Cantor Initiates ‘Overweight’ Rating on Adani Energy Solutions Ltd (AESL) in a Fast-Growing Energy Market

An investment solutions provider, Cantor, initiated an ‘Overweight’ rating on Adani Energy Solutions Limited; this company has not only played a key role in the rapidly growing India energy market but also indicates that it has “singular growth prospects compared with its peers in the US, Europe and Asia.”.

This diversified portfolio contains transmission assets, distribution assets, and a smart metering business. The enterprise value is pegged at USD 18.5 billion. Cantor’s report indicates that the energy arm of Adani Group has tremendous growth prospects with a 20% compound annual growth rate (CAGR) for its total revenue as well as 28.8% for its adjusted EBITDA from FY 2023-24 to FY 2026-27. These growth figures have outperformed low to mid-single-digit growth seen among AESL’s global peers.

AESL’s Strengths and Growth Drivers
According to Cantor, AESL’s business diversification was another bright area he spotted in his analysis. The report forecasts robust expansion for the firm in its transmission business as the company will wrap up nine new projects it has secured in the next 18-24 months. The firm will also take up many more contracts shortly that will drive it further.
Though AESL trades at higher multiples, the report does justify the same due to the fact that the company is growing better than average and has diversified operations. The distribution business is likely to grow at double-digit rates, and it’s led by growth in RAB. And then the smart metering business of AESL is expected to be a meaningful contributor. So there is an order book of 22.8m smart meters and that is expected to generate USD 3.2bn. More 40m smart meters would add a whole USD 6bn+ to AESL’s income.

Excellent financial performance.
AESL has had tremendous growth from the years. Even though the transmission business has only comprised 28.4% of the overall revenue and 52.6% of EBITDA for FY 2023-24, the distribution business has comprised 71.6% of the overall revenue and 36.3% of EBITDA. AESL’s overall revenue has jumped from USD 1.18 billion in FY 2020-21 to USD 1.98 billion in FY 2023-24. Its EBITDA has increased from USD 603 million to USD 753 million in the period.

AESL Well-positioned to Meet India’s Increasing Energy Needs
With the growth in infrastructure by India, along with an increase in its electricity consumption, AESL’s transmission and distribution business stands to gain considerably. In addition to this, it was also observed that since India is gradually shifting towards more renewables-based generation, demand for the infrastructure of transmission and distribution will continue to grow. AESL is best placed to capitalize on the trend, thereby providing the infrastructure required by India in extending electrical needs.

Conclusion
Adani Energy Solutions Ltd ranks as one of the world’s outstanding companies with diversified business models, rapid growth, and strong finance performances. In this context, Cantor’s rating continues to be ‘Overweight’, for increasing energy needs in India and the contribution by AESL to reinforce the structure of the country’s infrastructure development.

As of date of this report, AESL’s stocks are trading at Rs 1,013.20, being up by 3.49%. The stock remains an attractive investment in an increasingly huge energy sector.