MOFSL Assigns ₹250 Target to Adani Power

Adani Power has attracted a bullish view from Motilal Oswal Financial Services (MOFSL), which has assigned a Buy recommendation to the stock with a target price of ₹250.

The brokerage is valuing Adani Power at 16 times FY29E EBITDA, while investments are estimated to contribute around ₹1 per share to its valuation.

The stock was trading around ₹209 in the latest market update after gaining during the session, keeping the brokerage's target significantly above the prevailing market price.

MOFSL's positive thesis is built around three major factors: Adani Power's ambitious capacity expansion, its strong track record of acquiring and turning around distressed power assets, and the potential long-term opportunity from nuclear power.

However, the brokerage has also identified several risks, including untied thermal capacity, rising competition, large capital expenditure requirements, project execution challenges and environmental regulations.

Adani Power's Strong Position in India's Thermal Power Market

Adani Power is India's largest private thermal power producer, with approximately 18 GW of capacity in Q1FY27.

This gives the company a substantial presence in India's coal- and lignite-based power-generation industry.

According to the brokerage's assessment, Adani Power's capacity represented around 24 per cent of private-sector coal and lignite-based capacity and approximately 8 per cent of India's overall coal and lignite-based capacity.

The company's existing scale gives it an established platform from which to participate in India's next generation-capacity expansion cycle.

India Enters Another Power-Capacity Expansion Cycle

India's electricity demand is expected to remain structurally strong as economic activity expands.

Industrialisation, urbanisation, manufacturing investment, data centres, electric mobility and rising household electricity consumption are increasing the country's requirement for reliable power.

While renewable energy is expected to account for a growing share of India's electricity generation, thermal power is likely to remain important for providing dependable and dispatchable electricity.

MOFSL expects India's thermal-generation capacity to increase by approximately 86 GW between FY26 and FY36.

This creates a potentially significant addressable market for established thermal-power companies.

Reason 1: Ambitious Growth Plan

Adani Power Targets 42 GW Capacity by FY32

The first major reason behind MOFSL's bullish stance is Adani Power's ambitious expansion strategy.

The company plans to increase its generation capacity by around 2.3 times to 42 GW by FY32.

If executed successfully, the expansion would significantly increase the company's share of India's private thermal-power capacity.

MOFSL believes Adani Power is well positioned to benefit from the expected thermal-capacity build-out because of its existing operating scale, project execution capabilities and access to capital.

Upcoming Thermal Bids Could Support Growth

The brokerage also sees a favourable competitive environment in several upcoming thermal-power tenders.

States including Uttar Pradesh, Gujarat, Rajasthan, Uttarakhand and Andhra Pradesh are expected to offer opportunities for new generation capacity.

MOFSL believes relatively limited competition in some upcoming bids could support project economics.

For Adani Power, winning projects at attractive tariffs could provide a long-term pipeline of capacity additions and improve earnings visibility.

Thermal Power Could Regain Competitive Position

The relationship between renewable and thermal generation economics is also changing.

Solar power has become increasingly competitive over the past decade and has displaced part of the incremental requirement for conventional generation.

However, MOFSL believes the tariff differential that historically supported the displacement of thermal power by solar generation is structurally narrowing.

The convergence could improve the competitive positioning of coal-based power plants, particularly when electricity demand requires dependable generation alongside intermittent renewable sources.

This could create a more favourable environment for companies with large and efficient thermal assets.

Reason 2: Strong Asset Acquisition and Execution Track Record

Distressed Assets Have Created Capital-Efficient Growth

The second major pillar of MOFSL's investment thesis is Adani Power's track record of acquiring distressed thermal assets.

The company has used the Corporate Insolvency Resolution Process (CIRP) to acquire operating power assets at attractive valuations, often at significant discounts to the cost of developing replacement capacity from scratch.

The strategy can provide two advantages.

First, the company obtains access to existing generation capacity without waiting for a completely new project to be developed.

Second, operational improvements and integration can potentially increase the earnings contribution of acquired assets.

Raigarh Shows the Turnaround Potential

The Raigarh power asset is one example highlighted by MOFSL.

Adani Power acquired the asset in July 2019 when it was reporting negative EBITDA of approximately ₹97 crore.

By FY26, the asset was generating EBITDA of around ₹1,100 crore.

