Shapoorji Pallonji Group's solar engineering, procurement and construction business, Sterling and Wilson Solar on Tuesday launched its three-day initial public offering (IPO) with the objective to raise Rs 3,125 crore from capital market.
The solar engineering, procurement and construction (EPC) solutions provider, Sterling and Wilson Solar (SWSL) commenced operations in 2011 as the Solar EPC Division of SWPL and later demerged from SWPL in 2017. Sterling & Wilson offers customised solutions to its customers for solar power projects and is engaged in providing solar engineering, procurement and construction (EPC) solutions to the end-users.
About the offer
The SWSL IPO plans to raise around Rs 3,125 crore by selling 4 crore equity shares at a price band of Rs 775 to Rs 780 per equity share of Re 1 face value.
The IPO with a lot size of 19 shares ,comprises of a 100% offer for sale by the promoters Shapoorji Pallonji and Company Private aggregating up to Rs 2,083.33 crore and Khurshed Yazdi Daruvala amounting to Rs 1,041.67 crore.
From the total shares on offer, 50% are reserved for qualified institutional buyers, 15% for high net worth individuals or non-institutional bidder and 35% for retail individual investors. Post-IPO, the equity shares of the company are proposed to be listed on BSE and NSE.
After the issue, the shareholding of promoters Shapoorji Pallonji and Company Pvt Ltd and Khurshed Yazdi Daruvala will be reduced to 49.11% and 25.01% from 65.77% and 33.33%, respectively.
Proceeds from offer
SWSL intends to use fund proceeds towards full repayment of the loans due to SWSL and Sterling and Wilson International Solar FZCO (SW FZCO) from SWPL and Sterling and Wilson International FZE (a subsidiary of SWPL), respectively within 90 days from the date of listing of the equity shares. Post-IPO, the management plans to make the business debt-free.
Business Model
SWSL offers a complete range of customised solutions for solar power projects. Its customers include leading independent power producers (IPPs), developers and equity funds.
The company enjoys an asset-light business model which requires low Capex (lease equipment and customers look at the real estate) and working capital requirement (short duration EPC contracts and advance payment from customers).
The renewable energy EPC firm generated 69.8% of FY19 revenue from its presence in 26 countries, where it has commissioned and contracted 205 solar projects with a total capacity of 6,870.12 megawatts as of March 2019, according to its red herring prospectus. Growth in revenue was primarily led by a significant increase in EPC revenue from South East Asia, Africa, the US and Latin America.
On the financial counts, Price/Earnings ratio based on diluted EPS for fiscal 2019 for the issuer at the upper end of the Price Band is as high as 19.57, as per HDFC securities.
The company's earnings per share will be close to Rs 40 for 2018-19, according to BloombergQuint's calculations.
Debt
The company's total outstanding borrowings (fund based and non-fund based facilities) as on June 30, 2019 aggregated to Rs 6,741.37 crore, while its cash and equivalents stood at Rs 455 crore and debt to equity at 2.6x (vs 0.9x in FY18).
Short term borrowings have increased to Rs 2,228 crore (vs Rs184 crore last year) owing to the demerger, higher buyer's credit and loans (working capital).
One of the risk factors added by Centrum broking was that 35.76% of SWSL's shares that are held by SPCPL that shall be pledged in favour of HDFC Ltd pursuant to a financing facility that was availed by the promoter. Other risks factored by the brokerage house were slower than expected ramp-up of solar power demand and delay in project completion or advance receipts from customers.
Recommendations
Giving the IPO 3 out of 5 ratings, Centrum Wealth has recommended that investors can 'subscribe' to the issue from a long term perspective," adding that the solar major has no domestic listed peer. The agency believes that SWSL is well placed to capitalise on the opportunities from the solar power sector.
Given the current turbulence in the domestic equity market, the brokerage firm-Choice Broking rated the issue "subscribe with caution", explaining the forecast of 32.8% rise in revenue in FY20 to Rs 10,939.36 crore.
On a similar note, brokerage Motilal Oswal Financial Services said, "Considering the current market environment and absence of past comparable financials, investors can subscribe only from a long term perspective."
Subscribed shares
At 5:00 pm, of the total issue size for QIB investors amounting to 22,177,408 shares, bids for 21,06,264 shares have been received or 0.09 times have been subscribed, as per data available with the exchanges.
Edited by Rupa Burman Roy