The company's revenue performance showed robust expansion, with net sales reaching ₹467.75 crores in Q2 FY26, marking an 80.19% YoY increase from ₹259.59 crores in Q2 FY25. However, the sequential decline of 8.46% from Q1 FY26's ₹510.98 crores raises questions about momentum sustainability. More concerning is the escalating interest burden, which climbed to ₹264.52 crores—the highest quarterly figure on record—alongside an outsized contribution from other income at ₹133.62 crores, representing 87.95% of profit before tax.
The renewable energy sector continues to benefit from India's ambitious clean energy targets, but ACME Solar's performance reveals the challenges of capital-intensive infrastructure businesses. With a debt-to-equity ratio of 1.79 and interest costs consuming a substantial portion of operating profits, the company's leverage profile demands careful scrutiny from investors evaluating long-term sustainability.
Financial Performance: Growth Powered by Capacity Expansion
ACME Solar's Q2 FY26 revenue of ₹467.75 crores represents a remarkable 80.19% YoY expansion, driven primarily by capacity additions and improved asset utilisation. On a half-yearly basis (H1 FY26), the company generated net sales of ₹978.73 crores, reflecting a 71.94% increase compared to H1 FY25. This accelerated top-line growth underscores the company's success in scaling its renewable energy portfolio.
Operating profit before depreciation, interest, and tax (excluding other income) stood at ₹400.21 crores in Q2 FY26, maintaining a robust margin of 85.59%. However, this represents a sequential decline from Q1 FY26's 89.59% margin, suggesting some pressure on operational efficiency. Year-on-year, the operating margin has improved from 85.04% in Q2 FY25, indicating better cost management as the business scales.
| Metric | Q2 FY26 | Q1 FY26 | Q4 FY25 | Q3 FY25 | Q2 FY25 |
|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 467.75 | 510.98 | 486.89 | 349.01 | 259.59 |
| QoQ Change (%) | -8.46% | +4.95% | +39.51% | +34.45% | -16.16% |
| YoY Change (%) | +80.19% | +65.02% | +64.96% | — | — |
| Net Profit (₹ Cr) | 115.07 | 130.83 | 123.36 | 112.06 | 15.30 |
| QoQ Change (%) | -12.05% | +6.06% | +10.08% | +632.42% | +1000.72% |
| Operating Margin (Excl OI) % | 85.59% | 89.59% | 89.50% | 88.02% | 85.04% |
| PAT Margin % | 24.61% | 25.60% | 25.07% | 32.11% | 5.89% |
The quality of earnings presents a mixed picture. Other income surged to ₹133.62 crores in Q2 FY26—nearly double Q1 FY26's ₹73.01 crores—constituting 87.95% of profit before tax. This heavy reliance on non-operating income raises concerns about the sustainability of reported profitability. Interest expenses climbed to a record ₹264.52 crores, up 13.55% sequentially and 48.37% year-on-year, reflecting both increased borrowings to fund capacity expansion and potentially higher interest rates.
Depreciation increased to ₹117.38 crores from ₹107.55 crores sequentially, reflecting the growing asset base. Tax expenses remained relatively stable at ₹41.11 crores with an effective tax rate of 26.32%, within the normal range for Indian corporates. The company's ability to maintain high operating margins despite sequential revenue decline demonstrates operational resilience, though the interest burden remains a significant drag on bottom-line performance.
Balance Sheet Concerns: Mounting Debt Overshadows Growth
ACME Solar's balance sheet reveals the capital-intensive nature of renewable energy infrastructure. As of March 2025, long-term debt stood at ₹9,857.17 crores, representing a 28.08% increase from ₹7,696.43 crores in March 2024. This aggressive debt accumulation, while funding capacity expansion, has pushed the net debt-to-equity ratio to 1.79, significantly higher than comfortable levels for most infrastructure businesses.
Fixed assets surged to ₹11,662.52 crores from ₹6,352.56 crores year-on-year, an 83.59% increase reflecting substantial capital expenditure on solar power projects. Current assets grew to ₹3,781.75 crores from ₹3,155.32 crores, providing some liquidity cushion. However, with interest costs at record highs and EBIT-to-interest coverage at a weak 1.16x on average, the company's ability to service debt comfortably remains questionable.
