Buy ACME Solar Holdings Ltd for the Target Rs. 302 by Motilal Oswal Financial Services Ltd
Capacity expansion to drive earnings
* ACME Solar Holdings (ACME) has continued to execute well and is on track to augment its installed capacity by 18% YoY in FY26. Further, FY27 will witness a 63% YoY jump in installed capacity. This, in turn, will drive an EBITDA CAGR of 68% over FY25-27E.
* In the coming quarters, we believe investors are likely to be focused on 1) budget and on-time execution, which will render confidence in our/Street’s EBITDA estimates, and 2) tying up PPA for projects slated for FY28 and beyond, which will be the key to improving earnings visibility.
* Completion of projects before the scheduled timeline, strong solar merchant tariffs, and IRR boost from lower battery/module prices (Link) can be the key catalysts that can aid a re-rating for the stock.
* Reiterate BUY with a TP of INR302/share, implying a 27% upside potential.
Robust 4Q as new capacity starts to contribute
* In 4QFY25, ACME’s consol. revenue was 5% above our est. at INR4.9b attributable to higher-than-estimated generation numbers and higher CUFs.
* EBITDA came in at INR4.4b (+117% YoY, +42% QoQ), beating our est. by 10%. EBITDA margin stood at 89%, supported by favorable operating leverage and operational efficiency.
* Adj PAT stood at INR1.3b in 4QFY25 (vs. a loss of INR1.6b in 4QFY24). An exceptional loss of INR141m (vs. a gain of INR6,962m in 4QFY24 from the sale of 369MW assets and associated tax) included ancillary costs of INR180.4m incurred on prepayment of borrowings by subsidiaries and contingent consideration received related to investments disposed of in the earlier year, amounting to INR39.6m.
* FY25 revenue came in at INR14b (+6.5% YoY), driven by a 1,200MW capacity addition in 4QFY25. Reported EBITDA was INR12.3b (+13% YoY). However, for a like-to-like comparison, adjusted for the 369MW monetized assets, revenue increased 32.3% YoY and EBITDA was up 43% YoY.
* Net debt stood at INR75b. The net debt-to-net worth ratio reduced to 1.7x from 2.6x in FY24.
Operational Highlights:
* ACME’s generation stood at 4,013MUs in FY25 (+55% YoY).
* Operational capacity reached 2,705MW, reflecting a 102% rise over FY24.
* The company recorded a CUF of 25.6% (vs. 23.6% in FY24).
* Commissioned 1,200MW of solar projects during the year. Another 450MW of projects are in advanced stages of construction (total UC portfolio of 4,265MW).
* The company is targeting 10GW of contracted capacity by FY30.
* It secured 1,900MW of new projects during the year (1,000MW FDRE, 600MW Solar, and 300MW Hybrid), taking the total portfolio to 6,970MW. Signed PPAs for 1,890MW during the year.
* Refinanced INR77b of debt during the year at an average rate of 8.8% p.a., resulting in a 75bps reduction in borrowing costs. Debt arrangements secured for 1,700MW of UC projects, totaling INR165b.
Highlights of the 4QFY25 performance
* FY25 net operational debt to EBITDA: 4.4x (within guided cap of 5.5x).
* ACME’s net debt-to-net worth ratio improved to 1.7x.
* Its asset base expanded by INR41b, taking the gross block to INR155b. Cash and bank balances stood at INR29b.
* ACME Solar has added 1,200 MW of solar capacity in FY25, up from a base of 1,350 MW, bringing total operational capacity to ~2,700 MW (May’25).
* Total under-construction capacity stood at 4.3 GW: 2.2 GW with signed PPAs and 2.1 GW with the Letter of Award (LoA).
* FY26 commissioning target: 450 MW of capacity. Of this, 300 MW is at the Sikar plant (Rajasthan), with 165 MW commissioned and 112.5 MW commissioned recently; the balance ~135 MW is expected within 30 days.
* FY27: 1.89 GW expected to be commissioned.
* It has a target of 7GW capacity by FY28 and 10GW by FY30.
* All the projects have transmission connectivity in place with an additional 2.5 GW of surplus connectivity.
* More than 50% of the land is acquired for the solar component of PPA-signed projects, and over 60% of the land is acquired for the wind component. It has applied for ~10,000 acres of government land.
* ACME has secured INR165b of debt financing covering 1,700 MW of underconstruction capacity.
Valuation and view
* We reiterate our BUY rating on ACME with a TP of INR302. We assign an EV/EBITDA multiple of 11x to FY28E EBITDA (discounted by 1 year). Adjusting for the net debt, we derive our TP of INR302, implying a 27% potential upside.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
