ACME Solar Holdings (ACML) is a renewable power generation company in India with a portfolio of solar, wind, hybrid and FDRE (firm and dispatchable renewable energy) projects. As end of Oct 29, 2024, it have an aggregate operational solar power capacity of 1,340 MW (1,826 MWp); under construction contracted (Project for which PPA signed but not yet achieved its commercial operation date) capacity of 3,250 MW [comprising 1500 MW of Solar, 150 MW wind, 1030 MW of hybrid, 570 MW of FDRE] and under construction awarded (Letter of award received from off-taker but PPA not yet signed) capacity of 1,730 MW [comprising 600 MW of Solar, 450 MW of hybrid, 680 MW of FDRE]. Power projects of the company are located across 11 Indian states of Rajasthan, Gujarat, Punjab, Madhya Pradesh, Uttar Pradesh, Bihar, Chattisgarh, Andhra Pradesh, Odisha, Karnataka and Telangana.

In addition to the aggregate operational and under construction power capacity of 6320 MW, it has a MoU with the Government of Uttar Pradesh for the development of a 600 MW closed loop pump storage project through its wholly owned subsidiary ACME Urja Two, which it acquired on Jun 17 2024 from ACME Cleantech. Terms of reference required for environment clearance has been completed, the site for the project has been identified for which land acquisition is underway and the project implementation will start once the project off-take has been firmed up and the power purchase agreement is executed. Further it also has secured grid connectivity of 647 MW, which has not been allocated to any projects, and have also applied for connectivity of 3,300 MW for future bids.

It develop, build, own, operate and maintain utility scale renewable energy projects (through its in-house engineering, procurement and construction (“EPC”) division and operation and maintenance team), and generate revenue through the sale of electricity to various off-takers including central and state government-backed entities. As of June 30, 2024, the weighted average residual period (based on the contracted capacity) under the PPAs for all its Operational Projects was 19.94 years.

Except for one Under Construction Contracted solar merchant project of 300 MW all of its projects are with off takers from central and state government entities and government backed entities. Of the total contracted capacity (which includes Operational Projects, Under Construction Contracted Projects and Under Construction Awarded Projects), the share of off takers from central sector is 79.6%[ SECI 42.41%, SJVN 13.77%, NTPC 12.66%, NHPC 10.76%], state sector 15.65%[MSEDCL 4.75%, GUVNL 2.61%, APSPDCL 2.53%, TSNPDCL 1.58%, TSSPDCL 1.27%, balance from other state distribution utilities] and 4.75% from merchant.

As of June 30, 2024, the company has estimated that it will incur a total of Rs 38465.381 crore as capital expenditure for its Under Construction Contracted Projects and Under Construction Awarded Projects (based on the estimated project cost as per the TUV Reports minus the amounts already incurred in setting up the projects as of June 30, 2024).

The company was established in 2015 to consolidate the ACME Group’s renewable energy business and to capitalize on the opportunities in the Indian renewable energy industry. The ACME Group has a track record of developing, executing and commissioning a total of 2,719 MW (3,668 MWp) of solar power projects from inception until the date of this Red Herring Prospectus. Further, MKU Holdings Private Limited (one of the Promoters of the company) is currently setting up a1200 MW solar PV module manufacturing facility in Jaipur (Rajasthan) as part of group strategy of being an integrated player in renewable energy. This Solar PV plant is expected to be commissioned by end of 2024 and ACML have entered into a memorandum of understanding dated June 25, 2024 with MKU Holdings Private Limited for the supply of solar PV modules.

In Fiscal 2024, the ACME Group was one of the leading bidders for FDRE projects and won projects with an aggregate capacity of 1,250 MW out of 8,250 MW auctioned representing 15.15% of the total FDRE projects bids in India during Fiscal 2024, which required installation of high renewable energy capacity and BESS for supplying firm and dispatchable power during peak hours of the day.

The Issue and Object of the Issue

The public issue comprises both offers for sales and a fresh issue. The OFS comprises sales of equity shares with a value aggregating Rs 505 crore by ACME Cleantech Solutions, the promoter company. The fresh issue comprises an issue of shares aggregating upto Rs 2395 crore.

Of the net proceeds from fresh issue, Rs 1795 crore for investment in subsidiaries for repayment/prepayment of a portion/full of certain outstanding borrowings availed by its subsidiaries and the balance is for general corporate expenses.

As on August 31, 2024, the company had outstanding borrowings (fund based) of Rs 9891.693 crore on a consolidated basis.

Strength

One of large renewable energy player in the country with diversified portfolio of solar (54.43% of total portfolio of 6320 MW), wind (2.37%), hybrid (23.42%) and FDRE (19.78%) projects.

Strong in-house O&M, project development and EPC capability with extensive experience in renewable energy industry to facilitate efficient operation of existing capacity and successful bidding and execution of projects tapping into strong industry tailwinds in IPP business in the country.

Long-term stable cash flows based on contracts with central and state government entities.

Access to diversified sources of funding;

Design and value engineering leading to higher efficiencies.

Benefit from strong experience of ACME Group in renewable energy sector and its backward integration capabilities ensuring better visibility over supply chain and enhance cost efficiency and reliability.

Weakness

Of the total portfolio of 6320 MW about 4980 MW is under construction and successful execution of the projects is crucial.

