The next green giant in renewable energy?

July 6, 2024

The global drive towards sustainability has propelled renewable energy to the forefront of the energy sector. This shift is no longer a passing fad; it is a critical necessity.

India, with its vast potential in solar and wind energy, has emerged as a leader in this transformational journey.

The government’s unwavering commitment to expanding renewable energy potential has contributed to the development of many significant players in the industry.

Renewable energy has become a dominant force in Indian power generation. In fiscal 2024, more than 70% of new energy generation came from renewable sources.

This growth has had a profound effect on the stock market. Green energy stocks have seen phenomenal growth, with some generating returns exceeding a staggering 600% in fiscal 2024.

The sharp shift towards renewable energy sources has understandably piqued investor interest.

However, this enthusiasm has boosted valuations of established players such as KPI Green Energy and SJVN, whose share prices have doubled in the past year.

While these companies are well-established, their current valuations may seem less attractive.

Given that established players can trade at higher valuations, this market offers attractive entry points for early investors, and AMCE Solar Holdings is preparing for an initial public offering (IPO).

About ACME Solar Holdings

Founded in 2015, ACME Solar Holdings is a key player in the Indian renewable energy market.

The company manages a diversified portfolio that includes solar, wind, hybrid and fixed-power projects, as well as dispatchable renewable energy (FDRE) projects.

ACME Solar Holdings has an operational solar capacity of 1,320 MW, with an additional 1,500 MW of solar capacity and 150 MW of wind capacity currently under construction.

The table below provides an outline of projects currently underway, including contracted and awarded projects.

Data source: Red Herring Prospectus (RHP) of the company

Its clients include many Central and State Government-backed entities that purchase electricity generated by its projects.

The company plans to issue new shares worth Rs 20 billion and announce an offering for sale of up to Rs 10 billion.

The proceeds from the new issue will be used primarily to settle some of the outstanding debts of the company’s subsidiaries. Rs 15 billion has been earmarked for this purpose.

The remaining funds will be used for general corporate purposes.

Additionally, ACME Solar Holdings may consider the issuance of certain pre-IPO securities up to Rs 4 billion.

The lead managers for the issue are Nuvama Wealth Management Ltd, ICICI Securities Ltd, JM Financial Ltd, Kotak Mahindra Capital Co. Ltd and Motilal Oswal Investment Advisors.

#2 What makes this IPO stand out

• ACME Solar Holdings is one of the largest independent solar power producers (IPPs) in India.
• ACME Group has a track record of developing, implementing and commissioning solar power projects with a total capacity of 2,719 MW (3,668 MWp) across 12 states in India since inception of operations as shown in the table below:
  
  Data source: Red Herring Prospectus (RHP) of the company
• Over the years, ACME Solar Holdings has expanded its presence across the broader spectrum of energy transition and ranks among the top ten renewable energy producers in India in terms of operational capacity.
• ACME Solar is one of seven companies that submitted a bid to produce a 10-gigawatt-hour advanced chemical cell under the government’s Production-Linked Incentives program.
• The company has partnered with Japan’s IHI Corp. to set up a green ammonia plant at Gopalpur Industrial Park in Orissa at an investment of Rs 600 billion.
• The company has comprehensive value chain capabilities and an integrated approach to renewable energy project delivery through in-house project development, engineering, procurement, construction, operations and maintenance teams.

#3 Looking at Finances

According to the company’s draft share prospectus (DRHP), ACME Solar Holdings has recorded mixed financial results in 2022-2024.

Revenue decreased from Rs 14,879.0 million (Rs 12,949 million) in 2022 to Rs 12,949 million in 2023, a decrease of 12.9%. In 2024, revenue increased slightly to Rs 13,192.5 million, a modest increase of 1.8% over the previous year.

During this period, the compound annual growth rate (CAGR) of revenue was around -5.8%, indicating an overall decline.

In 2022, ACME Solar Holdings reported a net profit of Rs 620.1 million, while in 2023 it reported a net loss of Rs 31.7 million.

However, by 2024, the net profit increased to Rs 6,982.3 million. This significant improvement resulted in a three-year net profit CAGR of approx. 353%.

ACME Solar Holdings Financial Review (2022-24)

Details	31-March-22	31-March-23	31-March-24
Revenues (in PLN million)	14,879.00	12,949.00	13,192.50
Revenue growth (%)	–	12.9	1.8
Net profit (in PLN million)	620.1	-31.7	6,982.30
Net Worth (Rs in Million)	19,087.60	19,005.60	25,912.90

Data source: Red Herring Prospectus (RHP) of the company

#4 Comparison with peers

According to the company’s misleading prospectus, these are industry competitors of ACME Solar Holdings.

Comparison with peers

Details	31-March-22	31-March-23	31-March-24
ACME Solar Holdings	13,192.50	12.6	26.9
Adani Green Energy	92 200	6.2	7.2
Renew global energy	81 948	9.9	3.1

Data source: Red Herring Prospectus (RHP) of the company

ACME Solar Holdings shines with impressive profitability metrics. Despite having the lowest revenue among the three companies at Rs 13,192.5 million, its return on net worth (RONW) of 26.9% is significantly higher.

This proves that ACME Solar Holdings manages its resources efficiently, generating large profits compared to its net worth.

#5 Risk factors

• ACME Solar Holdings may face challenges in expanding its renewable energy project portfolio due to the highly competitive nature of renewable energy project auctions. The company’s future growth is largely dependent on the successful execution of ongoing, awarded and contracted projects.
• The company’s operations are significantly dependent on 10 largest customers, which accounted for 89.97%, 89.15% and 87.77% of operating revenues in fiscal years 2024, 2023 and 2022, respectively. The loss of any of these customers could have an adverse effect on the company’s operations, financial condition, operating results and cash flows.
• Despite extensive experience in commissioning solar energy projects, ACME Solar Holdings does not have experience in commissioning wind energy projects, hybrid FDRE projects, and closed-loop pumped storage projects. This lack of experience can lead to delays, unexpected costs, and challenges in maintaining project profitability and feasibility.
• Any reduction in the availability of the electricity grid, including the inability to obtain access to transmission lines in a timely and cost-effective manner, could adversely affect ACME Solar Holdings’ business, results of operations and cash flows.

Application

ACME Solar Holdings intends to expand and diversify its portfolio to maintain its leadership position in the renewable energy sector.

The company plans to continue investing and improving its integrated business model, focus on modernizing technologies to increase the efficiency and long-term nature of its projects, and diversify its financing sources.

In addition, ACME Solar aims to optimize capital costs and find partners and investors for future growth.

However, any constraints on the availability of the electricity grid, including difficulties in timely and cost-effective access to transmission lines, could adversely affect business, results of operations and cash flows.

The Government of India, through the Ministry of New and Renewable Energy, aims to achieve a renewable energy production capacity of 500 GW by 2030.

This initiative is expected to stimulate industrial development and foster increased investment in sustainable energy.

To support this goal, the government has introduced initiatives such as the National Green Hydrogen Mission, the High-Efficiency Photovoltaic Module Production Linked Incentive Scheme and the Carbon Credit Trading Scheme.

With so many exciting players emerging, it’s a great time to explore your options in this space.

Please conduct thorough research before making an investment decision.

Make sure the investment aligns with your financial goals and your risk tolerance.

For more information on IPOs, see the list of upcoming IPOs.

Reservation: This article is for informational purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here…