ACME Solar Holdings coming with IPO to raise upto Rs 3049 crore

ACME Solar Holdings

• ACME Solar Holdings is coming out with a 100% book building; initial public offering (IPO) of 10,54,94,133 shares of Rs 2 each in a price band Rs 275-289 per equity share.
• Not more than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors.
• The issue will open for subscription on November 6, 2024 and will close on November 8, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 2 and is priced 137.50 times of its face value on the lower side and 144.50 times on the higher side.
• Book running lead managers to the issue are Nuvama Wealth Management, ICICI Securities, JM Financial, Kotak Mahindra Capital Company and Motilal Oswal Investment Advisors.
• Compliance Officer for the issue is Rajesh Sodhi.

Profile of the company

ACME Solar Holdings is a renewable energy company in India with a portfolio of solar, wind, hybrid and firm and dispatchable renewable energy (FDRE) projects. It is one of the largest renewable energy independent power producers (IPP) in India and among the top 10 renewable energy players in India in terms of operational capacity as of June 30, 2024 and over the years, it has diversified and expanded its portfolio from solar power projects to become an integrated renewable energy company in India. It develops, build, own, operate and maintain utility scale renewable energy projects (through its in-house engineering, procurement and construction (EPC) division and operation and maintenance (O&M) team, and generate revenue through the sale of electricity to various off-takers including central and state government-backed entities. 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 is promoted by Manoj Kumar Upadhyay and ACME Cleantech was incorporated in 2003. It originally operated as a provider of energy management solutions to wireless telecommunications operators in India and subsequently entered into the renewable energy generation business in 2009. The ACME Group has been one of the early entrants in the solar IPP business in India and commissioned its first solar power plant in Fiscal 2012. 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.

It has an aggregate Operational Project capacity of 1,340 MW (1,826 MWp) solar power projects; Under Construction Contracted Project capacity of 3,250 MW including solar power projects of 1,500 MW (2,192 MWp), wind power projects of 150 MW, hybrid projects of 1,030 MW and FDRE projects of 570 MW; and Under Construction Awarded Project capacity of 1,730 MW comprising 600 MW (870 MWp) of solar power projects, 450 MW hybrid power projects and 680 MW of FDRE power projects. The revenue from its projects in the three months ended June 30, 2024 and June 30, 2023 and Fiscals 2024, 2023 and comprises of revenue from its operational solar projects.

Proceed is being used for:

• Investment in its Subsidiaries for repayment/prepayment, in full or in part, of certain outstanding borrowings availed by its Subsidiaries
• General corporate purposes

Industry Overview

India has a widespread power network with interconnected regional grids. The power generation profile is dominated by conventional (coal, lignite, natural gas, oil, hydro and nuclear power) sources, although, nonconventional sources (such as wind, solar, and biomass and municipal waste) are rapidly gaining traction. Transmission and Distribution infrastructure has expanded over the years for evacuation of power from generating stations to load centres through the intra-state and inter-state transmission system (ISTS). The sector is highly regulated, with various functions being distributed between multiple implementing agencies. There are three chief architects of the sector namely the Central Electricity Regulatory Commission (CERC), the Central Electricity Authority (CEA), and the State Electricity Regulatory Commissions (SERCs).

India’s installed generation capacity, which stood at 356 GW at the end of Fiscal 2019 has reached 442 GW as of Fiscal 2024 and approximately 451 GW in Fiscal 2025 (as of August 2024) on the back of healthy renewable capacity additions (including solar, wind, hybrid, and other renewable sources) even as additions in coal and other fuels have declined. In Fiscal 2024, renewables (excl. large hydro) accounted for approximately 33% of the installed capacity, up from approximately 22% in Fiscal 2019, whereas coal-based capacity tapered to approximately 49% over the same period. Capacity additions in the conventional power generation segment of about 32-35 GW are expected over Fiscals 2025 to 2029 driven by higher than decadal average power demand. Fresh project announcements are limited as players are opting for the inorganic route for expansion given the availability of assets at reasonable valuations. In fact, 4.8 GW of stressed power assets awaiting debt resolution.