Leverage Alert: High Debt Burden Constrains Financial Flexibility
ACME Solar's debt-to-equity ratio of 1.79 and record quarterly interest expense of ₹264.52 crores highlight significant financial leverage. The EBIT-to-interest coverage ratio of just 1.16x provides minimal cushion for debt servicing, making the company vulnerable to interest rate fluctuations or operational disruptions. Investors should monitor debt refinancing plans and cash flow generation closely.
Shareholder funds increased substantially to ₹4,510.58 crores from ₹2,590.87 crores, primarily driven by retained earnings and a capital restructuring that reduced share capital from ₹754.44 crores to ₹121.02 crores. Reserves and surplus more than doubled to ₹4,389.56 crores from ₹1,836.43 crores, reflecting profit accumulation and potential revaluation gains. Despite this equity strengthening, the absolute quantum of debt remains a concern for conservative investors.
Cash flow from operations reached a record ₹1,543.02 crores in FY25, up from ₹1,434.00 crores in FY24, demonstrating the business's ability to generate cash. However, investing activities consumed ₹3,976.00 crores, more than double the operating cash flow, necessitating significant financing inflows of ₹3,408.00 crores. This pattern underscores the company's dependence on external capital to fund growth, a characteristic feature of infrastructure businesses in expansion mode.
Profitability Metrics: ROE Signals Inefficiency Despite Growth
ACME Solar's return on equity (ROE) stands at a concerning 5.97% for the latest period, well below the double-digit returns expected from growth-oriented businesses. The average ROE over recent periods registers at 0.0%, indicating prolonged periods of capital inefficiency or losses in earlier years. For a company commanding a price-to-book ratio of 3.67x, such anaemic returns on equity raise serious questions about value creation for shareholders.
Return on capital employed (ROCE) presents an even bleaker picture at 7.54% for the latest period, with the average ROCE at -1.37%. This suggests that the company has historically struggled to generate adequate returns on the total capital invested in the business. The negative average ROCE indicates that in prior periods, the company failed to cover its cost of capital, destroying shareholder value despite revenue growth.
Quality Concern: Capital Efficiency Lags Peer Standards
With ROE at 5.97% and ROCE at 7.54%, ACME Solar significantly underperforms typical infrastructure companies that target ROE above 15%. The company's average sales-to-capital-employed ratio of just 0.11x indicates that each rupee of capital employed generates only 11 paise of sales, highlighting substantial capital intensity and inefficient asset utilisation. Improvement in these metrics is critical for justifying the current premium valuation.
The five-year sales compound annual growth rate (CAGR) of 21.20% demonstrates impressive top-line expansion, whilst the five-year EBIT CAGR of 91.03% suggests improving operational leverage as the business scales. However, these growth metrics must be contextualised against the weak profitability ratios. High growth without commensurate returns on capital often signals a business that requires continuous capital infusion to sustain expansion—a red flag for value-focused investors.
PAT margin of 24.61% in Q2 FY26 appears healthy on the surface, but the substantial contribution from other income distorts this metric. When adjusted for the ₹133.62 crores in other income, the core business profitability looks considerably weaker. The company's ability to convert operating profits into sustainable shareholder returns remains constrained by the heavy interest burden, which consumed ₹264.52 crores—more than double the net profit of ₹115.07 crores in Q2 FY26.
Peer Comparison: Valuation Premium Unjustified by Fundamentals
ACME Solar's positioning within the holding company sector reveals significant valuation disparities. Trading at a P/E ratio of 40.33x, the company commands a premium to the sector average, yet delivers inferior returns on equity compared to established peers like Bajaj Holdings (ROE: 10.81%) and TVS Holdings (ROE: 16.77%). The company's ROE of 5.97% ranks at the bottom of its peer group, raising questions about the sustainability of its valuation premium.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| ACME Solar Holdings | 40.33 | 3.67 | 5.97 | 1.79 | 0.07 |
| Bajaj Holdings | 19.41 | 2.15 | 10.81 | 0.00 | 0.77 |
| TVS Holdings | 21.33 | 0.56 | 16.77 | -0.31 | 0.61 |
| JSW Holdings | 105.77 | 0.60 | 0.86 | 0.00 | — |
| Mahindra Scooters | 55.21 | 0.55 | 0.61 | 0.00 | 1.47 |
| Choice International | 94.13 | 16.61 | 13.54 | 0.45 | — |
The price-to-book ratio of 3.67x appears relatively modest compared to Choice International's 16.61x but significantly exceeds Bajaj Holdings' 2.15x and the sector median. Given ACME Solar's weak ROE, this P/BV premium lacks fundamental justification. Investors typically accept high P/BV ratios only when accompanied by superior ROE—a condition clearly not met in this case.
