Axis Capital has initiated coverage on ACME Solar with a ‘Buy’ rating and a price target of INR550

MUMBAI, 15 OCTOBER: We expect the portfolio to drive a 38% EBITDA CAGR over FY26-31E. Along with the EBITDA from PPA tied-up capacity we have considered Rs9.6bn, Rs14bn, Rs11.7bn, Rs8.4bn and Rs1.8bn of merchant EBITDA in FY27E, FY28E, FY29E and FY30E respectively, with no merchant BESS in FY31E.

Acme has seen a steady improvement in cash flow generation with improvement in working capital position over the last 3 years.

Also, as projects are commissioned, leverage is expected to improve from 7.2x net debt to EBITDA in FY26 to 5.9x net debt to EBITDA in FY30E.

Annually we expect Acme to commission 1.1GW, 2GW, 2.95GW and 1.75GW over FY27-30E and 6.7GWh, 4.6GWh and 3.9GWh of BESS capacity over FY27E, FY28E and FY29E.

We also account for pre commissioning merchant gains from BESS projects to continue until FY30E. Effectively we estimate EBITDA to grow by 38% CAGR over FY26-31E

On the verge of transition, Initiate with Buy

Acme Solar Holdings is transitioning from a plain vanilla solar IPP (3GW operational) to a complex RE project developer (~95% of its 5.4GW pipeline) and a leading BESS adopter (est. ~17GWh). Acme aims to commission its first complex project by Dec-2026. We expect the full portfolio to be operational by FY30E (1-year delay due to industry-wide transmission constraints). This should drive run-rate EBITDA (ex. other income) of ~Rs89bn (38% FY26-31E CAGR). With ~Rs520bn of capex, equity is fully funded using internal accruals, cash at hand and QIP proceeds. Net debt to EBITDA to improve to 5.9x by FY30E (F26: 7.2x) and OCF post interest of ~Rs30bn. We value Acme at 11x FY30E run-rate EV/EBITDA and discount back to Sep-27 TP of Rs550/share. Initiate with Buy.

Front runner in complex RE projects, portfolio provides strong growth visibility

Acme Solar has emerged as a leading bidder in complex RE projects and is now entering the commissioning phase of its complex project portfolio. We believe Acme can deliver mid-to high-teen IRRs on these projects backed by integrated solar and BESS EPC/O&M capabilities, favorable battery procurement (15GWh ordered, including 5GWh at near cyclical-low prices) and opportunities for merchant upside. We expect the RE capacity to see 3x growth and 17GWh of BESS addition for these projects and estimate EBITDA to grow at a 38% CAGR over FY26-31E, with gross block to EBITDA broadly in line with peers.

Deep dive into complex bid economics highlights a mix of risks and rewards

Our FDRE scenario analysis (solar + BESS, no wind) highlights both opportunities and risks: (a) surplus generation during high-PLF periods can create ~3% additional units driving merchant upside and improving IRRs; (b) seasonally weaker quarters may result in up to ~12% generation shortfalls, requiring external power purchases or exposing projects to penalties; (c) lower-than-expected solar PLFs can compound risks through both generation deficits and higher procurement costs; and (d) continuous battery augmentation may be required over time to maintain dispatch obligations and avoid penalties especially in the later years of the contract. We present a detailed project-level scenario analysis inside.

Initiate with Buy, and TP of Rs550/share

We value Acme at 11x FY30E run-rate EV/EBITDA, discounted back to Sep-27E (Ke: 13.3% – Rf: 7.3%, ERP: 6%, Beta: 1). Based on our comparative analysis framework (discussed inside), we apply a discount to Acme vs the larger peers given its higher dependence on single resource (solar), penalties risk in seasonally weaker years, risk of increase in BESS augmentation capex, higher run rate leverage and smaller OCF to fund future growth.

(Disclaimer: The information provided here is investment advice only. Investing in the markets is subject to risks and please consult your advisor before investing)

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