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Adani Energy Solutions Ltd

| Q4 & FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤30th Apr 26

Summary : Adani Energy Solutions reports strong Q4/FY26, exceeding smart meter targets, improving credit ratings, and outlining significant capex for future growth across transmission, distribution, and C&I segments.

Management Perspective positive : We see a great potential there, great opportunity. And since we are improving capability of capex deployment and discipline in capital management and capex deployment, we will continue to capture those opportunities.

Concall Report Analysis & Insights

Business Overview

  1. Commissioned Mumbai HVDC project, augmenting transmission capacity and integrating renewables.
  2. Exceeded smart meter deployment target, installing 83 lakh meters in FY26.
  3. Achieved significant improvement in credit ratings, with most assets now AAA+ or AAA.
  4. Reduced interest costs despite increased capex, enhancing shareholder returns.
  5. Maintained high operational availability (99.7%) and reduced distribution losses to 4.2%.

Future Growth Prospects

  1. Targeting INR20,000 crore capex in FY27, with INR22,000-25,000 crore in FY28.
  2. Smart metering business is seen as a perpetual opportunity beyond current contracts.
  3. Expanding market share in transmission, aiming for 25-30% of bidding opportunities.
  4. C&I segment identified as a major growth driver, with 5,000 MW renewable capacity contracted.
  5. Significant intrastate transmission opportunities expected, around INR30,000-40,000 crore annually.

Management Insights

  1. CEO highlighted Mumbai HVDC and smart meter success as distinguished achievements.
  2. Management emphasized improved credit ratings and reduced interest costs despite scaling capex.
  3. Stated commitment to maintaining financial discipline and execution efficiency.
  4. Expressed confidence in capturing future opportunities across all segments.
  5. Confirmed that the 1.5 GW trading business has margins exceeding INR0.50 per unit.

Signs of Skepticism

  1. Analyst questioned the reconciliation of CWIP to future capitalization guidance.
  2. Analyst sought clarification on reported EBITDA numbers for smart meters.
  3. Analyst inquired about the impact of high capex on balance sheet leverage and borrowing levels.

Risk Factors

  1. Challenges related to Right of Way (ROW) for transmission projects, despite government support.
  2. Debates at policy level regarding transmission capacity additions and cost implications.
  3. Potential for increased borrowing levels due to high capex requirements.

Good To Know

  1. Refinanced $500 million bond from Apollo, a U.S. insurance investor.
  2. AEML's regulatory asset base (RAB) increased from INR5,400 crore to over INR10,500 crore.
  3. Transmission RAB-based assets are about INR10,000 crore, with INR7,000 crore added from HVDC.
  4. No AESL project delays due to equipment delivery issues, leveraging strategic procurement.

Key Drivers

  1. High capex drives future EBITDA.
  2. Smart metering offers perpetual growth.
  3. C&I segment is a major growth driver.
  4. Improved credit ratings lower costs.

Key Analyst Discussions

Competitive Environment

  1. Company aims to maintain 25-30% market share in transmission bidding opportunities.
  2. Identified INR150,000 crore projects for bidding in transmission.
  3. Discussed intrastate transmission opportunities, estimated at INR30,000-40,000 crore annually.
  4. Noted increased competition in distribution licenses for large hyperscalers.

Market Trends & Consumer Behavior

  1. Smart meter installation rate was impressive, with 1 crore meters targeted for next year.
  2. C&I segment is a major growth driver, with data centers contributing to demand.
  3. Observed increased activity from states in bidding for transmission projects.
  4. Noted easing of supply-related issues for equipment in the sector.

Financial Highlights

  1. Management provided capex guidance for FY27 (INR22,000 crore) and FY28 (INR23,000-25,000 crore).
  2. Discussed capitalization numbers for FY26 (INR15,300 crore) and FY27 (INR14,500-15,000 crore).
  3. Addressed balance sheet leverage, aiming to maintain 4.5x-4.7x net leverage.
  4. Clarified that Mumbai HVDC was commissioned in FY26, with full year tariff accruing from next fiscal.
  5. Explained that operating EBITDA for smart meters is a function of installed meters.

Product Composition

  1. Mumbai HVDC project fully commissioned in FY26, contributing to transmission capacity.
  2. Smart meter contracts have swelled to 2.46 crore meters, with more tenders expected.
  3. Discussed progress on Fatehpur-Bhadla and Khavda-Olpad HVDC projects.
  4. Mentioned district cooling as a potential future growth area in 4-5 years.

Strategic Considerations

  1. Addressed ROW challenges, distinguishing between permissions and land ownership issues.
  2. Discussed the impact of revised compensation schemes on ROW resolution.
  3. Confirmed no equipment sourcing from China for TBCB projects.
  4. Outlined strategy for C&I segment, offering integrated power solutions to customers.