ACME Solar's debt-to-equity ratio of 1.79 stands in stark contrast to peers like Bajaj Holdings and TVS Holdings, which operate with minimal or negative net debt. This high leverage amplifies both returns and risks, making ACME Solar considerably more vulnerable to economic downturns or interest rate increases. The company's dividend yield of 0.07% is amongst the lowest in the peer group, reflecting management's focus on capital retention for growth rather than shareholder distributions.
The company's market capitalisation of ₹16,521.92 crores positions it as a mid-sized player in the holding company universe. Whilst the renewable energy focus provides differentiation from traditional holding companies, the operational and financial metrics suggest the market may be pricing in overly optimistic growth assumptions without adequately discounting execution risks and leverage concerns.
Valuation Analysis: Expensive Multiple Demands Caution
ACME Solar's current valuation metrics flash multiple warning signals for value-conscious investors. The P/E ratio of 40.33x significantly exceeds the industry average of 49x on an absolute basis, though it appears reasonable relative to the broader holding company sector. However, this comparison is misleading—the company's 5.97% ROE and high leverage profile warrant a substantial discount to peers, not a premium.
The EV/EBITDA multiple of 17.32x and EV/EBIT of 22.75x suggest the market is pricing in aggressive earnings growth and margin expansion. For context, infrastructure companies typically trade at EV/EBITDA multiples of 10-15x, with premiums reserved for businesses demonstrating consistent cash generation and strong returns on capital. ACME Solar's elevated multiples appear disconnected from its underlying capital efficiency metrics.
The stock's classification as "Very Expensive" by valuation assessment frameworks appears justified. Trading 62.97% above its 52-week low of ₹167.55 but 15.79% below its 52-week high of ₹324.25, the stock has experienced significant volatility. The current price of ₹273.05 suggests the market is attempting to reconcile strong YoY growth with mounting concerns about leverage and profitability quality.
Book value per share stands at ₹74.54, implying the stock trades at 3.67 times book value. For a company generating ROE of just 5.97%, this premium appears excessive. Academic finance suggests that sustainable P/BV ratios should align with ROE—companies earning 6% ROE typically trade at or below book value, not at multiples exceeding 3x. This disconnect suggests either market inefficiency or embedded growth expectations that may prove difficult to realise.
"At 40x earnings and 3.67x book value with ROE below 6%, ACME Solar's valuation implies aggressive growth that must materialise to justify current prices—a high-risk proposition for conservative investors."
The minimal dividend yield of 0.07% offers negligible income support, making the investment case entirely dependent on capital appreciation. With the company paying out just 6.41% of profits as dividends, management clearly prioritises reinvestment over shareholder distributions. Whilst appropriate for a growth business, this strategy requires demonstrable improvement in capital efficiency to create value—an area where ACME Solar has thus far fallen short.
Shareholding Pattern: Stable Promoter Base, Modest Institutional Interest
ACME Solar's shareholding structure reveals a dominant promoter holding of 83.41%, unchanged over the past four quarters, indicating strong promoter commitment and alignment with long-term value creation. The primary promoter, Acme Cleantech Solutions Pvt Ltd, maintains this substantial stake with zero pledging—a positive signal eliminating concerns about forced selling or financial distress at the promoter level.
| Shareholder Category | Sep'25 | Jun'25 | Mar'25 | Dec'24 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 83.41% | 83.41% | 83.41% | 83.41% | 0.00% |
| FII | 5.57% | 5.76% | 4.74% | 5.54% | -0.19% |
| Mutual Funds | 4.13% | 4.10% | 4.43% | 4.32% | +0.03% |
| Insurance | 1.52% | 1.93% | 2.08% | 2.07% | -0.41% |
| Other DII | 0.74% | 0.58% | 0.58% | 0.58% | +0.16% |
| Non-Institutional | 4.62% | 4.22% | 4.75% | 4.07% | +0.40% |
Foreign institutional investor (FII) holding declined marginally to 5.57% in Q2 FY26 from 5.76% in Q1 FY26, suggesting some profit-booking by international investors following the stock's strong run. The sequential decrease of 0.19% is modest and does not indicate significant institutional exodus, though the year-on-year increase from 4.74% in March 2025 shows growing FII interest in the renewable energy story.
