Thread by @shantanusri23

A thread🧵 Analyzing the reasons behind #AdaniGreenEnergy's monumental share price performance 📈over the last 2 years, including key triggers, current growth trajectory, and future prospects👇

⚡Over a 5-year period, AGEL has risen massively by c. 9,325% vis-à-vis a 88% rise in Sensex becoming the 7th most valuable company outrunning industry stalwarts such as SBI, HDFC, Bharti Airtel among others.

⚡All this on a profit base of ~Rs 489 crores (FY 2022) translating to an astronomical PE ratio of more than 1000x! For comparison, the average PE ratio of Sensex is ~24x (current average)
What then are the reasons behind this nerve-wracking valuation?

⚡For starters, the company came under the radar of investors in late 2019/ early 2020 after its maiden green bond raise of US$ 362.5 Mn in offshore markets and investment by Total (the French fossil fuel giant) in its operational assets (RG1 & RG2)

⚡This was followed by another investment by Total for a 20% equity stake in the company in a bid to support its energy transition efforts and reach its net-zero by 2050 target.

⚡This was also around the time when COVID-19 had spread globally and investors around the world were reckoning with the fact that beyond financial shocks, physical shocks such as those induced by COVID can wreak much more havoc on global financial markets

⚡Climate change and ESG investing quickly became the top priority for institutional investors globally and capital started flowing into sustainable and climate-resilient businesses such as RE generation--supported by easy money policy by central banks the world over

⚡The overall bullish environment for RE globally was complemented by strong impetus from GoI to grow the sector with several policy tailwinds such as 25 year PPAs, must-run status, transmission charge waiver, viability gap funding, RPO targets, and tax incentives for the sector

⚡In August 2021 AGEL was ranked the #1 global solar power generation asset owner by Mercom which propelled the share price trajectory.

⚡The rise was further supported by AGEL's thin market float with c. 75% holding with promoter group, Total SE and foreign institutions

⚡Probes by SEBI in early 2021 on holding by dubious offshore funds in Adani group companies and investigation by other entities (DRI probed the company in another matter) brought in major correction across the Adani pack

⚡The share price recouped sharply since then as AGEL signed the world’s largest green PPA with SECI (4.7GW), raised dollar bonds worth US$ 700 mn and got equity commitments from Abu Dhabi based IHC.

⚡The company's acquisition of SB Energy portfolio during October 2021 for a whopping US$ 3.5 Bn, in what was the biggest RE deal in India, was another shot in the arm

⚡The rise was further supported by industry-leading ESG disclosures and scores by leading rating agencies which helped attract massive capital from institutional investors aligned to ESG investing principles

⚡The steady improvement in operational performance for both solar and wind assets through technological advancements and state of the art O&M monitoring system ENOC, along with the presence of offshore financing lines and land banks were other triggers

⚡AGEL has one of the largest portfolios among Indian RE players and has an aggressive target of 25GW by 2025 and 45GW by 2030. The current capacity (operational + pipeline) of 20.4GW means AGEL is on-line to achieve its 2025 target

⚡The company’s Net debt/EBITDA ratio stands at an alarming 10.8x. With a massive u/c and pipeline capacity of 15GW, the leverage will shoot up further (not considering the new pipeline which will be added)

⚡To the company's credit, it has been able to lower its cost of debt through debt refinancing and diversification of sources. Debt is the biggest fodder for RE players as it accounts for~60-65% of the topline. So leverage management is a key priority for industry players

⚡A key positive for AGEL is Adani group parentage which lends a helping hand when arranging finance and securing land banks ( another important metric for the success of RE projects)

⚡Backward integration with entry into module manufacturing, demand-side boost as EV adoption picks up, deflationary nature of RE technology, ambitious government targets of 500GW RE by 2030, growing energy demand, and the growing pool of global ESG capital are future triggers

⚡Several downside triggers also remain such as substantial under-construction portfolio increasing execution risk, leverage at elevated levels higher than other pure-play peers such as Azure Power and Renew Power...

...need to continually arrange SPV level funding in order to recycle construction facilities for other projects, weak financial profile of some counterparties such as TANGEDCO which elongates receivables profile...

and the rising cost of imported solar modules globally led by an increase in commodity prices and BCD implementation on imported modules

⚡Going forward the ability to maintain leverage at manageable levels, delivering on pipeline commitments in a timely manner and steady cash generation will help sustain these valuations else the price can witness a sharp correction

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