The Supreme Court has delivered a significant ruling in favor of Adani Power, determining that the company will not be required to pay customs duty for electricity supplied from Special Economic Zones (SEZ) to the domestic market. This decision provides crucial regulatory clarity for the power generation company's operations.

Supreme Court Decision Details

The apex court's ruling specifically addresses the customs duty obligations for electricity supply from SEZ facilities to domestic markets. The decision establishes that Adani Power is exempt from such customs duty payments, which could have significant implications for the company's operational costs and regulatory compliance.

Regulatory Impact

This Supreme Court decision provides important legal precedent regarding customs duty obligations for power companies operating through Special Economic Zones. The ruling clarifies the regulatory framework for electricity supply from SEZ facilities to domestic consumers, potentially affecting how similar cases are handled in the future.

The exemption from customs duty payments could result in cost savings for Adani Power's SEZ-based operations, as the company will not face additional duty obligations when supplying electricity from these zones to the domestic market. This regulatory relief may enhance the operational efficiency of the company's power generation and distribution activities.

Business Implications

For Adani Power, this favorable court decision eliminates potential customs duty liabilities associated with electricity supply from Special Economic Zones. The ruling provides certainty regarding the company's regulatory obligations and may positively impact its financial position by avoiding additional duty-related costs.

The decision also establishes clear guidelines for the power sector regarding SEZ operations and domestic electricity supply, contributing to better regulatory predictability for companies operating in similar business models.

Adani Power has outlined an ambitious capacity expansion roadmap, targeting 41.9 GW by FY32 from its current position as India's largest private sector thermal power producer with 18.1 GW capacity. The expansion comes amid projections of India's peak power demand reaching over 700 GW by 2047, highlighting the continued importance of thermal power in the country's energy mix.

Current Capacity and Growth Strategy

The company's existing capacity comprises both organic and inorganic growth components:

Adani Power has demonstrated strong execution capabilities, including the synchronisation of 4,620 MW at Mundra within 36 months and strategic pre-ordering of critical power equipment. The company has secured key enablers for its expansion including land, environmental clearances, power purchase agreements, and equipment.

Financial Projections and Investment Plan

The expansion will require substantial capital investment, with analysts projecting significant financial metrics evolution:

The massive capital expenditure of ₹2 lakh crore over the FY25-32 period will temporarily impact the company's debt metrics. Net debt-to-EBITDA ratio is expected to rise from the current 1.6x in FY25 to 3.0x by FY29, before moderating back to 1.6x by FY31 as new capacity becomes operational and generates cash flows.

Operating Performance Metrics

Adani Power maintains superior operating metrics that support its expansion plans:

• Plant Load Factor (PLF): 71%
• Plant Availability Factor (PAF): 91%
• Current Market Position: India's largest private sector thermal power producer

Analyst Coverage and Valuation

Analysts have initiated coverage on Adani Power with a Buy rating, setting a target price of ₹178 against the current market price of ₹148.15. The valuation is based on 13x FY28 EV/EBITDA multiple, considering the expected improvement in EBITDA per MW metrics. This target price implies a 3.4x price-to-book ratio for FY28.

Risk Factors

Several key risks have been identified for the expansion plan:

• Execution challenges and capital intensity of the expansion program
• Corporate governance and regulatory oversight concerns
• Merchant power market exposure and pricing volatility
• Counterparty risks and legal challenges
• Thermal power concentration amid regulatory transition toward renewable energy

The company's expansion strategy reflects confidence in thermal power's continued role in India's energy security, despite the global shift toward renewable energy sources.