Article

Sterling and Wilson Solar Ltd- Information Note

14 Aug 2019 Nikita Bhoota

This document summarizes a few key points related to the issue and should not be treated as a comprehensive summary. Investors are requested to refer the Red Herring Prospectus for further details regarding the issue, the issuer company and the risk factors before taking any investment decision. Please note that investment in securities is subject to risks including loss of principal amount and past performance is not indicative of future performance. Nothing herein constitutes an offer of securities for sale in any jurisdiction where it is unlawful to do so. This document is not intended to be an advertisement and does not constitute an invitation or form any part of any issue for sale or solicitation of an offer to subscribe for or purchase any securities and neither this document nor anything contained herein shall form the basis for any contract or commitment whatsoever.

Issue Opens- August 06, 2019
Issue Closes- August 08, 2019
Price Band- Rs 775- 780
Issue Size- ~Rs 3,125cr
Bid Lot- 19 equity shares

% Shareholding

Pre IPO

Post IPO

Promoter

100

~75

Public

-

~25


Company Background

Sterling and Wilson Solar Limited (SWSL) is a global pure-play (deriving ~70% of revenue from outside India), end-to-end solar EPC solutions provider (world’s largest in 2018). Company provides (a) EPC services, primarily for utility-scale solar power projects and (b) O&M services. SWSL is currently present across 26 countries and has 205 commissioned and contracted solar power projects with an aggregate capacity of 6,870.4 MWp (as on March 31, 2019). Order book for the company (including LOI) stands at Rs7,740cr as of FY19-end.

Issue Details

The Offer comprises of the Offer for Sale by the promoters and company will not directly receive any proceeds from the offer. The promoters shall utilise a portion of the net offer proceeds towards funding full repayment of the loans due to SWSL and Sterling and Wilson International Solar FZCO from Sterling and Wilson Private Limited (SWPL) and Sterling and Wilson International FZE (a subsidiary of SWPL) respectively, within 90 days from the date of listing.

Financials

  • RsCr

    FYF16*

    FY17*

    FY18**

    FY19

    Total Income

    2,746

    1,650

    6,884

    8,450

    Adj. EBITDA

    196

    65

    550

    852

    PAT

    125

    31

    451

    638

    EPS (Rs)

    NA

    NA

    30.0

    39.9

    PE (x)#

     

     

    26.0

    19.6

    RoNW (%)

     

     

    118

    62

    Net Working Capital

    (240)

    166

    (749)

    234

    Source: RHP; Note: * Pertaining to the SWPL- Solar EPC Division (derived), ** For the period beginning March 9, 2017 to March 31, 2018, # PE calculated on upper price band

    For additional information and risk factors please refer to the Red Herring Prospectus. Please note that this document is for information purpose only

    Key Points

    SWSL 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, according to IHS Markit. It was also the largest solar EPC solutions providers in each of India, Africa and Middle East in 2018 with 16.6%, 36.6% and 40.4% market share, respectively (according to IHS Markit). Currently SWSL has presence across 26 countries with operations in India, South East Asia, Middle East and North Africa, rest of Africa, Europe, United States and Latin America and Australia. These markets are expected to see a steep growth in solar power capacity additions over 2018-21E, according to IHS Markit – CAGR of 11.7% in India, 70.6% CAGR in South East Asia, 22.2% CAGR in the Middle East and North Africa, 42.0% CAGR in the rest of Africa, 30.0% CAGR in Europe, 17.4% CAGR in the United States, 5.4% in CAGR Latin America and 8.1% CAGR in Australia. The total cumulative installed solar PV generation capacity is expected to reach ~1,090 GWDC globally by 2022E (vs. less than just 100 GWDC at the end of 2012). Also, the levelized cost of electricity for solar PV projects decreased sharply between 2012 and 2018 and is expected to continue to decrease until 2030. Given the execution track-record, relationships with customers and suppliers, and innovative and cost-effective engineering project designs, SWSL is well positioned to benefit from this positive trend and continue to expand its operations globally. Revenue from operations outside India accounted for 59.1% and 69.8% of SWSL’s total revenue in FY18 and FY19, respectively.

