ACME Solar: 2 reasons why the stock gained today; buy or sell?

ACME Solar Holdings was in focus on Wednesday after rating agency ICRA assigned ICRA AA- rating to Rs 1,000 crore long term-non fund based bank facilities of the company, with stable outlook. The stock was also in focus after MOFSL came out with a note on ACME Solar with Buy rating and a target that suggests 34 per cent potential upside, while suggesting a pick-up in power demand and government push to resolve PPA deadlock as key catalysts.

ICRA's rating was the highest credit rating received by Acme Solar till date from any credit rating agency, and is seem potentially enable reduction in cost of debt in the company and its subsidiaries. 

ACME Solar stock opened the day at Rs 278.60 on BSE, up 0.78 per cent. ICRA attributed the rating to ACME Solar’s diversified portfolio across multiple locations, revenue visibility from long term PPAs, optimal generation performance and comfortable debt coverage metrics. 

"The rating also reflects the company’s satisfactory track record in developing and stabilising renewable power
projects over the years. In addition, ICRA notes the strengthening of company’s financial profile post-IPO and the availability of equity funding to support its under construction projects," as per a statement.

In the past six months, ACME’s share price (up 45 per cent) has outperformed peers such as NTPC Green (up 0.2 per cent) and JSW Energy (up 0.2 per cent). The stock trades at FY27 EV/Ebitda of 15.5 times against NTPC Green's 13.3 times and JSW Energy's 12.6 times. MOFSL values ACME at 10 times FY28E Ebitda to arrive at a target of Rs 370. It suggested potential upside of 34 per cent on the counter. The stock catalysts include earnings from the battery initiative and commissioning of new capacity, MOFSL said.

"ACME had highlighted the plan to put up 3-3.5GWh of battery storage by the end of 2025 and earn revenue by engaging in power price arbitrage. Assuming 2.5GWh of installed battery storage for FY27 with a 1/1.5 hour cycle and Rs 2/3 per unit spread, we estimate incremental EBITDA upside of 3.3/8.6 per cent for FY27. This upside is not built into our estimates. Further, in FY27, we are modeling the start of the 2GW of new capacity, which should drive earnings growth," MOFSL said.