Morgan Stanley commences coverage on Adani Power stocks, noting a significant 14% surge in share price.
In a significant development for the Indian power sector, investment bank Morgan Stanley has expressed optimism about Adani Power Ltd (APL), designating it as a top pick and rating it as 'Overweight'.
The bank anticipates upside potential to electricity demand forecasts, particularly in the period F22-Q1F25. This optimism is partly driven by the Indian government's forecast of a 6% compound annual growth rate (CAGR) in electricity demand from FY22 to FY32, fuelled by increased appliance usage and rising manufacturing activity.
Adani Power, currently the country's largest independent power producer with an 8% share in both coal capacity and generation, is poised for substantial expansion in the coming years. Morgan Stanley forecasts a significant expansion in Adani Power's capacity and market share.
This growth is central to Adani Power's strategy, with 60-65% of a $27bn capital expenditure for a 23.7GW addition expected to be met through internal accruals. The company's capital expenditure plans are a key factor supporting its growth ambitions.
Morgan Stanley first rated Adani Power Ltd as "Overweight" in September 2025, citing the company's position as India's largest private coal-based power producer, its planned expansion of operational capacity from 18.15 GW to 41.9 GW by FY32, and significant investments of $22-27 billion in under-construction projects.
The bank's faith in Adani Power is not misplaced. The company has demonstrated efficient land acquisition and construction execution, timely project deliveries, and a successful resolution of regulatory issues and value-accretive acquisitions. These factors have contributed to Adani Power's recognition as a striking example of corporate turnaround in India.
The stock has rallied 67% from its 52-week low at Rs 430.85, hit in November 2024. The stock is up 365% from its lows around Rs 155 in February 2023. Shares of Adani Power surged nearly 14% on Friday, hitting a new 52-week high at Rs 719.
Morgan Stanley expects further earnings potential if Adani Power's merchant portfolio declines from its current level and profitability in recent acquisitions improves. The bank's price target of Rs 818, implies a price-to-book multiple of 3.6x for September 2027 estimates, compared to NTPC's 1.8x. As a result, Adani Power's market capitalization reached Rs 2.75 lakh crore on Friday.
However, potential risks for Adani Power include weaker power demand, increased capital expenditure requirements, delays in plant commissioning, challenges in coal sourcing, and the financial health of distribution companies.
The energy market is experiencing growth due to demand from sectors like artificial intelligence, data centres, and urban mobility. Coal is seen as key to India's energy security, with nuclear being a driver in the next decade, according to Morgan Stanley. Adani Power ranks as the second-largest overall power producer in India after NTPC.
In conclusion, Morgan Stanley's bullish stance on Adani Power is justified given the company's strong growth prospects, strategic investments, and regulatory clarity. However, investors should be aware of the potential risks associated with the power sector.
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