Brokerage initiates 'Buy' call on THIS renewable energy shares with potential upside of 68%

Brokerage Aditya Birla Money, in its report released on Monday, said it initiated coverage on ACME Solar Holdings Ltd with a 'Buy' rating. "With India's ambition to reach 500 GW of RE capacities by FY30 from current ~200 GW (including Hydro), we expect the private players in IPP business are set to play a crucial role. We expect Government to push the gears on tendering of RE projects to tap the run rate of 40-50 GW annually which is essential to reach the 500 GW target. ACME is one of the prominent players with an operating portfolio of 2,540 MW of plain vanilla solar capacity having a pipeline of 4,430 MW skewed towards high-complexity FDRE projects. We expect the capacity/revenue/EBITA to grow at a CAGR of 39 per cent/76 per cent/77 per cent over FY25-28," the domestic broking firm stated.

It has projected an upside target of Rs 290 (11x FY27 EBITDA) for the renewable energy player, suggesting a potential upside of 67.73 per cent from today's low level of Rs 172.90.

"In FY24 India added 18.5 GW of renewable capacities out of which 15 GW was solar & 3.3 GW was wind. Till Feb FY25, 24 GW of RE capacity was added with 21 GW consisting of solar & 2.7 GW of wind. For India to reach its target of 500 GW by FY30, this rate of additions is required to reach 40-50 GW annually for next 5 years. We expect that apart from PSUs like NTPC & SJVN, the private sector will play a crucial role to support this growth. Also, with such aggressive RE expansions, the government realises the need to address the base load demand and hence has mandated 10 per cent Energy Storage System (2 hours of storage) for all upcoming RE projects & also has shown inclination towards FDRE & Hybrid tenders," AB Money also said.

"The company's current capacity pipeline consists of 4,430 MW – 1,050 MW plain vanilla solar & wind (~24 per cent of pipeline); 2,630 MW FDRE (59 per cent); 750 Hybrid (17 per cent). Out of this 300 MW of solar & 150 MW of wind capacities are expected to be operationalised soon adding to the existing 2,540 MW of operational capacity. (1,200 MW of solar operationalized in Q3 FY25)," it further stated.

The brokerage highlighted that the company remained safeguarded from the industry constraints, providing growth visibility. "ACME has signed PPAs for 2,340 MW (53 per cent) of its total pipeline capacities (4,430 MW) and expects the balance to be signed in upcoming couple of quarters. The company also does the EPC & O&M of its projects in-house creating itself a cost advantage over its peers. The company also has connectivity for total 6,970 MW of its capacity with additional ~2 GW paving way for future growth," AB Money said.

That said, the brokerage saw delays in PPA signing, viability of FDRE projects and a slowdown in government tendering as key risks to the above view.