Motilal Oswal says 'Buy' ACME Solar for 59% upside, initiates coverage

ACME Solar share rose after Motilal Oswal initiated coverage with 'Buy' rating for a target price of Rs 330, which reflects an upside potential of 58.95% from the previous close (Feb 4) of Rs 207.60

ACME Solar share price: Recently-listed solar energy company ACME Solar Holdings shares were buzzing in trade on Wednesday, February 5, 2025, as the scrip zoomed as much as 7.77 per cent to hit an intraday high of Rs 223.75 per share. ACME Solar made its stock market debut on November 13, 2024.

 

The uptick in ACME Solar share price came after domestic brokerage Motilal Oswal initiated coverage with ‘Buy’ rating for a target price of Rs 330, which reflects an upside potential of 58.95 per cent from the previous close (Feb 4) of Rs 207.60.

 

“We initiate coverage on ACME with a ‘Buy’ rating. We assign an EV/Ebitda multiple of 11x to FY28E Ebitda. Adjusting for net debt, we derive our TP of Rs 330, implying a 59 per upside potential. Our EV/Ebitda multiple is at a discount to competitors, such as NTPC Green, which is trading at ~14x FY28 EV/Ebitda. Further, the Street is currently attributing 15x EV/Ebitda to the renewable businesses of JSWE and Tata Power,” Motilal Oswal said in a note.

 

Analysts at Motilal Oswal believe ACME Solar’s steep valuation discount compared to NTPC Green is unsustainable and should narrow in the coming quarters. They also noted that NTPC Green’s premium valuation is largely due to its lower financing costs (up to a 2 per interest rate advantage). However, this advantage is somewhat reduced as NTPC Green outsources both EPC and O&M for its projects, whereas other players handle these functions in-house.

 

Given this, here are the top factors behind initiating coverage on ACME Solar share:

 

Diversified renewable energy portfolio

 

Analysts said ACME Solar’s diversified portfolio includes ~7GW of renewable capacity (solar, wind, hybrid, and firm & dispatchable renewable energy). With 86 per cent of its portfolio contracted with central off-takers like SECI, NTPC, and NHPC, the company ensures minimal counterparty risk. The portfolio consists of 49 per solar, 2 per wind, and 49 per hybrid/FDRE projects.

 

Strong Ebitda growth eyed

 

Motilal Oswal analysts noted that ACME Solar is set for strong earnings growth, with an estimated Ebitda CAGR of 52 per from FY24 to FY27. The company’s operational capacity is set to triple by FY27, and it continues to secure new projects, having won 1.9GW of new orders in FY25 so far.

 

High visibility with PPAs in place 

 

The company has already signed PPAs for 100 per of its FY26 and 83 per of its FY27 capacity. This gives the company high visibility for future revenue streams. Additionally, it has secured grid connectivity for all under-construction projects, easing concerns about grid availability.

 

Focus on High-IRR, complex projects 

 

ACME Solar’s growing focus on complex projects, like FDRE and hybrid systems, positions it well for strong returns (mid-to-high teens IRRs) as competition in traditional solar and wind projects has increased. The company’s investment in wind energy also sets it apart from competitors.

“ACME is one of the few players building wind capabilities. This gives the company an edge over peers, such as NTPC Green, which is less focused on wind energy,” Motilal Oswal analysts said, in a note.

 

Capital and growth funding plans 

 

Analysts noted that the company plans to fund its pipeline through a combination of project debt, operating cash flow, and debt refinancing. With major capex planned for FY25-27, the company has already secured debt for 1.7GW of projects, and operating cash flow is expected to remain strong, aiding growth financing.

 

Key risks

 

Though ACME Solar remains confident in signing PPAs for all its under-construction projects, the increasing competitive pressure in the RE sector, especially for plain solar/wind projects, poses a risk. However, the company’s focus on complex projects with higher IRRs mitigates some of this risk.

 

At 10:11 AM, ACME Solar share price was trading 6.65 per cent higher at Rs 221.40 per share. In comparison, BSE Sensex was trading 0.14 per cent lower at 78,471.32 levels.