Adani Power’s contracted thermal expansion supports higher margins and earnings growth
Adani Power Ltd.
BUY
₹199
₹189.4
₹259
30.15%
Investment View
Prabhudas Lilladher (PL) initiated coverage on Adani Power on September 24, 2026, with a BUY rating. The broker’s thesis is based on a large and increasingly contracted thermal expansion programme, materially higher capacity charges on new PPAs, and an earnings ramp-up that it believes can be funded with manageable leverage.
Adani Power is India’s second-largest thermal power producer and operates 18.3 GW of generation capacity. The company is targeting 41.9 GW by FY32 through a 23.72 GW expansion pipeline, which PL views as strategically important during a renewed thermal capacity-addition cycle.
Thermal Expansion Programme and Execution
PL expects capacity additions of 1.3 GW in FY27E, 1.6 GW in FY28E and 4.0 GW in FY29E. Key projects include Korba Phase II, Mahan Phase II, Raipur Phase II, Raigarh Phase II and Mirzapur.
| Period | Expected capacity additions |
|---|---|
| FY27E | 1.3 GW |
| FY28E | 1.6 GW |
| FY29E | 4.0 GW |
The broker considers execution risk relatively contained because land has been secured and BTG equipment ordered for the full 23.72 GW pipeline. Around 60 per cent of capacity additions are at brownfield locations. The proposed portfolio is predominantly based on efficient ultra-supercritical technology, which should support lower heat rates, fuel efficiency and competitive generation costs.
Raipur Phase II and Raigarh Phase II had achieved more than 62 per cent and 54 per cent execution, respectively, as of June 2026.
Contracted Offtake and Tariff Economics
PL highlights improving earnings quality from contracted offtake and better tariff economics. Around 96 per cent of operating capacity is covered by long- and medium-term PPAs, while 56 per cent of the expansion pipeline is already tied to long-term PPAs. Adani Power secured 11 GW of PPAs during FY26.
The average capacity charge for the under-construction portfolio is Rs 3.9 per kWh, compared with around Rs 1 per kWh for the operating portfolio. Management has indicated that these new PPAs should lift EBITDA per MW materially. PL also notes that SHAKTI-linked fuel supply agreements and coal linkages should improve fuel security and earnings visibility.
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Financial Outlook and Funding
PL forecasts consolidated sales to increase from Rs 5,42,405 million in FY26 to Rs 8,44,124 million in FY29E. EBITDA is estimated to rise from Rs 1,98,061 million to Rs 3,46,688 million over the same period, implying a 21 per cent CAGR, while EBITDA margin is expected to expand from 36.5 per cent to 41.1 per cent.
Adjusted PAT is projected to grow at a 15 per cent CAGR to Rs 1,72,758 million in FY29E.
| Metric | FY26 | FY29E |
|---|---|---|
| Consolidated sales | Rs 5,42,405 million | Rs 8,44,124 million |
| EBITDA | Rs 1,98,061 million | Rs 3,46,688 million |
| EBITDA margin | 36.5 per cent | 41.1 per cent |
| Adjusted PAT | — | Rs 1,72,758 million |
The broker expects capex of around Rs 930 billion across FY27E to FY29E and forecasts operating cash flow of around Rs 693 billion over that period. Free cash flow is expected to remain negative during the expansion phase, with pressure peaking in FY28E.
Net debt is projected to rise from Rs 450 billion in FY26 to Rs 866 billion in FY29E, although net debt to EBITDA is expected to remain around 2.5 times in FY29E.
Track Record and Long-Term Optionality
PL cites Adani Power’s record of acquiring and turning around stressed thermal assets. Raipur EBITDA rose from Rs 2.1 billion in FY20 to Rs 23.5 billion in FY26, Raigarh moved from a Rs 1.0 billion EBITDA loss to Rs 11.1 billion EBITDA, and Mahan EBITDA increased from Rs 5.5 billion in FY22 to Rs 16.0 billion in FY26.
The broker sees additional long-term optionality in the company’s evaluation of up to 10 GW of nuclear capacity by 2035.
Valuation and Target Price
PL values Adani Power at 18 times September 2028 EBITDA, adjusted for net debt, to arrive at a target price of Rs 259 per share.
The broker believes the valuation premium is supported by projected 25 per cent EBITDA CAGR over FY26 to FY32, an improvement in RoE to 23 per cent by FY32E from 19 per cent in FY26, and an expected decline in net debt to EBITDA to around 1.0 times by FY32E.
Key Risks
- Regulatory or tariff changes.
- Imported coal-price volatility and fuel-supply gaps.
- Project delays or cost overruns.
- Acquisition-related risks.
- Tighter climate or environmental regulation affecting thermal generation economics.
Disclaimer: This is a summary of a research report published by the broker/research house identified above. The views, recommendations, target prices and estimates are those of the respective broker and do not represent DSIJ investment advice. The summary may be AI-assisted, hence please refer to the original report for complete details, disclosures and risks.
