Should you buy Adani Energy and how will it benefit from the Smart Metering Initiative? Trade Brains Trade Brains

The revolution happens when there is a crisis or a problem that needs to be solved. Likewise, the power companies in India especially Discoms faced the problem of power leakages, collection of money for electricity, and management of transmissions. This led to problems which made them take on debt.

This made them vulnerable to any shocks in the economy on the supply side and power outages due to cuts in power lines on the demand side. The recent installation of smart meters has made it efficient for companies to track electricity usage and have more control over data about the demand in peak seasons.

This has enabled to creation of another industry to adopt this technology to every place. In this article, we will look at Adani Energy Solutions which is into diverse power operations including the smart meter domain. 

Company Overview Of Adani Energy

Adani Energy Solutions is a part of Adani Group which was incorporated in 2013. They have a transmission line length of more than 21,100+ circuit km, 57,000+ MVA of transformation capacity, and 3,180,000+ distribution customers. They are one of the largest private-sector transmission and distribution companies in India. Moving towards last-mile connectivity in 2018 and made a strategic entry into the distribution industry by purchasing the assets of Mumbai Retail Distribution Infrastructure. 

In 2020, Mundra SEZ acquired MPSEZ Utilities Limited, which added retail power distribution to its portfolio. They expanded MPSEZ Utilities Limited to nearby regions in the Kutchh area. With the emergence of data centers and growing demand for electricity, they even ventured into smart meters and cooling solution businesses.

They have a presence in around 14 states with an order book of 2.28 crores engaged in installing smart meters for DISCOMs under design, build, finance, operate, and transfer methods.

Smart Meter Industry Outlook

There is an increasing trend in installing smart meters because power theft and inefficiencies in the energy infrastructure which are so common in the country. A study published in the International Journal for Legal Research and Analysis found that the average annual losses due to technical and commercial issues were 34%, with a range from 15 to 65%.

Unlike a traditional meter, a smart meter is a digital gadget that can communicate with the utility remotely. It does not require a meter reader because it will transmit usage data to the relevant utility every fifteen to sixty minutes.

Aside from the significant economic ramifications, unlawfully accessing a community power source has long resulted in energy firms incurring losses. The Indian government’s initiative on the Advanced Metering Infrastructure (AMI) program intends to upgrade the country’s electricity system, implement prepayment metering, and increase energy company profitability.

The estimated worth of the smart meter market in India was US$ 223.4 million in 2023, and it is expected to grow to US$ 3,267.7 million by 2031 at a CAGR of 34.57%.

Why is there a sudden demand for Smart Meters? What changed?

The demand for smart meters has suddenly surged in India mainly due to many reasons. Unlike traditional meters, Smart meters measure electricity consumption in real time. It helps the customer monitor his consumption closer than ever to provide him with an edge in controlling his electricity bills better.

These meters are designed in a way that, through them, utilities can remotely read usage information, detect faults more quickly, and thus better manage electricity distribution. This can lead to a reduction in power outages and improvement in service reliability.

Another influential factor is government initiatives and policies directed at energy efficiency and sustainability. The drive toward the adoption of Smart Meters is to bring about a renewal of infrastructure regarding electricity supply. Further, Smart Meters facilitate the use of renewable sources like solar energy through their grid management system to balance the electricity demand.

In addition, urbanization and the associated rise in electricity demand have brought out the requirement for an advanced and much more responsive grid system. On the whole, technological progress, government support, and growing energy demands have pushed spontaneous demand for Smart Meters in India.

Financial Overview & Segments Of Adani Energy

The company reported its revenue from operations of Rs. 16,607 crore in FY24 improved from Rs. 13,292 crore in FY23. Net profits stood at Rs. 1,196 crore in FY24, down from Rs. 1,281 crore in FY23. Cost of Power purchased decreased from 28.88% in FY23 to 26.13% in FY24.  

The RoE in FY24 stood at  9.80% which is a decline from 11.87% in FY23. The trend is declining trend from FY21 on the net profit being in flat growth and with reserves increasing YoY. The RoCE has followed the same trend as the RoE. The Interest cost was an increasing trend from FY21 to FY23 until a huge decline in FY24.

Key Metrics with Peers

Adani Energy is the largest among its peers. The company has a price-to-earnings ratio of around 109 times which is around with a premium near to Genus Power. The RoE is near the higher range among its peers. However, the debt-to-equity ratio of Adani Energy is higher compared to its peers. The FII Holdings of around 17% projects a trust from high institutional holdings in the company which is near Genus Power.

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Future Plans Of Adani Energy

The company has won contracts for 22.8 million smart meter projects with a total contract value of around INR 27,000 crores.

The revenue from these projects will be spread out over 10 years and expecting to incur the capex for these projects over the next 25-30 months.

For FY2025, they anticipate spending around INR 1,000-2,000 crores on smart metering capex.

The company has made key partnerships and tie-ups for components like Esyasoft for networking and infrastructure, Airtel for communication infrastructure, and Partnerships for cybersecurity and cloud services.

They plan to aggressively deploy meters for won contracts over the next 12-18 months.

Adani Energy Solutions sees itself as ideally positioned because it previously ran a distribution company (Mumbai DISCOM) and built and operated 500,000 smart meters there.

They intend to leverage this expertise from Mumbai DISCOM to deploy smart meters in other regions.

Funding for smart meter projects is expected to be a mix of debt and equity, with the equity component largely funded through the company’s surpluses.

Conclusion

As we near the end of the article, we have looked into Adani Energy which has prospects in Smart Meters. The company is witnessing growth and the margins look intact. However, these businesses are more capital intensive and the collections on energy products might take time for the company to receive and this creates taking on debt.

The interest cost reduces the net profits but reducing it in the longer run can create huge value for the company as well as shareholders. What do you think about Adani Energy Solutions potential? Let us know your views in the comments section below.

Written by Santhosh

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The revolution happens when there is a crisis or a problem that needs to be solved. Likewise, the power companies in India especially Discoms faced the problem of power leakages, collection of money for electricity, and management of transmissions. This led to problems which made them take on debt. This made them vulnerable to any
The post Should you buy Adani Energy and how will it benefit from the Smart Metering Initiative? appeared first on Trade Brains.   Read MoreCase Study, Financials, Stocks, adani energy solutions, adani energy solutions share price, adani energy solutions share price target, adani energy solutions share price target 2025, nse adani energy solutions, Smart Meter Stocks, Smart Meters, stock market Trade Brains