Published on 7/08/2019 2:22:48 PM | Source: Geojit Financial Services Ltd

IPO Note - Sterling and Wilson Solar Ltd By Geojit Financial

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Niche global player…Muted revenue visibility

Sterling & Wilson Solar Ltd (SWSL) is the world’s largest solar EPC solutions provider based on annual installations of utility-scale photovoltaic systems of more than 5MWp (according to IHS Markit). The company also enjoys a strong presence in India, Africa and the Middle East with a market share of 16.6%, 36.6% and 40.4% respectively (as of FY18). Nearly 70% of revenue comes from outside India. The company is focused on managing solar projects from conceptualizing to commissioning. As of FY19, the company has commissioned and contracted projects with aggregate capacity of 6,870MWp (megawatt peak).

* In 2017, SWSL won the bid for the world’s largest single-location solar plant of 1,177 MWp in Abu Dhabi.

* The company is well-diversified globally with presence across 26 countries.

* Order book stands at ~Rs3,831cr which is only 0.5 times of FY19 sales. The company had received letters of intent of Rs3,908cr of which Rs2,196cr were converted into definitive EPC contracts since Mar 19.

* On the valuation front, at an upper price band of Rs780, SWSL is available at a P/E and EV/EBITDA of ~20x and 23x respectively on FY19 earnings which appear fully priced in the given market conditions.

* Revenue visibility remains muted due to weak order book and with the upsides already factored in the valuations, we recommend “Avoid” rating.


Purpose of IPO

At the upper price band, total issue size stands at Rs3,125cr comprising an offer for sale of 4.01-4.03cr equity shares. The company will not directly receive any offer proceeds and all the proceeds will be received by the Promoter Selling Shareholders (Shapoorji Pallonji & Co. Private Limited and Khurshed Yazdi Daruvala). The promoter selling shareholders will utilize a portion of the net offer proceeds, towards funding full repayment of the loan dues from respective group companies.


Key Risks...

* Revenue concentration among top two customers which accounts 37% of FY19 sales.

* Raw materials (Photovoltaic cells) sourced from single or limited group of third-party suppliers giving rise to supplier concentration risks.

* Slower than expected ramp-up of solar power demands.

* Delay in project expansion and advance receipts from customers.


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