Mutual fund participation increased slightly to 4.13% from 4.10% sequentially, with 16 mutual fund schemes holding stakes. This gradual accumulation by domestic institutional investors reflects cautious optimism about the company's growth prospects. Insurance company holdings decreased more notably to 1.52% from 1.93%, a 0.41% reduction that may signal profit-booking or reallocation to other opportunities within the sector.
The combined institutional holding of 11.96% remains relatively modest for a company of this market capitalisation, suggesting limited institutional conviction or concerns about valuation and leverage. The increase in non-institutional holdings to 4.62% from 4.22% indicates retail investor interest, though this category's volatility makes it a less reliable indicator of long-term investment merit.
Stock Performance: Short-Term Weakness Despite Six-Month Gains
ACME Solar's stock price performance presents a study in contrasts across different timeframes. Over the past six months, the stock has delivered impressive returns of 27.00%, significantly outperforming the Sensex's 4.05% gain and generating a positive alpha of 22.95%. Year-to-date, the stock has advanced 15.90% against the Sensex's 7.20% return, demonstrating strong relative strength during 2025.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Day | +0.17% | -0.26% | +0.43% |
| 1 Week | -3.14% | -1.02% | -2.12% |
| 1 Month | -4.68% | +3.15% | -7.83% |
| 3 Months | -1.28% | +3.39% | -4.67% |
| 6 Months | +27.00% | +4.05% | +22.95% |
| YTD | +15.90% | +7.20% | +8.70% |
However, recent performance has deteriorated markedly. The stock has declined 4.68% over the past month, underperforming the Sensex by 7.83 percentage points—the most significant negative alpha across all measured periods. The one-week decline of 3.14% against the Sensex's 1.02% fall suggests mounting selling pressure, possibly triggered by concerns about the Q2 FY26 results or broader market rotation away from expensive growth stocks.
Technical indicators paint a mixed picture. The stock trades below its 5-day, 20-day, 50-day, 100-day, and 200-day moving averages, suggesting weak momentum across all timeframes. The current "Mildly Bullish" technical trend classification, downgraded from "Bullish" in July 2025, reflects deteriorating price action. Key resistance levels exist at ₹283.06 (20-day moving average) and ₹289.37 (50-day moving average), whilst immediate support rests at the 52-week low of ₹167.55.
Volume analysis reveals interesting dynamics. Delivery volumes surged 99.7% above the five-day average on November 3, 2025, indicating genuine investor interest rather than speculative trading. The trailing one-month delivery percentage of 46.46% represents a 41.16% increase from the previous month's 40.08%, suggesting increasing conviction amongst buyers. However, this must be weighed against the stock's recent price weakness and negative short-term momentum.
The stock's beta data is unavailable, making it difficult to assess volatility relative to the broader market. However, the 62.97% distance from the 52-week low and 15.79% distance from the 52-week high suggest the stock is trading in the middle of its annual range, with scope for movement in either direction depending on upcoming catalysts and broader market sentiment.
Investment Thesis: Growth Story Undermined by Leverage and Valuation
ACME Solar's investment case rests on India's ambitious renewable energy targets and the company's aggressive capacity expansion strategy. The 21.20% five-year sales CAGR and 91.03% EBIT CAGR demonstrate the business's ability to scale operations and improve operational leverage. With India targeting 500 GW of renewable energy capacity by 2030, solar power developers like ACME Solar stand to benefit from sustained policy support and favourable regulatory frameworks.
However, the investment thesis faces significant headwinds. The company's ROE of 5.97% and ROCE of 7.54% fall well short of the returns required to justify the current valuation. With a P/E ratio of 40.33x and P/BV of 3.67x, the market is pricing in substantial improvements in capital efficiency that may prove elusive given the capital-intensive nature of solar infrastructure and the competitive landscape in India's renewable energy sector.
The debt burden presents the most significant risk to the investment case. With long-term debt exceeding ₹9,857 crores and quarterly interest expenses reaching ₹264.52 crores, the company's financial flexibility is severely constrained. Any disruption to cash flows—whether from project delays, tariff disputes, or macroeconomic headwinds—could quickly translate into financial distress. The EBIT-to-interest coverage ratio of just 1.16x provides minimal margin for error.