Renewable sources are a clean source of energy as they do not burn like fossil fuels, preventing the release of pollutants into the air. Increasing use of RE would help avoid carbon emissions, and thereby, restrict global warming. Renewable energy installations (incl. large hydro) have increased fivefold to approximately 200 GW as of August 2024, as compared with approximately 63 GW as of March 2012 (source: MNRE), led by various central and state-level incentives. As of March-2024, installed grid connected RE generation capacity (incl. large hydro) in India constituted approximately 44% of the total installed generation base in India. This growth has been led by solar power, which has grown to approximately 89 GW from merely approximately 0.09 GW over the discussed time period (i.e. from March 2012).

Pros and strengths

Well positioned to capitalize on strong industry tailwinds in its IPP business: The company is one of the largest renewable energy independent power producers (IPP) in India and among the top 10 renewable energy players in India in terms of operational capacity as of March 31, 2024. The Government has taken various steps to promote renewable capacity additions, which include waiver of inter-state transmission charges on electricity generated from solar and wind projects that are commissioned until 2025 and renewable purchase obligation which mandates consumers like distribution companies to purchase a certain proportion of power generated from renewable energy sources. Further, the MNRE has prescribed an annual bidding trajectory for renewable energy power bids to be issued by Renewable Energy Implementation Agencies (REIAs). Bids for 50 GW per annum renewable energy capacity, with at least 10 GW per annum wind power capacity, are to be issued each year from Fiscals 2024 to 2028. The company is well positioned to capitalize on the growth opportunities in the Indian renewable energy sector.

Expansive portfolio diversified across different renewable energy technologies: The company has an expansive portfolio of projects diversified across different renewable energy technologies. Its projects are located across 11 Indian states of Rajasthan, Gujarat, Punjab, Madhya Pradesh, Uttar Pradesh, Bihar, Chattisgarh, Andhra Pradesh, Odisha, Karnataka and Telangana. States like Gujarat, Rajasthan, Madhya Pradesh, Andhra Pradesh, Karnataka, and Tamil Nadu offer more solar irradiance as compared to other parts of India which makes them desirable for installing solar projects. The company has an aggregate Operational Project capacity of 1,340 MW (1,826 MWp) solar power projects; Under Construction Contracted Project capacity of 3,250 MW including solar power projects of 1,500 MW (2,192 MWp), wind power projects of 150 MW, hybrid projects of 1,030 MW and FDRE projects of 570 MW; and Under Construction Awarded Project capacity of 1,730 MW comprising 600 MW (870 MWp) of solar power projects, 450 MW hybrid power projects and 680 MW of FDRE power projects.

Long-term stable cash flows based on contracts with central and state government entities: Almost all of the company’s portfolio is contracted through long term power purchase agreements with central and state government backed entities typically for a period of 25 years. 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. It generally executes its PPAs before it commences the development and construction of its projects. As a result, once the project is commissioned and it is connected to the grid, it is able to immediately sell electricity pursuant to its contractual arrangements. The company’s portfolio offtake for its projects are with central and state government entities and government-backed entities, except for one Under Construction Contracted solar merchant project of 300 MW.

Access to diversified sources of funding: The company has extensive experience in effectively financing its renewable power projects, minimizing investment risks, optimizing its capital structure and maximizing returns for each project. The company’s approach to each project is to determine the appropriate level of equity investment, taking into account its existing capital, growth plans and assessment of available opportunities, and to obtain debt financing for the remainder of the capital requirements for each project on the best terms and tenure, given its strategic objectives and practical requirements. It generally invests equity of around 25% of the total project cost in each power project. For the remaining around 75% of the total project cost, it has worked with a number of lenders to obtain debt financing. This provides it the flexibility it requires in project development and enables it to obtain competitive interest rates. Additionally, it has raised capital in the form of structured debt from strategic and financial investors to develop projects in India.

Risks and concerns

Business is dependent on its top 10 off-takers: The company generates a significant portion of its revenues from, and are therefore dependent on, certain key off-takers for a substantial portion of its business. The top 10 top 10 off-takers contributed 95.42%, 89.42%, 89.97%, 87.48% and 81.11% of its revenue from operations during the three months ended June 30, 2024 and June 30, 2023 and for Fiscal 2024, 2023 and 2022, respectively. The loss of any such off-taker or a substantial reduction in demand from such key off-takers could have an adverse effect on its business, results of operations and cash flows.

