Morgan Stanley has raised its price target on Adani Power Ltd (APL) by nearly 60 per cent, saying the Adani Gorup's utility incremental business offers a lower-risk and more return-accretive profile while also delivering the fastest growth against both its own history and peers.

The brokerage said APL’s portfolio is shifting towards annuity-like returns under power purchase agreements, with stronger spreads and a smaller merchant exposure. Morgan Stanley added that this transition is supported by APL’s execution record, leverage position and lower equipment costs from pre-orders.
 

Portfolio shift and cost advantage
According to Morgan Stanley, APL is moving from a model driven by plant load factor on PPA with merchant upside to one based on annuity returns on PPA with stronger spreads. The brokerage said most of APL’s 24 GW under-construction capacity should generate annuity returns, with EBITDA of Rs3.5 per kWh and fuel pass-through.

It said pre-ordered equipment from BHEL and L&T has, in hindsight, left APL with capex costs 10-30 per cent lower than peers, at Rs 10 crore per MW, giving it more flexibility in bidding for upcoming 14 GW PPAs in Uttar Pradesh, Rajasthan, Uttarakhand, West Bengal and Gujarat.
 

Growth, returns and valuation
Morgan Stanley said APL should post the fastest growth among peers and against its own history, with gross block seen rising about 2.5 times by FY32e. It projected EBITDA CAGR of 24 per cent over FY26-32e, against 16 per cent for peers and more than twice NTPC’s growth.

The brokerage also forecast RoCE rising to 20 per cent by FY32e, with improvement beginning from FY30e despite high capex. Morgan Stanley said it now values the stock at 14 times FY32e EV/EBITDA, above Indian and global peers at 12 times, citing the lower-risk PPA profile, stronger growth and improving RoCE.

Estimate changes and risks
Morgan Stanley said APL and other coal-based Indian peers have outperformed the NIfty by about 40 percentage points since April, helped by the Middle East conflict and positive developments around resolution of US legal matters for the broader group. It has increased the target price to Rs 275 from Rs 173 apiece. Its stance remain 'overweight' on it.

Shares of Adani Power Ltd settled at Rs 229.6 on Wednesday, falling 0.78 per cent for the day and commanding a total market capitalization of Rs 4.45 lakh crore. Despite being flat in the last one month, the stock has gained in 60 per cent in the last six months period. 

The brokerage cut its EPS estimates by 5 per cent for FY27e and 9 per cent for FY28e, and introduced FY29 estimates, reflecting full-year FY26 disclosures, updated capacity start-up guidance, year-to-date merchant volume trends, higher interest from debt drawdown, mark-to-market impact in FY26 and some commissioning delays.

It said JPVL acquisition and Bhutan hydro are not included in estimates. Key risks include weaker demand, lower merchant volumes in FY27-28, commissioning delays, capex inflation and build-up in discom receivables. Morgan Stanley sees EBITDA CAGR of 23 per cent over FY26-32e.