Fundamental Analysis of Adani Transmission: Yes, it is true that the Adani Group is a well-diversified conglomerate. Be it green energy, city gas distribution, or simply power generation, the Adani Group has its hands in all cookie jars. But did you know that the energy sector lies at the core of Gautam Adani’s business empire?

But did you also know that Adani Transmission brings electricity to your home? Yes, you read that right. In this article, we will conduct a fundamental analysis of Adani Transmission.

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Fundamental Analysis of Adani Transmission

Today we will cover the company history, financials, and future plans and also conduct a detailed fundamental analysis of Adani Transmission.

Company History

Part of the ports to power conglomerate the Adani Group, Adani Transmission. (ATL) traces its origins back to 2006. A 220 KV transmission line was developed for Mundra Thermal Power Station.

Then over the years, the transmission business saw expansion as part of Adani Enterprises. The company was subsequently demerged and listed as Adani Transmission in 2015. The rest is history.

Today, Ahmedabad, Gujarat-headquartered ATL is one of India’s largest private-sector power transmission companies. It establishes, commissions, operates and maintains electric power transmission systems.

The company owns a portfolio of over 18,795 ckm of transmission lines and 40,001 MVA of power transformation capacity from 132 to 765 KV of HVAC systems and +/- 500 KV of HVDC systems. Additionally, ATL is also involved in the business of energy distribution through well-integrated utilities in Mumbai and Mundra SEZ area.

The image below presents the structure of Adani Transmission.

Fundamental Analysis of Adani Transmission - Business chart

It has a workforce of over 11,000 employees and a presence in 13 Indian states with its 31 transmission projects. We got a good snapshot of the history and the present state of Adani Transmission. 

Let us now move ahead to the industry overview as part of our fundamental analysis of Adani Transmission.

Industry Overview

India is the third-largest producer and second-largest consumer of electricity in the world. The nation has a total installed capacity of 395.6 GW. The power so generated is then transferred through the transmission systems run by transmission companies.

India’s transmission infrastructure has always lagged behind its power generation capabilities. Thus, there is an extra focus to streamline energy transmission operations with the country’s production capacity.

As of 31 December 2021, India’s transmission line capacity stood at 4.56 lacs circuit kilometres (ckm) and its inter-regional power transfer capacity at 1,12,250 MW. As per the data from National Power Portal, the nation grew its transmission capacity at a CAGR of 6% from 3,20,000 ckm in 2016 to 4,56,716 ckm in 2022.

Similarly, the transformation capacity increased from 8,26,958 MVA to 10,79,766 MVA during the same period. 

The figure below offers a perspective on the growth in transmission lines and transformation capacity in India.

Fundamental Analysis of Adani Transmission - Growth

Going forward, growth in renewable energy production is directly expected to help India’s power transmission industry. The reason behind this is that substantial renewable energy resources are unevenly distributed in the country.

This demands the need for grid digitalization and broadening of the national transmission network as the country prepares for the green energy shift. 

Thus, rising income levels, increased energy consumption, growing population, renewable energy growth, green energy transmission highways/corridors, urbanization, and smart metering are expected to bring growth to India’s power transmission and distribution industry.  

Fundamental Analysis Adani Transmission – Financials

Revenue & Net-Profit Growth

Fundamental Analysis of Adani Transmission - Financials

ATL has grown organically and inorganically over the years as and when the management came across attractive opportunities. For instance, ATL acquired the power distribution business of Reliance Infrastructure Limited in Mumbai in 2018. In 2020 and 2021, it purchased assets of Kalapataru Power Transmission, Maharashtra State Electricity Transmission Company, and Essel Infraprojects. 

Against the industry growth of 6% annually from 2016 to 2022, ATL grew at a CAGR of 18% every year. Its revenues increased at a CAGR of 23.34% in the last five years. However, during the same period, the profitability of the company declined sharply on account of higher interest charges.

From FY2019, the company took more debt to fund its purchases, with profit margins taking a hit.

The table below shows the revenue, net profit, and margin figures of Adani Transmission for the last five years.

YearRevenue (Rs. Cr.)Net Profit (Rs. Cr.)NPM (%)OPM (%)

Debt & Interest Coverage Ratio

Adani Transmission operates in the electricity transmission business in which state and central power distribution companies serve as counterparties to the company. These partnerships are stable in nature and offer strong revenue stability and visibility. 

Thus, the confidence in revenues has allowed the management to pile more debt to fund its acquisitions and organic expansion. Nevertheless, with the debt to equity ratio of 4.35 and a low-interest coverage ratio of 2.03, the company is over-leveraged. 

However, with no default history and strong parentage, the company still has a rating above junk grade at BBB- / Baa3. 

YearDebt/EquityInterest Coverage

Adani TransmissionFuture Plans

We looked at the past five years’ numbers of the company. While all that is good, it provokes the question, “What’s ahead?”

  1. As of 31 March 2022, ATL had a 20,765 MVA of power transformation capacity under construction including a portfolio of 4,516 km of power transmission lines. It accounts for Rs 18,000 crore directed towards the construction of 10 transmission projects including 1 HVDC project.
  2. Adani Electricity Mumbai Limited (AEML), a subsidiary of ATL for the purpose of distributing electricity in Mumbai has in place a fully-funded CAPEX plan of Rs 8,100 crore during the FY23-26 period.
Investor Presentation
  1. The company has identified tariff-based competitive bidding opportunities worth Rs. 52,000 crores in the near term out of which Rs. 13,400 crores are under the RFP/RFQ stage.
  2. The privatization of energy distribution along with smart metering has opened up a market of Rs 2.2 lakh crore for the power distribution segment of the Adani Transmission. The management will take adequate expansion steps as and when the right investment avenues are available.

Adani Transmission – Key Metrics

We are almost at the end of our fundamental analysis of Adani Transmission Ltd. Let us have a quick look at its key metrics.

CMP (Rs)1,730Market Cap (Rs Cr)193,000
Stock P/E224Face Value (Rs)10.0
RoCE12%Book Value (Rs)95.3
RoE19%Price to Book Value18.1
Debt to Equity4.36Promoter Holding74.2%
Net Profit Margin11%Operating Profit Margin37%
Interest Coverage Ratio2.03Dividend Yield0.0%

In Conclusion

As we finish our fundamental analysis of Adani Transmission, we can settle down on the two points. In a matter of three years, the stock of Adani Transmission has given an eye-popping return of 428% despite the recent decline in the price. 

Going forward, will it be able to sustain its momentum? It entirely depends on the ability of the company to grow at the same pace. But as the saying goes, “Trees don’t grow to the sky.”

Thus, we may not see the same multi-bagger returns in the future. Do you think there is still steam left in Adani Transmission? How about you enlighten us with your perspective on ATL in the comments below?

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