Not entered into long-term agreements with its suppliers: The company procured 84.48%, 77.15%, 79.37%, 69.84% and 69.95% of its total purchases during the three months ended June 30, 2024 and June 30, 2023 and in Fiscal 2024, 2023 and 2022, respectively from ACME Cleantech, its top supplier. The company does not enter into long-term agreements with its suppliers and typically source the components that it requires through purchase orders. Its suppliers may not perform their obligations in a timely manner or at all, resulting in delays in commencement of its projects. While there has been no instance during the last three Fiscals and three months ended June 30, 2024 where the non-performance of obligations by its suppliers had an adverse impact on its results of operations, it cannot assure that such instances will not arise in the future.

Geographical constrain: Majority of the company’s operational projects are located in the states of Andhra Pradesh, Rajasthan and Telangana which contributed 79.81%, and 56.23%, of its revenue from operations in the three months ended June 30, 2024 and June 30, 2023, respectively and 63.22%, 54.73% and 55.54% of its revenue from operations during Fiscal 2024, 2023 and 2022, respectively. The company’s operations are susceptible to local and regional factors, such as accidents, political factors, economic and weather conditions, natural disasters, and demographic and population changes, the outbreak of infectious diseases and other unforeseen events and circumstances. Any change in governmental policies or occurrence of natural disasters in any of these states may impact on its business, results of operations and cash flows.

Operate in a capital intensive industry: The company operates in a capital intensive industry. As of June 30, 2024, it had total borrowings (consisting of long-term borrowings and short term borrowings) of Rs 93,199.14 million. Its debt/ equity ratio was 4.80 while its net debt to equity ratio was 3.89, as of June 30, 2024. It generally invests equity of around 25% of the total project cost in each renewable power project. For the remaining around 75% of the total project cost, it sources funding from number of lenders. Under the letter of award, achieving financial closure is one of the condition precedent generally within 12-18 months from the date of signing of the PPA. While there have been no instances in the last three Fiscals and the three months ended June 30, 2024 where the company was not able to source funds at favourable rates, it cannot assure that going forward, it will be able to source funds at favourable rates. In such cases, its business, results of operations and financial condition may be adversely impacted.

Outlook

Acme ACME Solar Holdings is an Indian electricity producer from renewable energy sources. The company is one of the largest producers of electricity from wind and solar energy in India. the company had a total operational project capacity of 1,320 MW (1,802 MWp) in solar power projects. In addition, it had a contracted project capacity of 1,650 MW, comprising 1,500 MW (2,192 MWp) of solar power projects and 150 MW of wind power projects. On the concern side, the company’s business is dependent on its top 10 off-takers, which contributed 95.42%, 89.42%, 89.97%, 87.48% and 81.11% of its revenue from operations during the three months ended June 30, 2024 and June 30, 2023 and for Fiscal 2024, 2023 and 2022, respectively. The loss of any of these off-takers could have an adverse effect on its business, financial condition, results of operations and cash flows.

The company is coming out with a maiden IPO of 10,54,94,133 equity shares of Rs 2 each. The issue has been offered in a price band of Rs 275-289 per equity share. The aggregate size of the offer is around Rs 2901.09 crore to Rs 3048.78 crore based on lower and upper price band respectively. On performance front, the company’s total revenue was Rs 14,662.67 million in Fiscal 2024 while it was Rs 13,613.73 million in Fiscal 2023. Moreover, profit for the year of Rs 6,977.81 million in Fiscal 2024 as compared to loss for the year of Rs 31.74 million in Fiscal 2023.

The growth of the company’s portfolio of assets is critical to it and in order to seamlessly grow its operations, it intends to invest in its business units and continue to develop and maintain established procedures for each stage in the project development cycle. These include using standardized parameters for determining the auctions that it will submit bids for, using standardized processes for evaluating land, interacting with the relevant local or government authorities to obtain the relevant approvals for a project, designing and developing a project site, procuring its components in a timely manner and constructing the project. Having established procedures in place should help reduce the costs of developing a project and improve the timelines within which the project will be commissioned.