ACME Solar Holdings IPO: Modest Subscription Seen On Day 2, GMP Hints Muted Listing; Check Status

The IPO for ACME Solar Holdings Ltd, a renewable energy company, officially opened for subscription on Wednesday, November 6, 2024, and will close on Friday, November 8, 2024. ACME Solar, which operates large-scale solar energy projects across India, is aiming to raise approximately Rs 2,900 crore through this offering, with the price band set between Rs 275 and Rs 289 per share. Ahead of the IPO, the Gurugram-based company successfully secured Rs 1,300.50 crore from its anchor investors.

ACME Solar IPO Structure and Objectives

The IPO is structured to reserve 75% of the offering for Qualified Institutional Buyers (QIBs), while 15% is allocated to Non-Institutional Investors (NII), and the remaining 10% is available for retail investors. Additionally, an employee quota includes shares worth Rs 10 crore. The public issue consists of a fresh issue valued at Rs 2,395 crore, and an offer for sale (OFS) worth Rs 505 crore by its promoter, ACME Cleantech Solutions Private Ltd. The proceeds from this IPO are primarily allocated towards repaying outstanding loans held by the company's subsidiaries, as well as for general corporate purposes.

ACME Solar is a player in India's renewable energy sector, focusing on the development, ownership, and maintenance of large-scale solar projects. The company's operational footprint spans across multiple states, with 18 of its 28 active projects located in Andhra Pradesh, Rajasthan, and Telangana, which collectively account for 85% of its operational capacity. ACME Solar's expertise is further highlighted by its in-house engineering, procurement, and construction (EPC) capabilities, as well as its dedicated operations and maintenance (O&M) team. The company generates revenue by providing electricity to a variety of clients, including entities supported by central and state governments.

Financial Performance

ACME Solar's financial performance has shown gradual improvement. In FY24, the company's revenue rose by 1.88% to Rs 1,319.25 crore, compared to Rs 1,294.90 crore in FY23. Notably, the company achieved a net profit of Rs 698.23 crore in FY24, a significant turnaround from its prior loss-making years. The growth in profitability is seen as an encouraging sign, particularly as the company continues to expand its operational capacity, which currently stands at 1,340 MW with a pipeline of projects totalling 6,320 MW.

Despite the improved earnings, some analysts remain cautious due to the stagnant revenue growth over recent years and the need to adjust for exceptional gains in assessing true profitability. However, SBI Securities has recommended the IPO for long-term investors, noting that ACME Solar's valuation at 20.2x FY24 EV/EBITDA is reasonable and comparable to industry peers like Adani Green Energy Ltd. (P/E of 291.7x) and ReNew Energy Global PLC (P/E of 48.8x). SBI Securities commented, "The company's long-term prospects look promising, with potential for significant growth as additional capacity becomes operational over the next few years."

Subscription Status

On day 2 of bidding by 11:10 am, the IPO saw a modest subscription level. The overall issue was subscribed 0.47 times, with retail investors leading the demand, reaching a 1.57 times subscription for their portion. The NII segment saw a 0.37 times subscription, while QIBs have been more reserved with only 0.15 times subscription.

ACME Solar Holdings IPO GMP

The grey market premium (GMP) for ACME Solar Holdings IPO currently stands at Rs 10, suggesting that the shares are expected to list at around Rs 299, which represents a 3.46% premium over the upper price band of Rs 289. However, the GMP has shown a downward trend over recent sessions, having reached a high of Rs 30 but fluctuating as low as Rs 0. The GMP can often serve as an indicator of investor sentiment towards the IPO, and the current subdued GMP may imply cautious optimism rather than outright enthusiasm.

Analyst Recommendations

The renewable energy sector has been gaining significant traction in recent years as both institutional and retail investors show growing interest in environmentally sustainable investments. ACME Solar's IPO aligns with this trend, and its established operations, government-backed contracts, and consistent project expansion make it a compelling player in India's green energy landscape. Analysts at SBI Securities encourage a "subscribe" recommendation, especially for investors with a long-term perspective, given the growth prospects associated with ACME's expanding capacity. However, firms like SBI Securities and other market experts caution that investors should weigh the slow revenue growth and historical profitability challenges against the company's strong operational capacity and positive future outlook.