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Acme Solar

By Geetanjali Kedia
about 10 days ago

IPO Size: Rs. 2,900 cr 

  • Rs. 2,395 cr Fresh Issue, for repaying Rs. 1,795 cr of Rs. 11,170 cr gross debt
  • Rs. 505 cr is Offer For Sale (OFS) by the promoter (100% to shrink to 83% post IPO)

Price band: Rs. 275-289 per share

  • Only 10% retail, as net loss in FY23 and FY22

M cap: Rs. 17,481 cr, implying 17% dilution

IPO Date: Wed 6th Nov to Fri 8th Nov 2024, Listing Wed 13th Nov 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

 

Independent Power Producer (IPP)

Acme Solar Holdings is a 11 year old independent power producer, from renewable sources, having 1.34 GW operational solar capacity. It has 3.25 GW contracted capacity under construction (solar, wind, hybrid, FDRE) and 1.73 GW awarded capacity (solar, hybrid and FDRE). Of this, ~1.2 GW is close to completion and over the next 2-3 years, total capacity will rise to 6.3 GW.

 

Internal Restructuring

Company procures ~70% of annual requirement from promoter Acme Cleantech. Pursuant to an internal restructuring on 25th Jun 2024, parent’s engineering procurement and construction (EPC) and operations and maintenance (O&M) business, which generated PAT of Rs. 150 cr in Q1FY25, is transferred to the company.  

 

Huge Interest Outgo impacting Bottomline

FY24 revenue rose 2% YoY to Rs. 1,319 cr, with Rs. 749 cr exceptional gain on sale of solar assets led to Rs. 698 cr net profit, against Rs. 3 cr net loss in FY23. Q1FY25 revenue stood at Rs. 310 cr, with PAT of just Rs. 1.4 cr, as quarterly interest outgo was at Rs. 200 cr.

As of 30.6.24, gross debt stood at Rs. 9,320 cr, which rose to Rs. 11,170 cr as of 31.8.24. On net worth of Rs. 1,942 cr, debt to equity ratio is very high at 4.8x, and will be 1.8x post IPO. Ongoing capex of Rs. 38,465 cr for future capacity will increase leverage, as 75% will be funded via debt. Thus, while EPC business is margin accretive, huge interest expense will continue to eat into company’s bottomline.

 

Smaller Peer with Lower Profitability

Acme’s management guides 13% PAT margin for the power business going forward, which is lower than Adani Green’s 20% and NTPC Green’s 24%, looking to launch mega IPO soon.

Its capacity 2-3 years down the line will also be lower than Adani Green’s present capacity of 11.2 GW, making the peer comparison inappropriate.

 

Fully Valued

M cap of Rs. 17,480 cr, leads to an enterprise value of about Rs. 25,000 cr. Pre-money enterprise value of Rs. 22,700 cr implies a value of Rs. 9 cr per MW of 2.5 GW capacity, higher than benchmark of Rs. 8 cr per MW. In FY24, Acme divested 369 MW at an approximately Rs. 3.8 cr to Rs. 4.4 cr per MW, to financial investors, while the current asking price in the IPO is double.

 

Other Risks

  • Company and corporate promoters have received office orders from Directorate of Enforcement in connection with FEMA investigations and Prevention of Money Laundering Act (against IREO group of companies).
  • Company supplies to government entities, resulting in outstanding debtors at ~4 months, calling for high working capital.