Shares of GMR Power and Urban Infra Ltd. hit a 5% upper circuit, scaling a record high of ₹156.04 per share in Tuesday’s Trade.

The sharp rally in the stock price followed after brokerage firm Emkay Global initiated coverage on GMR Power with a ‘Buy’ rating, citing strong operating cash flows, healthy earnings visibility and attractive valuations.

The brokerage has a price target of ₹180 per share, suggesting an upside potential of 20% from the stock’s last closing levels.

Emkay mentioned that numerous optionalities have propped up its bull case price target to ₹205 per share.

So far in 2024, shares of GMR Power have more than doubled investors’ wealth or rallied 190%, beating benchmark Nifty 50’s 19% surge.

The company’s core thermal assets at 1,650 MW are nearing optimal performance on coal tie-ups, 90% supply through power purchase agreements (PPAs) at reasonable tariff and peak power demand, and improving debt metrics.

The company’s 180MW Bajoli Holi hydro-power asset has largely stabilised, while its 7.5 million smart meter installation contract opens up a lucrative asset-light business opportunity with Bosch, for vertical integration and unleashing its execution capabilities.

According to Emkay, the management has a clear focus on deleveraging on the back of strong operating cash flows, supported by conversion of FCCBs into equity and handover of the Hyderabad-Vijayawada road project.

Incremental smart meter contracts, monetization, and settlement of disputes provide sizable optional value.

“We believe GMR Power’s execution capabilities combined with technology support from Bosch are likely to support execution. The value of existing contract works out to ₹13 per share building-in NPV of ₹1,330 per meter and not factoring-in incremental wins,” the brokerage stated.

The management is also exploring business models in the EV charging eco-system, to unlock group-level synergies.

GMR Power’s consolidated net debt is expected to drop by ₹4,000 crore to ₹9,000 crore in FY25E, supported by conversion of FCCBs and debt repayment, besides networth turning positive as net debt-to-EBITDA improves to 3.7 times in FY25, from 12 times year-on-year.

Key risks, as per the brokerage, include project execution, policy and regulatory, resource availability, credit, etc.