The mercury has started rising and electricity demand begins to climb, renewable energy companies often come into sharper focus. In this backdrop, solar energy producers are expected to play an important role in meeting the growing demand for electricity. The domestic brokerage house Motilal Oswal has put its radar on one such stock.
The renewable energy player that is in focus here is ACME Solar Holdings. According to the brokerage report, the firm has maintained a ‘Buy’ rating on the stock and set a target price of Rs 341. This implies a potential upside of around 34% from the current market price.
The brokerage house believes that the company’s expanding solar portfolio, long-term power contracts and upcoming energy storage projects could support strong earnings growth over the next few years.
Let’s take a look at the key reasons why the brokerage house is bullish on this stock and what is the rationale behind it –
Motilal Oswal on ACME Solar Holdings: Expanding renewable energy capacity
One of the key factors supporting the brokerage’s view is the company’s rapidly growing power generation capacity. According to the brokerage report, “ACME Solar’s portfolio currently stands at 8.1GW (comprising 3GW operational capacity and 5.1GW under construction), with 78% of capacity backed by PPAs, providing strong earnings visibility.”
The brokerage further noted that “as projects under construction are commissioned, operational capacity is expected to increase to 5.5GW by end-FY28 from 2.5GW at end-FY25.”
This expansion could significantly increase the company’s power generation capability over the next three years.
Motilal Oswal on ACME Solar Holdings: Strong earnings growth expected
As more projects start generating electricity, the brokerage expects the company’s earnings to rise sharply. According to the brokerage report, “this expansion is expected to drive EBITDA and APAT CAGR growth of 74% and 76% (annually on a compounded basis) over FY25–FY28.”
The brokerage also expects the company’s profitability to stay strong in the coming years. It estimates that operating margins will remain largely stable, with EBITDA margins likely to improve slightly from about 87.9% in FY25 to around 88.9% by FY28 as more projects become operational.
Motilal Oswal on ACME Solar Holdings: Battery storage projects could boost growth
Another important growth driver highlighted in the report is the company’s plan to expand its battery storage capacity. Battery Energy Storage Systems help store electricity generated from renewable sources and release it when demand rises.
According to the brokerage report, “ACME plans to fast-track BESS (Battery Energy Storage System) deployment linked to its FDRE (Firm and Dispatchable Renewable Energy) projects, leveraging its existing operational sites.”
The company plans to gradually expand its battery energy storage capacity over the next few years. It aims to start about 2 gigawatt-hours (GWh) of storage projects by the last quarter of FY26, followed by another 2 GWh in the first quarter of FY27. Over the longer term, the company is targeting a total storage capacity of around 10 GWh by the end of 2027, with these projects tied to long-term 25-year power supply agreements.
Motilal Oswal on ACME Solar Holdings: Additional earnings potential from storage
The brokerage believes these storage projects could offer further financial upside. It pointed out that “this potential BESS ramp-up has not been incorporated into current estimates, representing a potential earnings upside.”
The company has guided that “EBITDA could be around Rs 170 crore per GWh assuming Rs 5 per unit arbitrage.”
Motilal Oswal on ACME Solar Holdings: Strong project pipeline and execution
The brokerage also highlighted the company’s project pipeline and infrastructure readiness as a positive factor. According to the brokerage report, “ACME has secured transmission connectivity for almost all of its ~5.1GW under-construction capacity.”
The report also said the company currently has transmission connectivity capacity of around 7.5 gigawatts in total. Out of this, 1.3 GW has already been secured, while applications for 6.2 GW are in progress.
In addition, most of the company’s upcoming projects already have buyers lined up. The brokerage noted that “only 1.8GW of the under-construction pipeline remains without PPAs,” which reduces uncertainty around future revenue generation.
Motilal Oswal on ACME Solar Holdings: Valuation and target price
Based on its financial projections, the brokerage has valued the company using a forward earnings approach. According to the report, “we assign an EV/EBITDA multiple of 9.5x to FY28E EBITDA. Adjusting for net debt, we derive our target price of Rs 341, implying a 34% potential upside.”
Conclusion
Overall, according to the brokerage report, the company’s growing renewable energy capacity, long-term power agreements and upcoming battery storage projects could play an important role in driving its earnings growth over the coming years.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.