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Sterling and Wilson Solar Ltd IPO Note
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IPO Details:

Offer Details

Price band

Rs 775-780 Per Equity Share

Offer Open Date

6-Aug-19

Offer Close Date

8-Aug-19

Lot Size

19 shares

Issue size

      40,322,580 shares

Face value

Rs 1 Per Equity Share

Issue Type

Book Built Issue IPO

Issue Size (Rs. mn)

31250

Book Building

QIBs

At least 75% of the offer

Non-Institutional

Not more than 15% of the offer

Retail

Not more than 10% of the offer

Lead Managers

IndusInd Bank, Yes Securities

Exchange

BSE, NSE

Promoter Holding

Pre-Issue Share Holding

100%

Post Issue Share Holding

75%


Company Profile:

Sterling and Wilson Solar Ltd (SWSL), a subsidiary of Sharpoorji Pallonji which is a global conglomerate with over 150 years of experience as an EPC solutions provider in 6 major business areas across 45 countries. Company is engaged in providing solar engineering, procurement and construction (EPC) solutions to the end-users. SWSL also provides operations and maintenance (O&M) services, including for projects constructed by third-parties.

It was world’s largest solar EPC solutions provider in 2018 based on annual installations of utility-scale photovoltaic (“PV”) systems of more than 5 mega-watt peak (“MWp”), according to IHS Markit.

In Fiscal 2018 and 2019, the revenue from operations outside India accounted for 59.11% and 69.82% of their total revenue from operations, respectively. As of March 31, 2019, company has received repeated orders from their customers in India and outside India for whom they have executed more than one project constituted 83.26% and 64.35% of their total commissioned solar capacity, respectively.

Business Model:

Company provides EPC services primarily for utility-scale solar power projects with a focus on project design and engineering and manage all aspects of project execution from conceptualizing to commissioning and they also provide operations and maintenance (“O&M”) services, including for projects constructed by third-parties.

Company follows a “hub-and-spoke” business model where they manage the complete supply chain from India, including the design and engineering functions, and engage a few suppliers and third-party subcontractors and procure part of the raw materials for their operations locally in each of their markets, where there is a cost advantage or to comply with local regulations.

Clientele include leading independent power producers (“IPPs”), developers and equity funds. The company adopts a consultative approach to their customers, which enables them to provide customized solutions to meet their requirements.

Sector Overview:

The cumulative annual solar PV installations in India, South East Asia, the Middle East & North Africa, the rest of Africa, Europe, the United States, Latin America and Australia increased from 64 GW in a three year period over 2013 to 2015 to 120 GW in a three year period over 2016 to 2018 representing a 87.7% increase. This is likely to increase by 232 GW in a three year period over 2019 to 2021 representing a further 92.9% increase.

Sterl 1

  STEr -2

Source: RHP, IHS Markit

According to IHS Markit, annual solar PV installations have seen strong growth globally, increasing from 31.6 giga-watts (“GW”) in 2012 to 103.0 GW in 2018, representing a growth of 21.8% CAGR, they believe the global annual solar PV installations run-rate could increase to 148.4 GW by 2021. Regionally, for the period from 2018 to 2021, annual solar PV installations is expected to grow at 11.7% CAGR in India.

Company Growth Strategy:

Company has not clearly defined their growth strategy in their filling report. They have only stated forward going they will be focusing on acquisition of companies or technologies; enter into joint ventures or other strategic initiatives; establish permanent branch offices; or make equity investments in companies executing projects under their co-development model to facilitate our operations and business expansion strategy.

Financial verview: 

For the nine months period ended 31st Dec            

 

2018

2017

Total Income

60,818

32,415

EBITDA

4,768

2,218

EBITDA%

8%

7%

PBT

4,182

2,097

PBT%

7%

6%

Net Profit

3,438

1,793

NP%

6%

6%

EPS

21

11

* Restated Statement (in Rs. million)

Total income has grown at a CAGR of 58.32% from Rs 27,464.67 million in FY16 to Rs 68,844.20 million in FY18. PAT has grown at a CAGR of 89.57% from a combined profit after tax of Rs 1,253.63 million and Rs 314.32 million in FY 2016 and 2017, respectively, to a consolidated PAT of Rs 4,505.35 million in Fiscal 2018.

Conclusion:

In our view, company is operating in very under-developed market from Indian perspective as in India only the share of solar PV generation capacity in installed power capacity base has grown from 1% in 2012 to 6% in 2018 only and globally this has grown from 2% in 2012 to 6% in 2018.

Based on FY19 consolidated numbers, the issue is priced at a P/E of 19.6x. At this valuation and with no significant moat other being the largest global EPC player and strong parentage, we believe company is demanding a high premium which is not reasonable. Thus, we would suggest to avoid for long term as well as for listing gains.

Source: DRHP

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