Majority of operational projects are located in the states of Andhra Pradesh, Rajasthan and Telangana which contributed 79.81% and 63.22% of its revenue from operations in the three months ended June 30, 2024 and Fiscal 2024 respectively.

Restrictions on renewable energy equipment imports may increase costs of procurement of such equipment.

Any constraints in the availability of the electricity grid, including inability of the company to obtain access to transmission lines in a timely and cost-efficient manner, could adversely affect the business.

Operating in a capital intensive business and incur significant capital expenditure in commissioning new renewable energy projects as well as upgrading and improving its existing projects. If not able to source funding for future renewable energy projects in a timely manner will adversely impact the financials of the company.

Do not have experience in commissioning wind, hybrid, FDRE power projects and closed loop pump storage projects. Typically renewable energy projects, takes 18 to 24 months from the date of signing of the PPA to the project achieving commercial operations, but FDRE/Hybrid/pumped storage projects are complex and any difficulties in commissioning them may affect the performance of the company.

The reduction, modification or elimination of government and economic incentives may reduce the economic benefits of existing renewable energy projects and opportunities to develop or acquire new renewable energy projects.

Changes in technology may render its current technologies obsolete or require it to make substantial capital investments. Further use of battery energy storage system (“BESS”) technology is subject to certain risks.

The performance of solar power projects is affected by varying radiation levels and it can only be estimated based on historical average Global Horizontal Irradiance (“GHI”) data and soiling losses, which may fluctuate during a period and lead to the unreliability of such predictions.

Have divested certain of its project SPVs in the past (divested 369 MW in FY24 & 510 MW in FY22) and may continue to undertake such divestments in the future. . Undertaking acquisitions or divestments may subject it to additional risks.

Adverse orders in ongoing litigation in relation to approval of connectivity at Fatehgarh-II substation (for 850 MW), Ananthpuram (for 400 MW Wind power) and Kurnool-III substations (for 400 MW Solar) as well as failure to obtain, maintain or renew of any approvals/license/permission for operation may adversely affect the business.

Counterparties to PPAs entered by the company for its projects may not fulfill their obligations and expose the projects and the company to risks

ASML along with ACME Cleantech and ACME Solar Energy have received certain office orders from the Directorate of Enforcement in connection with investigations under the Foreign Exchange Management Act, 1999, as amended.

Joint Statutory Auditors have included certain emphasis of matters in their examination report on the Restated Consolidated Financial Information

There have been delays in payment of statutory dues by the company and its subsidiaries in the past including Q1FY25 and FY24

Have in the past entered into a number of related party transactions and may continue to enter into related party transactions in the future on an arm’s length basis.

ACME Cleantech, one of the promoters of the company has pledged the equity shares (125,329,895 Equity Shares)of the company to a lender for availing external financing facilities on which pledge has been temporarily released for lock-in purposes and such equity shares shall be re-pledged with the lender.

ACME Cleantech and MKU Holdings, promoters of the company and certain of their Subsidiaries and Group Companies are engaged, or are authorized by their constitutional documents to engage, in business activities which are similar to those undertaken by the company and Subsidiaries. Further, Manoj Kumar Upadhyay (promoter of the company) may have interest in business similar to it, which may result in conflicts of interest with the company.

Debt equity ratio (on expanded equity) stands at 2.1.

Valuation

Consolidated re-stated revenue stood higher by 2% to Rs 1319.25 crore in FY 2024. Just a modest growth in revenue for the fiscal is largely as the company divested assets with AC capacity of 369 MW during Fiscal 2024 and had revenue contribution from these assets only for part of the fiscal. Further with OPM contract by sharp 800 bps to 82.6%, OP declined by 7% to Rs 1089.15 crore. After accounting for higher other income, lower interest and depreciation, the PBT was higher at Rs 160.73 crore against a loss of Rs 54.84 crore, a year ago. EO income for the period was Rs 748.69 crore against an expense of Rs 39.44 crore. Eventually, Pat after MI stood at a profit of Rs 697.80 crore against a loss of Rs 3.14 crore.

For the three-month period ended June 30, 2024, the sales were lower by 16% to Rs 309.64 crore hit by lower operational power generating capacity with sale of 369 MW during FY24. The OPM expanded by 70 bps to 87.8%, the operating profit was down by 16% to Rs 271.72 crore. After accounting for lower other income, higher interest and lower depreciation, the PBT was down 56% to Rs 50.25 crore. The net profit after MI was down by 98% to Rs 1.39 crore.

At the upper price band, the PE works out to 152.1 times of its EPS for TTM period ended June 30, 2024. The P/BV works out to 4 times and EV/Operational capacity works out to Rs 19.2 crore/MW.

In comparison Adani Green Energy and JSW Energy quotes at a PE of 198.3 times and 65.6 times of their FY24 EPS and P/BV of 42 times and 5.2 times respectively. EV/Operational capacity stands at Rs 28.62 crore/MW and Rs 17.94/MW in case of Adani Green Energy and JSW energy respectively.

Similarly other power generation companies with significant presence in renewable power with assets under captive/regulatory/merchant such as Orient Green Power, KPI Energy, Tata Power, NTPC and NHPC quotes at a PE of 63.1 times, 61.9 times, 40.2 times, 18.5 times and 23 times of its FY24 EPS.