gain as the nation grows and consumes more electricity.
“Following a recent capital raise that was significantly oversubscribed by three times, AESL is now well-positioned to drive growth across all three major segments,” Cantor Fitzgerald noted, adding that AESL shares currently trade at a 60% discount compared to peers.
AESL was established when Adani Enterprises demerged its transmission assets into a new entity called Adani Transmissions in 2015. Adani Transmissions subsequently acquired distribution assets from Reliance Infrastructure in 2018 and from MPSEZ Utilities in 2021.
In 2022, the company entered the smart metering sector and launched a new cooling solutions business in 2023, leading to its rebranding as Adani Energy Solutions to reflect its broader portfolio beyond just transmission and distribution.
In its most recent fiscal year (FY24, from April 2023 to March 2024), AESL’s transmission business contributed 28.4% of revenue and 52.6% of EBITDA, while its distribution business accounted for 71.6% of revenue and 36.3% of EBITDA.
AESL’s operations are closely linked to India’s growing need for electrification infrastructure. With a population of 1.4 billion, India is the most populous country globally. “We believe that India is only at the beginning of its journey regarding energy demand,” the report stated.
As more homes connect to the grid, incomes rise, and households acquire more electricity-consuming products (like refrigerators and air conditioners), the demand for electricity will continue to surge.
To meet this increasing demand, India has heavily invested in and promoted renewable energy. As more electricity is generated from renewable sources, the infrastructure required to transmit and distribute that energy will become even more crucial, which is precisely where AESL operates.
