Introduction:
Acme Solar Holdings is a renewable energy company in India with a portfolio of solar, wind, hybrid and firm and dispatchable renewable energy (“FDRE”) projects. It 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 as of June 30, 2024. Over the years, it has diversified and expanded its portfolio from solar power projects to become an integrated renewable energy company in India. The company develops, build, own, operate, and maintain utility-scale renewable energy projects (through our in-house engineering, procurement and construction (“EPC”) division and operation and maintenance (“O&M”) team, and generate revenue through the sale of electricity to various off-takers including central and state government-backed entities
The company has 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 (2,192 243 MWp), wind power projects of 150 MW, hybrid projects of 1,030 MW, and FDRE projects of 570 MW.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 projects, as of the date of this Red Herring Prospectus. The revenue from our projects in the three months ended June 30, 2024, and June 30, 2023, and Fiscals 2024, 2023 and comprises of revenue from our operational solar projects.
IPO Details:
IPO Date | 6th November 2024 to 8th November 2024 |
Face Value | ₹ 2/- per share |
Price Band | ₹ 275 to ₹ 289 per share |
Lot Size | 51 shares and in multiples thereof |
Issue Size | ₹ 2,900.00 crores |
Fresh Issue | ₹ 2,395.00 crores |
OFS | ₹ 505.00 crores |
Expected Post Issue Market Cap (At upper price band) | ₹ 17,486.81crores |
Objectives of Issue:
- Repayment/prepayment, in full or in part, of certain outstanding borrowings availed by the Subsidiaries
- General corporate purpose
Key Strengths:
- Expansive and Diversified Portfolio- The company boasts a broad and diversified portfolio of renewable energy projects, spanning multiple technologies and distributed across 11 Indian states, including Rajasthan, Gujarat, Punjab, Madhya Pradesh, Uttar Pradesh, Bihar, Chhattisgarh, Andhra Pradesh, Odisha, Karnataka, and Telangana. The company’s overall portfolio—comprising operational projects, awarded projects, and bid submissions—reflects its strategic diversification: approximately 55% of the portfolio consists of solar projects, 20% is dedicated to hybrid and floating renewable energy projects (FRDE), with the remaining allocation focused on wind energy projects.
- Stable Cash Flows due to contacts with Government Entities -The majority of its portfolio is secured through long-term power purchase agreements (PPAs) with entities backed by central and state governments, typically for a duration of 25 years. We usually finalize these PPAs prior to initiating the development and construction phases of our projects. Consequently, once a project is commissioned and connected to the grid, we can commence electricity sales in alignment with our contractual commitments.
- Integrated Approach - To align with its group strategy of becoming a fully integrated player, MKU Holdings Private Limited, one of its promoters, is establishing a solar PV module manufacturing facility in Jaipur, Rajasthan, India. Expected to be operational by the end of 2024, this facility will have annual capacity of 1,200 MW. It has signed an MoU with MKU Holdings on June 25, 2024, for solar PV module supply. This backward integration strengthens our supply chain, enhancing cost efficiency, reliability, and operational profitability through in-house EPC and O&M services.
Risks:
- Imports From China – Over the past three years and the three months ending June 2024, over 65% of total expenses have been directed towards procuring PV modules and inverters from the company’s promoter, Acme Cleantech, which sources its raw materials from China. Any restrictions imposed by central or state governments, government-backed organizations, or other authorized bilateral or multilateral entities—including sanctions—on these imports could negatively impact the company’s business, operational results, and future prospects.
- Investigations Pending under the FEMA and PMLA Act- The company has received multiple directives from the Directorate of Enforcement in Chandigarh related to an ongoing FEMA investigation. The directives request comprehensive information, including details of bank accounts receiving foreign remittances, FDI sources, specific transactions, export-import records, and property holdings. Similarly, ACME Cleantech has received directives to provide information on directors, financial records, overseas investments, and compliance with a Singapore International Arbitration Center award. Additionally, ACME Solar Energy received a notice in October 2021 seeking business and financial details.In the event the company is unable to address the queries, it may face penalties or adverse ruling which may have an adverse impact on our reputation, business, results of operations, and financial condition. MKU Holdings has also been questioned regarding its investments in an IREO project under PMLA Act
- Limited Pool of Potential Buyers : In India, central and state utility providers oversee the transmission and distribution of electricity, creating a limited pool of potential buyers for grid-connected, utility-scale power generated by our projects. This concentration may limit its bargaining power in negotiating favorable terms for new Power Purchase Agreements (PPAs) and could impact its ability to secure new customers for the electricity produced by our plants. Additionally, if the financial stability of these utility providers weakens, or if policies mandating their renewable energy procurement change, demand for the electricity from our plants could be adversely affect
Financial Snapshot:
Particulars | Three Months Ended 30/06/2024 | FY ended 31/3/24 | Fy ended 31/3/23 | Fy ended 31/3/22 |
Revenue ((in ₹ million) | 3,096 | 13,193 | 12,949 | 14,879 |
Growth |
| 1.88% | -12.97% |
|
EBITDA (in ₹ million) | 2,717 | 10,891 | 11,726 | 12,403 |
Growth |
| -7.12% | -5.46% |
|
Profit Before Tax and Exceptional Items | 503 | 1607 | -548 | -2271 |
Exceptional Gains |
| 7487 | 394 | 3296 |
Net Profit ((in ₹ million) | 14 | 6,978 | -32 | 620 |
Growth |
| 21906.25% | 94.84% |
|
EBITDA Margins | 87.75% | 82.56% | 90.55% | 83.36% |
PAT Margins | 0.45% | 52.89% | -0.25% | 4.17% |
Cash ROE |
| 38.83% | 25.34% | 31.87% |
Return On Net Worth |
| 26.93% | -0.17% | 3.25% |
Interest Coverage Ratio |
| 1.21 | 0.93 | 0.77 |
debt to Equity (times) | 3.89 | 2.66 | 3.85 | 3.56 |
Interest Coverage Ratio – Interest Coverage Ratio determines the ability of a company to fulfill its interest obligations. It is a ratio that compares company earnings (before interest and taxes) to interest expenses. Essentially, it shows how many times a company can pay its interest charges using its operating profit. A higher ICR suggests a company is in a good financial position to handle its debt, while a lower ICR could signal potential financial difficulties.
Debt to Equity Ratio - The debt-to-equity (D/E) ratio is used to evaluate a company’s financial leverage and is calculated by dividing a company’s total liabilities by its shareholder equity. It is a measure of the degree to which a company is financing its operations with debt rather than its own resources.
KPI comparison with Industry Peers
Particulars | Acme Solar Holdings | Industry Average |
Revenue Growth | -6% | 24% |
3 Years Average EBITDA margins | 85.49% | 68.87% |
3 Years Average PAT margins | 18.94% | 1.25% |
Cash ROE | 32.01% | 21% |
3 years average Debt to Equity | 3.36 | 6.45 |
PE Ratio | 23.03 | 340.5 |
Conclusion:
An analysis of the company’s price-to-earnings (P/E) ratio relative to its peers suggests that the stock appears to be undervalued. However, despite its position in a high-growth sector, the company’s revenue growth has shown a declining trend over the past three years. Additionally, a substantial portion of its income is allocated to servicing financial obligations, with exceptional items significantly contributing to positive profits, raising concerns about the sustainability of its earnings. Given these factors, it would be prudent for investors to exercise caution and consider avoiding this IPO.
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