ACME Solar Holdings Ltd Stock Analysis: Caution Advised Amid Growth and Volatility

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Introduction

When we mention the renewable energy sector in India, one name that generally comes up is ACME Solar Holdings Ltd. In fact, ACME Solar is one of the firms that has made a substantial contribution to the solar energy capacity in India through its projects.However, in terms of stock performance, it gets a bit complicated. There are some hints of growth, but the red flags are waving.

Investors need to weigh their pros and cons very effectively. In this article, we will break down some of the key information pertaining to ACME Solar Holdings Ltd and help you know whether this stock is in your portfolio or not. We will also discuss details of the business, future potential, and why you need to be cautious.

DISCLAIMER: Our post is only for educational purpose. Not an investment advice. Consult your financial advisor before investing.

Key Observations:

  1. Current Price:
    • The stock is trading at ₹258.05
  2. Support and Resistance Levels:
    • Current Support Zone: ₹250-₹260 (Highlighted in yellow).
      The price is trading close to this zone, which is a crucial level. If this support breaks, the price might go further down.
    • Critical Support: ₹225-₹230 (Marked in red).
      This is the last line of defense if the current support fails. If the stock price goes below this level, it may be a sign of further bearish momentum.
  3. Fibonacci Retracement Zone:
    • It is at the 61.8% Fibonacci retracement level now.
      This level tends to be a point where a bounce or a reversal may occur. The message “IN FIB RETRACEMENT ZONE KEEP WATCH” warns one to keep an eye out for such a place.
  4. Resistance Levels (Marked in Green):
    • R1: ₹292.54
    • R2: ₹316.94
    • R3: ₹356.34
    • R4: ₹400.00
      If the price bounces from the current support, these resistance levels are targets for upward movement.
  5. Trend:
    • The stock has been under downtrend in the recent weeks by making lower highs and lower lows.
    • The current retracement may reverse if support is held, or may even break down further if the selling pressure continues.

Insights:

  • The ₹250-₹260 zone is crucial. If it closes below this support, it may test the ₹225-₹230 range.
  • If the support holds and there is a reversal, the first target would be ₹292.54 (R1), followed by higher resistance levels.
  • Since the stock is in the Fibonacci retracement zone, all bullish or bearish signals would be needed to be noticed.

Pros of Investing in ACME Solar Holdings Ltd

Let’s start with the positives first. Despite several challenges facing the stock, there are a few positives noted in the company’s situation:

  1. Improved Debtor Days:
    The biggest turnaround for ACME Solar is improvement in debtor days. Once debtor days had risen to the extent of 172 days. Now it has shrunk to 116 days.This indicates that the company is collecting payments from its clients faster, which is a positive sign. A lower debtor day figure improves the company’s cash flow. Better cash flow helps in maintaining operations and reducing the need for additional debt.
  2. Growth in the Renewable Energy Sector:
    India is aggressively moving toward renewable energy, and solar power forms a large part of this initiative. With the government offering incentives for green energy projects, ACME Solar would stand to gain. Its strong position in the solar energy market will be a positive growth driver in the long term.
  3. Strong Project Portfolio:
    ACME Solar has quite a few major projects distributed throughout the nation. Being a part of India’s larger strategy of energy, these projects can provide a steady income for the firm.

Cons of Investing in ACME Solar Holdings Ltd

Now, let’s talk about the issues that investors should be careful about:

  1. Low Interest Coverage Ratio:
    The interest coverage ratio is another important financial ratio. This ratio measures the ease with which a firm can pay interest on outstanding debt. For ACME Solar, the interest coverage ratio is low, which might be an indication that the company would find it difficult to meet interest payments. This may pose some form of risk, particularly in case the debt levels increase.
  2. Low Return on Equity (ROE):
    ACME Solar, for the past 3 years, has also registered a return on equity (ROE) of -2.11%. This indicates that the company is not generating enough profit from its shareholders’ equity. For investors, a negative ROE is a warning sign because it shows that the company is not using its capital efficiently.
  3. Earnings Include High Other Income:
    The company’s profit statement contains an other income of Rs. 896 Crores. It is pretty risky to depend on an other income rather than one’s core business operations because it raises questions about its sustainability.
  4. High Volatility:
    The stock is characterised with high volatility in which its price may change much within a few days. For the risk-averse investor, this may create anxiety. High volatility will most likely imply high risks, and not everyone enjoys this kind of riskiness.

Business Overview of ACME Solar Holdings Ltd

ACME Solar is one of the big players in the renewable energy sector of India. It specializes in solar power projects, helping reduce carbon footprints and promoting clean energy. The company has installed solar plants across different states and feeds into the national grid.

Key Business Segments:

  • Solar Power Projects: ACME Solar develops, owns, and operates large-scale solar power projects.
  • Sustainability Initiatives: The company will make India self-sufficient in renewable energy.

While the company has some of the business strengths, financial health of ACME Solar has some concerns. This company shows high debt on its balance sheet, which hurts the profitability.

Future Growth Potential

Although ACME Solar has its challenges, potential growth in the renewable energy segment cannot be overlooked. And here are some considerations :

  1. Government Support:
    The governments of India plan to implement 500 GW renewable power capacity by 2030. Solar energy contributes prominently to this target. Now, companies like ACME Solar will get subsidies and schemes from the government side for such projects.
  2. Increasing Demand for Clean Energy:
    There’s rising demand for solar power among industries and households, using clean energy. This tends to fuel the revenue expansion of ACME Solar.
  3. Technological Innovations:
    For example, the solar technology itself would improve. More efficient solar panels mean that more can be produced at lower cost.

But growth opportunities are not without risk. Growth opportunities must be weighed against the challenges the company is facing.

Investor Caution is Key

Considering the number of disadvantages, investors should be very wary. The low interest coverage ratio and negative return on equity are a clear evidence of financial struggle. Its high volatility adds to risk. ACME Solar would have to improve its core metrics to become a safer bet.

If you are a risk-tolerant investor who believes that long term is in renewable energy then this stock might be worthy of consideration. But, if you are averse to the risk then you might be waiting for the company’s better financial health.

Conclusion

ACME Solar Holdings Ltd has growth potential combined with a risk in the company’s financials. While improvement in debtor days is a good positive signal, the low ROE and high volatility present concern areas. Support levels along with technical indicators would have to be closely monitored by investors before decisions.

Renewable energy is the future, and companies like ACME Solar have to be a part of this process. But one needs to be cautious. The financials of the company should be monitored along with the market news. These informed choices will help navigate through the stock’s volatility.

Explore other stock analysis articles on our website

Check the latest updates and financials of ACME Solar Holdings Ltd on NSE India.

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