The dramatic improvement demonstrates the potential for operational turnaround and value creation when distressed assets are acquired at appropriate valuations.

It also supports MOFSL's argument that Adani Power's acquisition strategy has been an important capital-allocation tool.

Mahan Asset Also Delivers Strong Improvement

The Mahan plant, acquired in March 2022, provides another example of the company's ability to improve acquired assets.

According to MOFSL, EBITDA from the plant has nearly tripled compared with the year of acquisition.

The performance of Raigarh and Mahan strengthens the case for the company's acquisition-led growth model.

However, future acquisitions will need to be evaluated carefully because the availability of distressed assets at attractive valuations cannot be assumed indefinitely.

Reason 3: Nuclear Power Creates Long-Term Optionality

Adani Power Targets 10 GW of Nuclear Capacity

The third major factor behind MOFSL's bullish outlook is Adani Power's potential entry into nuclear power.

The company has outlined an ambition to develop approximately 10 GW of nuclear capacity by 2035.

The opportunity depends on the government finalising the regulatory framework for private-sector participation in nuclear power.

If the regulatory environment permits private companies to develop nuclear assets, Adani Power could potentially enter a new long-term growth market.

Nuclear Could Diversify the Generation Portfolio

Nuclear power provides reliable, low-carbon electricity and can complement renewable generation.

As India expands solar and wind capacity, the need for stable power sources that can provide electricity when renewable generation is unavailable is likely to remain important.

For Adani Power, nuclear development could therefore provide a new avenue for long-term capacity growth beyond conventional coal-based generation.

However, nuclear power should be viewed as a long-term optionality rather than an immediate earnings driver.

The actual contribution will depend on regulatory approvals, project development, financing, construction timelines and execution.

Strong Earnings Growth Expected

MOFSL has incorporated a strong earnings trajectory into its estimates for Adani Power.

The brokerage expects:

• EBITDA CAGR of 21 per cent during FY26–FY29E

• PAT CAGR of 9 per cent during FY26–FY29E

• Capacity additions of 1.3 GW in FY27

• Capacity additions of 1.6 GW in FY28

• Capacity additions of 3.2 GW in FY29

The expected capacity additions could increase the company's operating scale and strengthen its earnings base.

However, achieving these estimates will depend on timely project commissioning, healthy plant utilisation, favourable tariffs and effective cost management.

Valuation Remains an Important Consideration

Despite its bullish outlook, MOFSL acknowledges that Adani Power trades at a significant valuation premium compared with some of its listed peers.

NTPC and JSW Energy provide important comparison points for investors evaluating the power sector.

The brokerage believes Adani Power deserves a premium because of its stronger growth trajectory and capital-allocation track record.

However, a premium valuation also increases the market's expectations.

If capacity additions are delayed, project costs rise or earnings growth falls below expectations, the valuation premium could come under pressure.

Therefore, investors need to consider both the company's growth potential and the price being paid for that growth.

Untied Capacity Is a Key Risk

One of the most important risks identified by MOFSL is the company's upcoming untied thermal capacity.

Approximately 44 per cent of upcoming thermal capacity is untied, according to the brokerage.

Untied capacity can expose a power producer to fluctuations in electricity demand and merchant power prices.

If electricity prices weaken or demand growth slows, the profitability of such capacity could be lower than anticipated.

The ability to secure attractive long-term power purchase agreements will therefore remain important.

Large Capex Commitments Require Close Monitoring

Adani Power's ambitious capacity-expansion programme also requires substantial capital expenditure.

Large infrastructure projects carry execution risks related to equipment availability, construction, approvals, financing and project costs.

Any delay or cost overrun could reduce project returns and put pressure on cash flows.

As capacity expands rapidly, maintaining a balance between growth and financial discipline will be critical.

Investors will therefore need to track the company's capital expenditure, debt levels, operating cash flow and project commissioning schedule.

Competition Could Increase in Thermal Power

Another risk is rising competition.

The expected increase in India's thermal-generation capacity could attract several established and new players.

If multiple companies aggressively bid for projects, tariffs and project returns could come under pressure.

MOFSL has also flagged the possibility of a slowdown in tendering activity as a risk.

