Is this renewable energy company’s IPO worth your investment?

Mandar Wagh
/ Categories: Trending, IPO, IPO Analysis
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.

DSIJ's 'Value Pick' service recommends long-term stocks based on Value Investing Philosophy. If this interests you, do  download the service details here.

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.

Rate this article:
5.0

DSIJ MINDSHARE

Mkt Commentary6-Dec, 2024

Swing Trading8-Dec, 2024

Penny Stocks6-Dec, 2024

Multibaggers6-Dec, 2024

Multibaggers6-Dec, 2024

Knowledge

MF15-Nov, 2024

General15-Nov, 2024

MF14-Nov, 2024

DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

Principal Officer: Mr. Shashikant Singh,
Email: principalofficer@dsij.in
Tel: (+91)-20-66663800

Compliance Officer: Mr. Rajesh Padode
Email: complianceofficer@dsij.in
Tel: (+91)-20-66663800

Grievance Officer: Mr. Rajesh Padode
Email: service@dsij.in
Tel: (+91)-20-66663800

Corresponding SEBI regional/local office address- SEBI Bhavan BKC, Plot No.C4-A, 'G' Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400051, Maharashtra.
Tel: +91-22-26449000 / 40459000 | Fax : +91-22-26449019-22 / 40459019-22 | E-mail : sebi@sebi.gov.in | Toll Free Investor Helpline: 1800 22 7575 | SEBI SCORES | SMARTODR