Shares of ACME Solar Holdings Ltd., a prominent renewable energy producer, experienced a significant 6% surge on Tuesday, closing at Rs 426. This uptick followed an announcement from global brokerage HSBC, which maintained its 'Buy' rating for the company and increased its target price from Rs 390 to Rs 450.
HSBC Cites Sector Momentum and PPA Conversions
HSBC's decision to raise the target price stems from an observed pickup in renewable energy auctioning after a period of slowness. The brokerage specifically highlighted ACME's strong performance in converting Letters of Award (LoAs) into Power Purchase Agreements (PPAs).
- ACME successfully converted 730MW of LoAs into PPAs over the past two quarters, demonstrating its ability to sustain business momentum.
- The company added a 300MW contracted project to its portfolio in Q2FY27 at a tariff of Rs 6/kWh for four-hour assured evening power supply.
- HSBC adjusted its EV/EBITDA multiple upwards to reflect the anticipated sector momentum, expecting it to translate into a stronger growth pipeline for ACME beyond FY28.
Project Economics and Risk Profile
While ACME continues to make progress in securing new projects and converting LoAs, the brokerage noted that project economics have moderated slightly due to increasing competitive intensity in the market. Despite this, ACME remains a leading deployer of battery energy storage systems (BESS) in India, showing flexibility in negotiating terms to convert awarded projects into contracted capacity.
Improved Risk Metrics
The latest annual report for ACME Solar indicates an improvement in key risk indicators. Employee attrition, related-party transactions, and contingent liabilities have all shown a decline, suggesting an enhanced overall risk profile for the company.
HSBC maintains its 'Buy' rating, projecting rapid growth for ACME Solar over the coming years. However, the brokerage also outlined potential downside risks, including high leverage (80-20 debt-equity ratio for projects), rising equipment and borrowing costs, and potential delays in commissioning contracted capacity.