A possible buyout of Anil Ambani-led Reliance Infrastructure's Mumbai electricity distribution business by Adani Transmission could be earnings accretive for the latter.

However, the share price of the Adani Group company has already run ahead of valuations, said analysts.

Adani Transmission's shares were locked at the 10 per cent upper circuit at Rs 193.25 on the BSE Tuesday following the announcement of exclusivity talks with Reliance Infrastructure to buy the Mumbai city power business.

According to analysts, Reliance Infra's Mumbai distribution business is valued at Rs 10,000-13,000 crore. Shares of Reliance Infrastructure rose 2 per cent, but later pared gains to close 0.12 per cent up at Rs 477.65. Since March, shares of Adani Transmission have risen 200 per cent.

Analysts said this was due to improving performance and outlook for the company's transmission business, but some feel the increase could be speculative in nature.

"While the company's earnings per share will benefit if the deal comes through, considering its performance in the June quarter, the EPS and the overall valuation, the stock may have gained from speculative interest combined with its low float rather than fundamental growth," said G Chokkalingam, founder, Equinomics Research & Advisory.

As much as 96 per cent of Adani Tranmission's shares are owned by promoters and institutional investors. The remaining 4 per cent accounts as the free-float market capitalisation.

Adani Transmission trades at a valuation of 8.8 times FY18 estimated earnings.

Edelweiss Securities maintains a positive stance on the stock. "Our conviction is underpinned by (a) whopping Rs 3 trillion domestic transmission opportunity over FY18-22; (the) aggressively growing company capturing 20 per cent of tariff-based competitive bidding projects; debt restructuring and additional leveraging boosting internal rate of return of existingM&A," the brokerage said in a recent note.