Adding 5 Gigawatts Capacity Will Improve Future Renewable Operations

Key Takeaways

• Strong pipeline and strategic focus on energy storage may enhance revenue growth and improve net margins by addressing peak demand effectively.
  
• Emphasis on long-term PPAs and strengthened supply chain boost stable cash flows and efficient project delivery, potentially improving earnings consistency.
  
• Delays in infrastructure, regulatory hurdles, and financing challenges threaten Adani Green Energy's project timelines, revenue growth, and profit margins.

Catalysts

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

• Expansion of capacity, with plans to add 5 gigawatts by the end of the fiscal year, including significant projects in solar and wind, indicates a strong pipeline that may drive future revenue growth.
  
• Strategic focus on Battery Energy Storage Solutions due to significant cost declines positions Adani Green Energy to enhance its energy storage capabilities, potentially improving net margins by optimizing energy supply and addressing peak demand effectively.
  
• Emphasis on long-term fixed-term Power Purchase Agreements (PPAs) for 85% of contracts aims to secure stable cash flows and predictable revenue streams, reducing financial risks and improving earnings consistency.
  
• Increasing workforce capacity and strengthening supply chain relationships bolster project execution capabilities, likely leading to efficient project delivery and cost management, which can positively impact EBITDA margins.
  
• Pursuing innovative digital initiatives and advanced analytics for performance optimization, along with commitments to strong governance and ESG standards, may enhance operational efficiency, potentially resulting in better net margins and overall earnings performance.

Adani Green Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Adani Green Energy's revenue will grow by 37.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.5% today to 38.2% in 3 years time.
• Analysts expect earnings to reach ₹107.5 billion (and earnings per share of ₹55.94) by about January 2028, up from ₹12.5 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 41.5x on those 2028 earnings, down from 125.5x today. This future PE is greater than the current PE for the IN Renewable Energy industry at 25.9x.
• Analysts expect the number of shares outstanding to grow by 6.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.93%, as per the Simply Wall St company report.

Adani Green Energy Future Earnings Per Share Growth

Risks

• Delays in transmission infrastructure readiness, particularly in key project sites like Khavda, could hinder Adani Green Energy's project execution, impacting revenue growth and project timelines.
  
• The focus on increased merchant capacity due to regulatory changes and DISCOMs' reluctance to sign new PPAs could expose the company to price volatility and potentially lower profit margins.
  
• Aggressive competition in the Battery Energy Storage Systems (BESS) market and uncertainties around cost and technology could affect the company's ability to maintain attractive financial returns from new projects.
  
• Extended monsoon impacts in certain areas and additional regulatory hurdles introduced for project certifications could delay project completions, affecting planned capacity additions and future earnings.
  
• The potential for rising interest rates or changes in financing conditions could impact the company's cost structure and net margins, especially if refinancing efforts face challenges, as seen in discussions around their construction facility.

Valuation

• The analysts have a consensus price target of ₹1613.0 for Adani Green Energy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹2550.0, and the most bearish reporting a price target of just ₹800.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹281.4 billion, earnings will come to ₹107.5 billion, and it would be trading on a PE ratio of 41.5x, assuming you use a discount rate of 12.9%.
  
• Given the current share price of ₹987.65, the analyst's price target of ₹1613.0 is 38.8% higher.
  
• 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.