The ACME Solar shares surged 3% today and extended the 10% gains seen over the last 3 months. Nuvama maintains a Buy on ACME Solar Holdings with a target price of Rs 360 per share. This implies a whopping 35% upside from current levels for the ACME Solar share price The company has been in news after winning the bid for Madhya Pradesh’s first solar storage project at record low tariff rates.
Additionally, Nuvama pointed out that India aims to achieve 500GW of installed renewable energy capacity by 2030. This is expected to support the share price. The other key factors supporting the positive call on the stock include the tripling of tendering activity between FY23- FY24, led by higher government targets, innovative solutions and increased power sector investments.
Nuvama On ACME Solar: Madhya Pradesh project insights
According to Nuvama, the Madhya Pradesh project is ”value accretive led by low capex on land/infrastructure, as it is bundled with the solar park. The brokerage house explained that “at a contracted capacity of 220MW (along with 300MW of connectivity and storage capabilities), we estimate the project shall generate 675MU+ implying maximum CUF of 35%. Any excess power generated over and above 675MU can be sold at Rs 2.15/kWh.”
They pointed out that for two hours of supply in the morning hours, the energy for charging BESS shall be provided by the off-taker (MP government) with revenue generated at PPA tariff rate (Rs 2.76/kWh). The bid winners also benefit from reduced cost for land and connectivity along with a three-part payment security structure with the off-take.”
Nuvama On ACME Solar: Favourable cost dynamics
Nuvama further pointed out that ACME Solar is likely to gain from reduced GST rates, down to 5% from 12%, as well as an upfront capex benefit. They believe the company’s zero risks/execution challenges for land, connectivity, PPA-PSA signing would help further upside in the share price. Risks of costs related to execution delays are also significantly taken care of and the savings towards land, switchyard, power transformer and TL line are seen as other factors that can help significant uptick going forward.
Nuvama On ACME Solar: Regulatory tailwinds
Nuvama also highlighted how ACME Solar may benefit from key regulatory tailwinds including the Renewable Purchase Obligations (RPO). This mandates, annual bidding targets (50GW), waiver of inter-state transmission (ISTS) charges for solar and wind projects, late payment surcharge (LPS) Policy. Additionally, the National Wind-Solar Hybrid Policy is expected to aid long-term expansion.
Nuvama On ACME Solar: Key risks
Nuvama, however, listed out that the delay in PPA signing is a key risk for the company, “any delay in the execution of PPAs by counterparties could adversely affect the company’s cash flow timing, thereby impacting its financial performance and a potential miss on envisaged IRR/growth outlook.”
They added that the “lack of experience in wind/hybrid/FDRE projects,’ as another risk. ACME has only executed large-scale solar projects in the past and lacks extensive experience in commissioning wind, hybrid and FDRE projects, which could lead to potential execution challenges and delays.