The divergence in performance could not be starker. While shares of Adani Transmission Ltd have galloped 65% in the last two years, those of industry leader Power Grid Corp. of India Ltd languished, losing 8%.
As investments in the transmission sector slowed, investors shied away from Power Grid fearing a project and capacity addition slowdown. But that was not the case with Adani Transmission. The firm continues to see robust expansion in asset base.
In the last three fiscal years, on an average, Adani Transmission has added about ₹5,500 crore worth of projects every year to its asset base, clocking an average annual growth of 36%.
It currently operates 16 transmission projects and eight more are under construction. Besides, on 14 December, the company said it received a letter of intent to build and operate a transmission project in Maharashtra.
Adani Transmission continues to see a strong project pipeline. Transmission projects, evacuating green energy, and interstate and intra-state lines are seen as big opportunities. “There is a very healthy pipeline for at least next four to five years,” the management said at a recent analysts meet.
According to Rohit Natarajan, analyst at Antique Stock Broking Ltd, the company sees opportunities worth ₹2 trillion in the transmission sector. With around 40% market share among private sector participants, and significant amount of capacities already operational, Adani Transmission is well placed to keep up the growth momentum.
The question, however, is how can the company boost the value of its projects. This can be done by tactically raising the debt component at cheaper rates after commissioning a project. With this, Adani Transmission is not only freeing up its funds, but is also optimizing project return on equity (RoE).
To be sure, this strategy has served the company well and it continues to adopt it. But in a business like power transmission, where project returns are fixed at the contract awarding stage and owners do not have much to do with the asset after commissioning, another way to reward shareholders is by improving the asset value.
Adani Transmission did so when it sold a 25.1% stake in the Mumbai power distribution business this month at an enterprise value (EV) of ₹16,800 crore (excludes a transmission line associated with the business). According to Antique Stock Broking, Adani Transmission had bought the business at an EV of ₹12,300 crore in FY18. Apart from value appreciation, the stake sale also takes care of the near-term capital investment needs of the business.
But this is a one-of-its-kind sale the company did till now. More such sales will give fillip to valuations. “They are doing it, but it is not happening in a big way. Progress is slow,” said an analyst, requesting anonymity.
Source: Mint