Solar energy stock gets target price hike, HSBC maintains 'buy; says this

Shares of Acme Solar Holdings Ltd surged 6% on Tuesday after global brokerage HSBC maintained its 'Buy' rating. It assigned a price target of Rs 450 (from Rs 390). Shares of the renewable energy producer rose 6% to Rs 426 against the previous close of Rs 401.85. Market cap of the firm rose to Rs 29,473 crore. Later, the solar energy stock ended 3.76% higher at Rs 416.95.

The brokerage said it sees signs of pick up in renewable energy auctioning after slowness over the past year.

ACME has converted 730MW of LoA into PPA in P2Q, giving confidence in its ability to maintain business momentum. The brokerage increased its target price to Rs 450 (from Rs 390) as it raises multiple to incorporate pick up in sector momentum.

The brokerage raised its EV/EBITDA multiple to incorporate a pickup in sector momentum which it expects to translate into a stronger growth pipeline for ACME beyond FY28.

"We assign an 11.7x EBITDA multiple (10.9x earlier for core business), adjust for net debt and discount the equity value to Sep’26 to arrive at a TP of Rs 450 (Rs 390 earlier). We maintain a Buy rating as we expect the company to witness rapid growth over the next couple of years. Downside risks: (1) High leverage with projects financed with an 80-20 debt equity ratio, (2) rise in equipment and borrowing costs, (3) delay in commissioning of contracted capacity," said HSBC.

PPA conversion gains momentum, but project returns moderate

ACME continues to make progress in converting awarded projects into long-term power purchase agreements (PPAs), although returns on new projects have come under some pressure amid rising competition.

During Q2FY27 so far, the company added a 300MW contracted project to its portfolio at a discovered tariff of Rs 6/kWh for four-hour assured evening power supply. ACME also participated in a round-the-clock tender modelled on thermal generation, bidding for 250MW of contracted capacity, but did not emerge successful in the reverse auction.

The company further converted another 130MW of previously awarded capacity into a PPA during the quarter, taking total PPA conversions over the past two quarters to 730MW.

The brokerage remains positive on ACME’s ability to secure new projects as well as convert letters of award (LoAs) into PPAs. The company continues to rank among the fastest deployers of battery energy storage systems (BESS) in India and has shown flexibility in negotiating terms to improve the conversion of awarded projects into contracted capacity.

However, the brokerage noted that project economics have weakened slightly, largely due to increasing competitive intensity in the market.

Risk metrics show improvement

The latest annual report also points to an improvement in some of ACME’s key risk indicators. Employee attrition, related-party transactions and contingent liabilities have all declined, indicating an improvement in the company’s overall risk profile.