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Published on 6/08/2019 5:36:30 PM | Source: SPA Securities Ltd

IPO Note - Sterling and Wilson Solar Ltd By SPA Securities

 

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The company is a global pure-play, end-to-end solar engineering, procurement and construction ("EPC") solutions provider, and was the world's largest solar EPC solutions provider in 2018 based on annual installations of utility-scale photovoltaic ("PV") systems of more than five mega-watt peak ("MWp"). It 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. S&W Solar also provide operations and maintenance ("O&M") services, including for projects constructed by third-parties. Its customers include leading independent power producers ("IPPs"), developers and equity funds. It currently has a presence across 26 countries and as of March 31, 2019, It had 205 commissioned and contracted solar power projects with an aggregate capacity of 6,870 MWp. Its order book was INR 38,316 million as of March 31, 2019. S&W Solar benefits from the brand reputation, industry relationships and project management expertise of the Shapoorji Pallonji group (the "SP Group") and the Sterling and Wilson group ("S&W").

 

Investment Rationale

Largest global solar EPC solutions provider in a fast growing solar industry

S&W Solar was the world's largest solar EPC solutions provider, based on annual installations of utility-scale PV systems of more than five MWp, with a market share of 4.6% in 2018 which increased from 0.3% in 2014, according to IHS Markit. It was also the largest solar EPC solutions provider in each of India, Africa and Middle East in 2018 with 17%, 37% and 40% market share, respectively. In Fiscals 2018 and 2019, revenue from operations outside India accounted for 59 % and 70% of total revenue from operations, respectively. In 2017, It won the bid for the 1,177 MWp solar power project in Abu Dhabi, which is the world's largest single location solar PV plant.

 

Comprehensive end-to-end EPC solutions provider with a global execution track record

The 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. It also provide EPC solutions for rooftop solar projects, O&M services, including for projects constructed by thirdparties. Its execution track-record, relationships with customers and suppliers, and innovative and cost-effective engineering project designs make it well positioned to benefit from fast growing solar industry and continue to expand operations.

 

Strong parentage and ability to leverage global "SP" brand

S&W Solar benefits from the brand reputation, industry relationships and project management expertise of the SP Group and S&W. The SP Group is a global conglomerate and has over 150 years of experience as an EPC solutions provider in six major business areas and operations across 45 countries. Currently, S&W has over 90 years of offering EPC solutions and has operations across various industries, including mechanical engineering and plumbing, co-gen solutions, transmission and distribution, turnkey data centers, diesel generators and renewables.

 

Strong growth and financial performance backed by an asset-light business model

S&W Solar has demonstrated strong financial performance and total income has grown at a CAGR of 72% to 84,499 million during Fiscal 2017-19. Its EBITDA has increased to INR 8,516 million, 13.2x during Fiscal 2017-19. Its PAT has grown at a CAGR of 173% from a combined PAT of INR 314 million in Fiscal 2017, to a consolidated PAT of INR 4,505 million in Fiscal 2018, and 6,382 million in Fiscal 2019.

 

Outlook & Valuation

Solar energy is one of the fastest growing forms of renewable energy with its share of annual additions in global power generation capacity increasing from 10 % in 2012 to 25% in 2018. This provides enormous scope of growth for the company as solar energy's share is projected to increase further to 38% in 2022. S&W Solar benefits from the brand reputation, industry relationships and project management expertise of the Shapoorji Pallonji Group and Sterling & Wilson Pvt Ltd. S&W Solar has demonstrated strong financial performance Its asset-light business model has enabled it to generate strong 76% ROE for the fiscal 2019. At the upper price band of INR 780, the issue is priced at FY19 P/E of 19.6x & we recommend SUBSCRIBE to the issue.

 

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