ACME Solar Holdings Ltd. (Avoid)

Highlights

ACME Solar Holdings Limited (ACME) incorporated on 2015, is one of the largest renewable energy independent power producers (IPP) in India and among the top 10 renewable energy players in India in terms of operational capacity. The company has portfolio of solar, wind, hybrid and firm and dispatchable renewable energy (FDRE) projects.

ACME develop, build, own, operate and maintain utility scale renewable energy projects through their in-house EPC division and O&M team, and generate revenue through the sale of electricity to various off-takers including central and state government-backed entities.

They have an aggregate Operational Project capacity of 1,340 MW (1,826 MWp) solar power projects, Under Construction Contracted Project capacity of 3,250 MW including solar power projects of 1,500 MW (2,192MWp), wind power projects of 150 MW, hybrid projects of 1,030 MW and FDRE projects of 570 MW; and Under Construction Awarded Project capacity of 1,730 MW comprising 600 MW (870 MWp) of solar power projects, 450 MW hybrid power projects and 680 MW of FDRE power project.

The company also strategically divested certain solar power projects to investors delivering value to the shareholders, with a cumulative capacity of 1,379 MW (1,842 MWp) and used the proceeds from such sale to grow their business. Out of the total proceeds of Rs. 29,000 mn, Rs. 17,950 mn would go towards investment in their subsidiaries for repayment/prepayment, in full or in part, of certain outstanding borrowings availed by the subsidiaries, ~Rs. 6000 mn would utilize towards general corporate purpose and Rs. 5,050 entire proceeds would go towards existing selling shareholders of the company and ACME will not receive any share sale proceeds from the Offer.

Key Highlights

• India’s installed generation capacity, which stood at 356 GW at the end of FY19 has reached 442 GW as of FY24 and ~451 GW in Fiscal 2025 (till August). By FY29, RE capacity (excl. large hydro) of over 320 GW is expected, driven by various government initiatives, favourable policies, competitive tariffs, innovative tenders, development of solar parks and green energy corridors, etc. RE capacity is estimated to account for about 50 pct of the installed capacity of 660 to 670 GW by FY29.
• States like Gujarat, Rajasthan, Madhya Pradesh, Andhra Pradesh, Karnataka, and Tamil Nadu offer more solar irradiance as compared to other parts of India which makes them desirable for installing solar projects. As per data, more than 80 pct of the company’s operational and under construction portfolio is in such states.
• The company has an integrated in-house approach to executing renewable projects across the entire life cycle of developing a project, from PPA signing to the project achieving commercial operations within 18 to 24 months and subsequently operating and maintaining the project.
• ACME has an extensive experience in effectively financing renewable power projects, minimizing investment risks, optimizing capital structure and maximizing returns for each project. They generally invest equity of ~25 pct of the total project cost in each power project. For the remaining ~75 pct of the total project cost, they have worked with a number of lenders to obtain debt financing.
• ACME’s key growth strategies include (i) Expand and diversify portfolio to continue to maintain leadership position (ii) Continue to invest in and improve their integrated business model (iii) Focus on technology upgrades to improve efficiency and longevity of the projects and (iv) Continue to diversify their funding sources, optimise cost of capital and identify partners/investors for future growth.
• ACME entered into a MoU with MKU Holdings Private Limited for the supply of solar PV modules to ACME from the manufacturing facility. ACME expect to benefit from such backward integration capabilities of the ACME Group and have better visibility over their supply chain and enhance cost efficiency and reliability.
• During FY24, company reported sales of Rs. 13,193 mn which grew by 1.88 pct YoY while EBITDA tumbled by 7.12 pct YoY to Rs. 10,891 mn as EBITDA margin contracted from 90.55 pct in FY23 to 87.15 pct in FY24. As of FY24 the company reported profit of Rs. 6,978 mn which was grew sharply due to sale of asset. As of Q1FY25 company registered sales/EBITDA/Profit of Rs. 3,096 mn/Rs. 2,717 mn/ Rs. 14 mn which fell by 16.12 pct YoY/15.54 pct YoY/97.88 pct YoY.

Key Risk

• The company might face client concentration risk, as company’s top 10 clients contributes ~90 pct of FY24 sales. The loss of any of these off-takers could have a material impact on topline of the company.
• Any restrictions on renewable energy equipment imports may increase costs of procurement of such equipment. As certain of products imported from China.
• The company is exposed to risks associated with time and cost overruns, delays or under-estimations of costs of construction, which may affect the economic viability of their renewable energy projects. In past company paid Rs. 43.96 mn for failing to commission its project within the scheduled timelines.

Financial Performance

Peer comparison based on FY24 Financials

Valuation

ACME is one of the largest renewable energy Independent Power Producers in India and among the top 10 renewable energy players in India in terms of operational capacity. Over the years, they have diversified and expanded their portfolio from solar power projects to become an integrated renewable energy company in India. At the upper end of the price band of Rs. 289 the issue is priced at a PE of ~3121.71 its FY25E annualised earnings. The issue looks fully priced. One can avoid this issue.

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