Stock to buy: Acme Solar shares surge 8% as Motilal Oswal, JM Financial initiate coverage, see 26-59% upside potential

Rising for the second consecutive session, Acme Solar share price surged almost 8 per cent in morning trade on the BSE on Wednesday, February 5. Acme Solar shares opened at ₹215 against their previous close of ₹207.60 and rose 7.8 per cent to the level of ₹223.75. Around 11 AM, the stock traded 6.70 per cent higher at ₹221.50 apiece.

The recently-listed stock jumped after top brokerage firms, including Motilal Oswal Financial Services and JM Financial, initiated coverage on the stock, expressing bullish views.

ACME Solar Holdings share price debuted on November 13 last year. As of the previous session’s close of 207.60, the stock is down 28 per cent against its issue price of ₹289.

The stock hit an all-time high of ₹292 on December 4 last year and an all-time low of ₹167.55 on January 28 this year.

Acme Solar shares: Ready to rise?

Brokerage firm Motilal Oswal Financial Services has initiated coverage on the stock with a buy call, pegging the target price at ₹330, implying an upside potential of 59 per cent.

The brokerage firm finds the stock to be a focused play in the renewable energy theme.

“ACME Solar Holdings boasts a diversified portfolio of nearly 7GW of renewable capacity, spanning solar, wind, hybrid, and firm and dispatchable renewable energy (FDRE) projects. As of date, the company has an operational portfolio of nearly 2.5GW, while the total project pipeline, including under-construction projects, stands at about 4.4GW,” Motilal Oswal observed.

The brokerage firm estimates Acme’s EBITDA to clock a CAGR of 52 per cent over FY24-FY27, as the under-construction pipeline is commissioned and operational capacity surges nearly three times over FY24-FY27E.

Motilal expects the stock’s valuation gap versus NTPC Green to narrow further.

“We believe Acme’s steep valuation discount versus NTPC Green is unsustainable and should narrow in the coming quarters. We further believe that NTPC Green’s premium valuation is largely a function of lower financing costs (up to a 2 per cent interest rate advantage). However, this advantage is dented given that NTPC Green outsources both EPC and O&M for its projects (which other players perform in-house),” Motilal said.

The brokerage firm underscored that its EV/EBITDA multiple for the stock is at a discount to competitors, such as NTPC Green, which is trading at nearly 14 times FY28 EV/EBITDA.

“The Street is currently attributing 15 times EV/EBITDA to the renewable businesses of JSW Energy and Tata Power,” Motilal Oswal said.

JM Financial also has initiated coverage on Acme Solar Holdings stock with a buy call and a target price of ₹262. This implies an upside potential of 26 per cent.

The brokerage firm is upbeat about the stock as it sees a solid growth potential in the renewable energy space due to rising power demand and a shift towards green energy.

“India is likely to have 777GW of power generation capacity by 2030, including 500GW from clean sources and nearly 277 GW from fossil fuel-based sources, to meet the projected peak demand of 335GW,” JM Financial noted.

“The annual renewable energy capacity addition run rate of 15-18GW must scale up to 35-40 GW to meet COP26 commitments. The crowded Indian renewable energy IPP market is heading towards consolidation as more than 50 per cent of it is concentrated among 9-10 players, including Acme Solar,” JM Financial said.

JM Financial finds Acme an emerging star with 2,540MW of operational and 4,430MW of under-construction projects.

“ACME is currently trading at an EV/EBITDA of 13.1 times on FY27E. Given the company’s clear visibility on upcoming capacity (6,970MW by FY28E), the revenue and EBITDA will grow at a CAGR of 55 per cent and 57 per cent, respectively, over FY24–28E,” said JM Financial.

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