Rising Global Rates Will Derail Aggressive Renewable Expansion

Key Takeaways

• Aggressive debt-fueled growth faces risks from rising rates, execution challenges, and regulatory scrutiny, threatening margins and earnings predictability.
  
• Exposure to overcapacity, technological shifts, and policy delays could undermine competitiveness, profitability, and asset value over the long term.
  
• Robust operational execution, advanced technology adoption, disciplined capital management, and favorable regulatory trends position Adani Green Energy for sustained growth and strengthened financial stability.

Catalysts

Generates and supplies renewable energy to central and state government entities and government backed corporations in India.

• Rising global interest rates pose a significant risk to Adani Green Energy's aggressive, debt-fueled expansion strategy, as higher borrowing costs could substantially increase financial expenses and pressure net margins, especially given the company's high debt-to-equity ratio and ongoing refinance needs for projects with multi-decade horizons.
  
• Despite the ambition to reach 50 gigawatts by 2030, execution bottlenecks-such as transmission infrastructure delays, environmental and weather-related challenges, and reliance on favorable government evacuation policy-could stall or raise the cost of capacity additions, undermining both revenue growth and cash flow predictability in the coming years.
  
• The increasing regulatory scrutiny on large conglomerates in India, combined with a high concentration of long-term PPAs with government entities, heightens the risk of adverse policy actions or delayed contract signings, which could erode earnings visibility and potentially trigger negative re-ratings or credit downgrades.
  
• Adani Green's growing share of merchant capacity exposes the company to potential overcapacity and declining realized tariffs for solar and wind power as competition intensifies, compressing industry-wide margins and threatening long-term profitability and return on invested capital.
  
• Advances in next-generation alternative energy technologies or long-duration storage solutions could outpace cost gains in conventional solar and wind, leaving Adani Green with stranded or less competitive assets and limiting the viability of future projects, directly impacting revenue growth and asset valuations.

Adani Green Energy Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Adani Green Energy compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Adani Green Energy's revenue will grow by 24.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 11.7% today to 24.4% in 3 years time.
• The bearish analysts expect earnings to reach ₹53.5 billion (and earnings per share of ₹32.42) by about July 2028, up from ₹13.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 29.4x on those 2028 earnings, down from 127.4x today. This future PE is lower than the current PE for the IN Renewable Energy industry at 32.5x.
• Analysts expect the number of shares outstanding to decline by 6.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.13%, as per the Simply Wall St company report.

Adani Green Energy Future Earnings Per Share Growth

Risks

• Adani Green Energy's strong operational and financial track record, including a 28 percent year-on-year increase in energy sales and a 22 percent increase in EBITDA, indicates resilient revenue growth and expanding earnings, supported by efficient execution and capital management.
  
• The company's ambitious expansion plans-targeting 50 gigawatts of capacity by 2030 with much of the portfolio already under contracted PPAs-suggest a high degree of revenue visibility and stability for the long term, potentially insulating net margins and supporting predictable cash flows.
  
• Advanced technological deployment, such as bifacial modules, robotic cleaning systems, and a focus on digitization and AI-driven operations, is improving generation efficiency (capacity utilization factors over 32 percent at Khavda), which could translate into stronger operating margins and lower operating costs in future years.
  
• The company's proactive capital management, including refinancing over USD 1 billion with a 19-year tenure at AA+ rating and maintaining strict credit discipline, reduces the likelihood of financial distress and supports both cost of capital advantage and net earnings strength.
  
• Supportive government policy (e.g. Ministry of Power's coordination on grid evacuation and ongoing focus on renewable integration) combined with high rankings in ESG indices positions Adani Green Energy to benefit from secular trends in clean energy demand, potentially strengthening its revenue base, profitability, and investor appeal over the next decade.

Valuation

• The assumed bearish price target for Adani Green Energy is ₹792.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Adani Green Energy's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1522.0, and the most bearish reporting a price target of just ₹792.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₹219.2 billion, earnings will come to ₹53.5 billion, and it would be trading on a PE ratio of 29.4x, assuming you use a discount rate of 14.1%.
• Given the current share price of ₹1033.9, the bearish analyst price target of ₹792.0 is 30.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.