May27 , 2022

Adani Power Shares Rise 180% in One Year; Should Investors Book Profit Or Hold?


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Adani Power Stock: Adani Power on Thursday reported a multifold rise in profit after tax (PAT) at Rs 4,645 crore compared with Rs 13 crore in the corresponding quarter last year. Consolidated total revenue for the quarter soared 93 per cent YoY to Rs 13,308 crore compared with Rs 6,902 crore in the same quarter last year. The company said electricity demand continued to grow strongly in India, driven both by economic growth and a heatwave in the north-western parts of the country. It is said that the recent geopolitical events in Europe have resulted in a sharp increase in global fuel prices, including coal, petroleum, and natural gas.

“This has in turn affected the ability of several thermal power plants in India to generate power at viable costs, restricting their output. As a result of supply constraints in face of a growing power demand, average market clearing price of electricity on exchanges rose to Rs. 8.23/kWh in the day,” it said.

Recently, the shares of thermal power producer Adani Power have been on a roll. The stock has delivered multibagger returns to its shareholders. In the past one year, the share price jumped from Rs 97 to Rs 279.50, logging around 188 per cent return in this period.

The scrip has delivered over 500 per cent return in three year. Long-term investors have made big gains by investing in this stock as it has surged around 1,000 per cent in the last four years.

Adani Power – What Should Investors Do?

Anuj Jain, Research Head and Co-Founder at Green Portfolio, explained that “It’s not actually what it looks like, revenue for the quarter includes 2,946 Crores and other income includes 1,982 Crores of prior period revenue recognized (based on the settlement deed with the Discoms). But even if you remove that impact this, Q4 performance has been good (revenue up by 42 per cent and PBT by 490 per cent QoQ). Further, they have completed the acquisition of Essar Power MP Limited which has a 1,200 MW operational unit in Mahan, MP. Adani Power, just like other group companies, is growing at a very rapid speed both organically and inorganically. UMPP at Mundra was a big overhang on the share price performance for years. It seems subsiding with 1234 MW PPA with Gujarat Government now revived. The average plant load factor of 51.5 per cent during the FY22 is very low. But it also signifies that more good could be there in the future. Debt Equity is at 2 which has improved over the FY22. We did a simple calculation wherein we removed prior period revenue and other income both – from FY22 and FY21. Based on the working, EPS for FY22 comes out at 1.51 and for FY21 is was -3.52.”

At an EPS of 1.51 and a CMP of 277, the valuation is not comfortable for us.

Hence, we believe, those who have invested can hold this stock for the long term as the company may keep growing from here. However fresh buying is not suggested, Jain said.

Ravi Singh, Share India, said: “Adani Power has given a substantial return on the back of increasing power demand and shortage of coal. Short term Investors may book profit at current levels or on the requirement of funds to meet their essential needs, else the fundamentals of Adani Power suggest that the stock may touch the levels of 350 in long term.”

“After scarcity of electricity all over the world and in India itself, we think all factor is priced in so investors must book profit 50 per cent and rest trail SL CTC,” Ravi Singhal, Vice Chairman, GCL Securities

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