Adani Power's ability to maintain its growth trajectory will therefore depend not only on India's overall power demand but also on the number and economics of projects available to developers.

Environmental Regulations Remain Relevant

Thermal-power companies remain exposed to environmental and emission-related regulations.

Compliance with stricter environmental standards can require additional investment in pollution-control systems and plant upgrades.

Failure to meet regulatory requirements could result in penalties, operational restrictions or legal challenges.

For Adani Power, the expansion of its thermal portfolio means environmental compliance will remain an important component of project execution and capital planning.

Nuclear Ambition Also Comes With Execution Challenges

The nuclear opportunity is potentially substantial, but it also carries considerable uncertainty.

Private-sector participation depends on the final policy and regulatory framework.

Nuclear projects generally involve high upfront investment, lengthy construction periods and stringent safety requirements.

Consequently, investors should not assume that the proposed 10 GW nuclear target will immediately translate into revenue or EBITDA.

The market is likely to first focus on policy developments, approvals, partnerships and project announcements before assigning significant near-term earnings value to the opportunity.

Power Demand Provides Structural Support

India's long-term electricity demand remains an important structural factor supporting the investment case.

Manufacturing expansion, infrastructure development, urbanisation, digitalisation and electrification are increasing the country's requirement for electricity.

The growth of data centres and artificial intelligence-related infrastructure could also increase electricity consumption over time.

At the same time, renewable-energy additions require complementary sources of reliable generation.

This creates a potentially favourable long-term environment for power producers with scale, efficient assets and access to capital.

Key Factors Investors Should Monitor

Investors tracking Adani Power should keep an eye on the following factors:

Capacity Additions

The pace of new capacity commissioning will determine whether the company can achieve its 42 GW target.

Plant Utilisation

Higher utilisation can improve operating leverage and profitability.

Power Tariffs

Tariff levels will be especially important for untied and merchant capacity.

Coal Availability

Fuel availability and coal costs remain critical variables for thermal-power economics.

Capital Expenditure

Investors should monitor project costs, funding requirements and commissioning schedules.

Cash Flow

Strong operating cash flow will be important for supporting the company's large expansion programme.

Regulatory Developments

Changes in thermal-power, environmental and nuclear regulations could materially influence the company's growth opportunity.

Bull Case and Risk Case

Bull Case

The bullish scenario rests on India's strong electricity-demand growth, an estimated 86 GW increase in thermal capacity through FY36, Adani Power's expansion to 42 GW, successful integration of acquired assets and potential entry into nuclear generation.

Successful execution could support strong EBITDA growth and potentially justify the premium valuation assigned to the stock.

Risk Case

The key downside risks include a slowdown in power demand, higher competition, weaker merchant tariffs, delays in new projects, cost overruns, large capital requirements and environmental compliance costs.

The high proportion of untied upcoming capacity also creates exposure to electricity-market conditions.

A significant deterioration in any of these variables could challenge the brokerage's earnings assumptions.

Why the Stock Is on Investors' Radar

Adani Power combines an established thermal-generation platform with an ambitious expansion programme.

Its acquisition strategy has demonstrated the ability to transform distressed assets into significant EBITDA contributors, while the potential nuclear opportunity provides an additional long-term growth avenue.

The key question for investors is whether the company can execute its expansion programme while maintaining attractive returns and managing the risks associated with a large capital expenditure pipeline.

Market Outlook

MOFSL's Buy recommendation and ₹250 target price reflect its confidence in Adani Power's long-term growth prospects.

The core investment thesis is built around three major factors: India's upcoming thermal-capacity expansion, Adani Power's proven ability to improve acquired assets, and the potential long-term opportunity in nuclear power.

The brokerage's expectation of a 21 per cent EBITDA CAGR during FY26–FY29E provides a strong earnings-growth foundation for the bullish case.

However, investors should also consider the stock's premium valuation and the execution risks associated with a large expansion programme. The 44 per cent untied portion of upcoming thermal capacity, rising competition, significant capex commitments, potential project delays and environmental regulations remain important risks.

In the near to medium term, the stock's performance is likely to be driven by capacity commissioning, earnings delivery, project wins and capital-allocation discipline. Over the longer term, successful expansion towards 42 GW and meaningful progress towards nuclear capacity could strengthen the company's position in India's evolving power-generation landscape.