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Sterling and Wilson Solar Limited (SWSL) is a global pure-play, end-to-end solar engineering, procurement and construction (“EPC”) solutions provider. SWSL is 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”), according to IHS Markit. In 2018, it had a 4.6% market share of the industry.
(1) Global Solar EPC player. SWSL has a presence in 26 countries.
2) Strong promoter group. 50% of post issue will be held by Shapoorji Pallonji and Company Private Limited.
3) Experienced management team.
4) Growing share of solar industry in energy sector.
5) In FY17, 99% of SWSL revenues came from India operations.
However in FY19, India’s share of total order book plus letter of intent market share has come down to 11.8%. This shows that SWSL has managed to diversify it’s revenue stream.
(1) In FY19, top two customers accounted for 37% of the company’s revenue while top five customers accounted for 54% of revenue. Loss of any key customer could have an adverse impact on the company.
(2) Solar EPC Industry does not have any significant barriers to entry.
3) If solar photovoltaic (PV) and related technologies are regarded as unsuitable for widespread adoption then it can have an adverse impact on SWSL revenue and profitability.
4) Industry is highly competitive with the Industry leader accounting for only 4.6% market share.
Outlook & Valuation:
At the upper end of the price band, SWSL demands PE multiple of 19.57x FY19 EPS which we feel is expensive given no significant competitive or technology advantage. Lack of listed peers makes comparison difficult. High growth rate in Solar PV installation is expected to slow down post 2019. Considering the fact that industry is highly competitive with no meaningful barriers to entry, we have a NEUTRAL view on SWSL.
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