Adani Energy Solutions Gets Bullish Outlook as Energy Trading Business Adds Upside: Jefferies

According to a Jefferies equity research report, AESL's EBITDA for the June quarter was 21 per cent higher than the brokerage's expectations, with the energy trading business emerging as a key growth driver. The company's core transmission, distribution and smart meter businesses also recorded a 36 per cent year-on-year rise in EBITDA.

Jefferies has raised its FY27-FY30 EBITDA estimates for AESL by 5-6 per cent to factor in the contribution from the energy trading business. The brokerage has retained its "Buy" rating on the stock and continues to consider AESL among its top picks in the utilities sector.

AESL's Energy Solutions Platform has tied up 4 GW of solar, wind and storage capacity, primarily from group companies. The business generated EBITDA of around Rs 5.9 billion during the June quarter, compared with Rs 170 million in the year-ago period.

The brokerage said AESL's business model involves tying up with utility companies at rates close to long-term power purchase agreement (PPA) rates while also seeking to capture merchant upside from power sales. This differs from a traditional model based mainly on fixed commissions or trading margins.

Jefferies expects the energy solutions business to expand significantly over the next two to four years, with visible potential for additional capacity tie-ups of more than 7.5 GW. During the June quarter, AESL sold 3,325 million units of power and earned an EBITDA of Rs 1.7 per unit, according to the report.

Transmission pipeline remains strong

The company's transmission business continues to benefit from a robust project pipeline. Jefferies said AESL's transmission bid pipeline increased 22 per cent year-on-year to Rs 1.1 trillion, compared with Rs 900 billion a year earlier, although it was lower than the Rs 1.5 trillion recorded in the previous quarter.

AESL's market share in inter-state competitively bid transmission projects stood at 40 per cent in FY26, up from 25 per cent in FY25. The company is currently executing transmission projects worth Rs 718 billion, representing a 21 per cent year-on-year increase.

The brokerage's estimates factor in Rs 150 billion of transmission capitalisation in FY27, broadly in line with management expectations.

Smart meter expansion remains a key growth driver

Smart metering is another area expected to support AESL's growth. Jefferies estimates that bidding for around 103 million smart meters could take place over the next two to three years, particularly across Telangana, Karnataka, Tamil Nadu and Andhra Pradesh.

AESL is currently executing smart meter projects worth Rs 295 billion, covering approximately 24.6 million meters. The company is also acquiring IntelliSmart, which has a portfolio of around 22.3 million smart meters.

The company added 2.1 million smart meters during the June quarter. While this was 14 per cent lower year-on-year, Jefferies said the figure does not necessarily indicate a significant shortfall against AESL's target of adding 10 million smart meters during the year.

EBITDA beats estimates

AESL reported sales of Rs 97.11 billion in the June quarter, up 42.4 per cent year-on-year. EBITDA rose 65.2 per cent to Rs 29.88 billion, compared with Rs 18.09 billion in the corresponding quarter of the previous year.

The company's adjusted profit after tax more than doubled year-on-year to Rs 11.49 billion, from Rs 5.13 billion. The EBITDA margin improved to 30.8 per cent from 26.5 per cent a year earlier.

Jefferies noted that the June-quarter EBITDA was about 21 per cent above its estimate, while adjusted PAT was around 71 per cent higher than its expectations.

Jefferies sees medium-term growth potential

Jefferies expects AESL to benefit from the commissioning of transmission projects, the ramp-up of smart meter execution and the expansion of its Energy Solutions Platform.

The brokerage has maintained a target valuation of 22 times EV/EBITDA for AESL's EBITDA excluding the trading business and assigned a lower 5 times EV/EBITDA valuation to the trading business, reflecting the fact that the sustainability of its profitability spread is yet to be fully established.

Based on its sum-of-the-parts valuation, Jefferies has set a price target of Rs 2,060 for AESL, compared with its previous target of Rs 1,905. The brokerage has also outlined an upside scenario of Rs 2,400 if the company benefits from additional transmission and smart meter project wins, while key downside risks include a loss of market share and delays in project commissioning.