Is this renewable energy company’s IPO worth your investment?
In this analysis, we take a closer look at ACME Solar Holdings Ltd and present you with the exclusive IPO details.
About the Issue
ACME Solar Holdings Ltd is preparing to launch its Initial Public Offering (IPO) for equity shares. See the issue details below.
| IPO Details |
| IPO Opening Date |
November 06, 2024 |
| IPO Closing Date |
November 08, 2024 |
| Issue Type |
Book Built Issue IPO |
| Face Value |
Rs 2 per equity share |
| IPO Price |
Rs 275 to Rs 289 per equity share |
| Min Order Quantity |
51 shares |
| Listing At |
BSE, NSE |
| Total Issue |
100,346,022 shares of FV Rs 2* |
| (Aggregating up to Rs 2,900 Cr)* |
| Fresh Issue |
82,871,973 shares of FV Rs 2* |
| (Aggregating up to Rs 2,395 Cr)* |
| Offer for Sale |
17,474,049 shares of FV Rs 2* |
| (Aggregating up to Rs 505 Cr)* |
| QIB Shares Offered |
75% of the Offer |
| Retail Shares Offered |
10% of the Offer |
| NII (HNI) Shares Offered |
15% of the Offer |
| *At Upper Price Band |
|
Objects of the Issue
The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:
1. Repayment/prepayment, in full or in part, of certain outstanding borrowings availed by the subsidiaries
2. General corporate purposes.
Promoter holding
Mamta Upadhyay, Manoj Kumar Upadhyay, ACME Cleantech Solutions Private Limited, MKU Holdings Private Limited, and Upadhyay Family Trust are the promoters of the company. The promoters and promoter group currently hold a pre-issue shareholding stake of 100 per cent in the company.
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Company profile
As one of India’s largest independent power producers in renewable energy, the company has transitioned from a solar-focused portfolio to an integrated renewable energy player over the years. Today, it has a diverse portfolio encompassing solar, wind, hybrid, and firm and dispatchable renewable energy projects.
The company develops, builds, owns, operates, and maintains utility-scale renewable projects through an in-house engineering, procurement, and construction (EPC) division and a dedicated operations and maintenance team. Revenue is generated from electricity sales to various off-takers, including entities backed by central and state governments.
The ACME Group boasts a track record of developing and commissioning 2,719 MW of solar power projects since its inception. Its current portfolio includes an Operational Project capacity of 1,340 MW in solar power, a Contracted Under-Construction Project capacity of 3,250 MW, and an Awarded Under-Construction Project capacity of 1,730 MW.
According to a CRISIL Report, states like Gujarat, Rajasthan, Madhya Pradesh, Andhra Pradesh, Karnataka, and Tamil Nadu have higher solar irradiance, making them ideal for solar installations. Notably, over 80 per cent of the company’s Operational and Under-Construction projects are located in these high-irradiance regions.
Financials
| Rs (in crore) |
FY22 |
FY23 |
FY24 |
Q1FY25 |
| Revenue |
1,563 |
1,361 |
1,466 |
340 |
| Profit before tax |
102 |
-15 |
909 |
50 |
| Net profit |
62 |
-3 |
698 |
1 |
The company has shown highly inconsistent financial performance in recent years, with revenue declining after FY22 and still not returning to previous levels. The annualized FY25 revenue reflects a 7 per cent decline compared to FY24.
Profitability has been severely impacted by high finance costs, which consistently consume more than half of the company’s revenue each year. As of June 30, 2024, total borrowings stood at Rs 9,320 crore. Despite using the Rs 1,795 crore raised from the fresh issue for loan repayment, a considerable debt balance still remains. However, this should help reduce the company's interest burden.
After reporting losses in FY23, the company posted a large profit of Rs 698 crore in FY24, primarily due to Rs 749 crore from exceptional items, mainly gains from asset sales. Q1FY25 results were also lacklustre, especially in contrast to the decent performance in FY22.
Valuation & Outlook
| Company Name |
P/E |
P/B |
RoE (%)* |
| ACME Solar Holdings Ltd |
23 |
8 |
39 |
| Listed Peers |
| Adani Green Energy Ltd |
226 |
24 |
21 |
*RoE: Based on FY24 data
The issue is priced with a P/BV ratio of 7.77 times, calculated using its Net Asset Value (NAV) of Rs 37.19 as of June 30, 2024. At the upper price cap, it is priced at a P/BV ratio of 4.03 times, considering its post-IPO NAV.
Given the company's annualized FY25 earnings and fully diluted equity capital, the price-to-earnings (P/E) ratio stands at a staggering thousand times, indicating significant overvaluation. The P/E ratio based on FY24 earnings is 23x; however, this valuation and seemingly strong returns are largely attributed to an inflated profit figure driven by asset sales.
Considering the inconsistencies in financial performance, uncertainties about growth prospects, and potential risks including concentrated revenue risk and reliance on government-owned transmission grids and infrastructure, we advise investors to avoid this IPO.