The global brokerage, Cantor Fitzgerald, recently highlighted the enormous growth potential of Adani Energy Solutions Ltd. (AESL), an $18.5 billion key player in power transmission for the Adani Group. According to it, the revenue of AESL is likely to grow at a compound annual growth rate of 20% from FY24 to FY27, while pre-tax profits are expected to increase by 29%. Adani Energy Solutions is expected to achieve revenue growth of billions over the next few years.
The portfolio of AESL comprises fairly diversified transmission and distribution assets and early-stage smart metering. That diversification has set up the firm significantly better than most utility companies worldwide, which normally grow much slower.
The brokerage believes that the transmission business of AESL will grow at a high rate going forward as it completes nine recently awarded projects during the next 18–24 months and expects more contract wins. The distribution business is also expected to grow at nearly double-digit rates due to an expanding regulatory asset base.
The most promising segment in AESL is its smart metering division, which is getting ready to deliver massive revenue. With a backlog of 22.8 million smart meters, the segment can clock around $3.2 billion in revenue, and there is potential for another 40 million units that can add more than $6 billion.
According to Canter Fitzgerald, AESL is likely to outstrip its peer group for at least a decade. This is due to the continued development of India and its increasing electricity consumption, wherein the demand for this shall keep increasing with the 1.4 billion people representing the country’s population. The more homes that find their way on the power grid and with higher household incomes, the more it is for electricity.
The recent capital raises had well-funded AESL to grow in its key segments, given the push for more energy through renewable sources now that India seeks to avail of them. Such a shift makes for such vital infrastructure for the transmission and distribution of energy, which is now, consequently, more so aligned with AESL’s business focus than ever.
Since its inception as a business when Adani Enterprises spun off transmission assets in 2015, AESL has since made major acquisitions of distribution assets and entered smart metering as a business, restructuring the brand to reflect a significantly more diversified portfolio than at first blush.
The transmission business represented 28.4% of the revenue and 52.6% of its EBITDA, while the distribution part accounted for 71.6% of the revenue and 36.3% of the EBITDA. AESL shares are sold today at a wonderful discount of 60% relative to peers; hence, it remains an attractive investment opportunity given that this Indian energy market continues to grow in size.