KEY STRENGTHS
- Impressive Revenue Growth: 80.19% YoY increase in Q2 FY26 demonstrates strong capacity additions and market demand
- High Operating Margins: 85.59% operating margin (excl. OI) reflects efficient cost management and operational excellence
- Strong Promoter Commitment: 83.41% promoter holding with zero pledging indicates alignment and confidence
- Robust Cash Generation: Operating cash flow of ₹1,543 crores in FY25 demonstrates business viability
- Sector Tailwinds: India's renewable energy push provides long-term growth runway
- Quality Improvement: Quality grade upgraded from "Below Average" to "Average" in August 2025
- No Promoter Pledging: Zero pledged shares eliminate concerns about forced selling
KEY CONCERNS
- Weak Capital Efficiency: ROE of 5.97% and ROCE of 7.54% signal poor returns on invested capital
- Excessive Leverage: Debt-to-equity of 1.79 with record interest expense of ₹264.52 crores constrains flexibility
- Reliance on Other Income: Non-operating income constitutes 87.95% of PBT, raising sustainability concerns
- Expensive Valuation: P/E of 40.33x and P/BV of 3.67x unjustified by fundamentals
- Sequential Revenue Decline: 8.46% QoQ drop in Q2 FY26 raises momentum questions
- Weak Interest Coverage: EBIT-to-interest ratio of 1.16x provides minimal cushion
- Recent Price Weakness: 4.68% decline over one month with negative alpha vs Sensex
The company's quality grade of "Average" and financial trend of "Positive" provide some reassurance, but these must be weighed against the "Very Expensive" valuation grade and "Mildly Bullish" technical trend. The overall Mojo score of 57/100 with a "HOLD" recommendation reflects this balanced assessment—acknowledging growth potential whilst recognising significant risks and valuation concerns.
Outlook: Key Monitoring Points for Investors
Looking ahead, ACME Solar's trajectory will depend on several critical factors. The company must demonstrate consistent improvement in capital efficiency metrics, particularly ROE and ROCE, to justify its premium valuation. Management's ability to refinance expensive debt and reduce the interest burden will be crucial for improving bottom-line profitability and generating sustainable shareholder returns.
POSITIVE CATALYSTS
- Capacity Commissioning: Successful completion of under-construction projects could drive revenue growth
- Debt Refinancing: Lower interest rates or debt restructuring could significantly improve profitability
- Margin Expansion: Operating leverage as fixed costs get absorbed over larger revenue base
- Policy Support: Favourable government policies and incentives for renewable energy
- Power Purchase Agreements: Long-term PPAs provide revenue visibility and stability
RED FLAGS TO WATCH
- Further Interest Increases: Rising interest costs could eliminate profitability
- Project Delays: Execution risks in capacity additions could derail growth
- Tariff Pressures: Competitive bidding may compress realisation rates
- Working Capital Stress: Delayed receivables from distribution companies
- Institutional Selling: Continued FII/insurance company stake reductions
Investors should closely monitor quarterly interest expenses and debt levels. Any further increase in borrowing costs or failure to generate sufficient operating cash flow could trigger a reassessment of the company's financial stability. The quality of other income—whether it represents sustainable treasury operations or one-time gains—will be critical in assessing the true underlying profitability of the business.
Technical indicators suggest the stock may face resistance at ₹283-290 levels, corresponding to the 20-day and 50-day moving averages. A decisive break above these levels could signal renewed bullish momentum, whilst failure to hold above ₹270 could trigger further selling pressure. Given the stock's recent weakness and negative short-term alpha, patience may be warranted before initiating fresh positions.
The Verdict: Hold with Caution—Growth Potential Offset by Leverage Risks
Score: 57/100
For Fresh Investors: Avoid initiating positions at current levels. The combination of expensive valuation (P/E 40.33x, P/BV 3.67x), weak capital efficiency (ROE 5.97%), and excessive leverage (debt-to-equity 1.79) presents an unfavourable risk-reward profile. Wait for either significant price correction (towards ₹220-230 levels) or demonstrable improvement in profitability metrics before considering entry.
For Existing Holders: Maintain positions but avoid adding at current prices. Monitor quarterly results closely for signs of interest burden reduction and sustainable profitability improvement. Consider partial profit-booking if the stock approaches ₹300-310 levels. Set a stop-loss at ₹250 to protect against downside risk from potential financial stress.
Fair Value Estimate: ₹240-250 (12-14% downside from current levels), based on sustainable ROE of 8-10% and target P/BV of 2.5-3.0x, more appropriate for the company's capital efficiency profile.
Note— ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results, and all investments carry risk of loss.