    The company operates under an asset-light business model - customers are responsible for sourcing and acquiring real estate. Company typically leases equipment required for the operations, entailing low capital expenditures and fixed costs, and offers flexibility and scalability to meet the customers’ needs, provide customized solutions and respond quickly to market conditions. Additionally, the company’s operations are supported by (a) its global supply chain, (b) relationships with suppliers and (c) a large design and project execution team in India, which provides cost advantage over competitors and helps the company win bids and repeat orders. For instance, supported by diligence, detailed market studies, cost-effective supply chain and engineering and design capabilities, the company won the bid for the 1,177 MWp solar power plant in Abu Dhabi.

    Key Risk

    • Top five customers accounted for 76.4% and 53.7% of the company’s revenue in FY18 and FY19 respectively. Loss of a key customer could significantly impact company’s business and future prospects, resulting in material effect on company’s financials.

    • The solar power market is still developing and the extent of acceptance of solar power as a form of energy generation remains uncertain. If solar photovoltaic (PV) and related technologies are regarded as unsuitable for widespread adoption, or if demand for solar power does not develop or takes longer to develop than anticipated, company’s revenues may decline and it may be unable to sustain its profitability.

       

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    Sterling and Wilson Solar Ltd- Information Note

    14 Aug 2019 Nikita Bhoota

    This document summarizes a few key points related to the issue and should not be treated as a comprehensive summary. Investors are requested to refer the Red Herring Prospectus for further details regarding the issue, the issuer company and the risk factors before taking any investment decision. Please note that investment in securities is subject to risks including loss of principal amount and past performance is not indicative of future performance. Nothing herein constitutes an offer of securities for sale in any jurisdiction where it is unlawful to do so. This document is not intended to be an advertisement and does not constitute an invitation or form any part of any issue for sale or solicitation of an offer to subscribe for or purchase any securities and neither this document nor anything contained herein shall form the basis for any contract or commitment whatsoever.

    Issue Opens- August 06, 2019
    Issue Closes- August 08, 2019
    Price Band- Rs 775- 780
    Issue Size- ~Rs 3,125cr
    Bid Lot- 19 equity shares

    % Shareholding

    Pre IPO

    Post IPO

    Promoter

    100

    ~75

    Public

    -

    ~25


    Company Background

    Sterling and Wilson Solar Limited (SWSL) is a global pure-play (deriving ~70% of revenue from outside India), end-to-end solar EPC solutions provider (world’s largest in 2018). Company provides (a) EPC services, primarily for utility-scale solar power projects and (b) O&M services. SWSL is currently present across 26 countries and has 205 commissioned and contracted solar power projects with an aggregate capacity of 6,870.4 MWp (as on March 31, 2019). Order book for the company (including LOI) stands at Rs7,740cr as of FY19-end.

    Issue Details

    The Offer comprises of the Offer for Sale by the promoters and company will not directly receive any proceeds from the offer. The promoters shall utilise a portion of the net offer proceeds towards funding full repayment of the loans due to SWSL and Sterling and Wilson International Solar FZCO from Sterling and Wilson Private Limited (SWPL) and Sterling and Wilson International FZE (a subsidiary of SWPL) respectively, within 90 days from the date of listing.

    Financials

  • RsCr

    FYF16*

    FY17*

    FY18**

    FY19

    Total Income

    2,746

    1,650

    6,884

    8,450

    Adj. EBITDA

    196

    65

    550

    852

    PAT

    125

    31

    451

    638

    EPS (Rs)

    NA

    NA

    30.0

    39.9

    PE (x)#

     

     

    26.0

    19.6

    RoNW (%)

     

     

    118

    62

    Net Working Capital

    (240)

    166

    (749)

    234

    Source: RHP; Note: * Pertaining to the SWPL- Solar EPC Division (derived), ** For the period beginning March 9, 2017 to March 31, 2018, # PE calculated on upper price band

    For additional information and risk factors please refer to the Red Herring Prospectus. Please note that this document is for information purpose only

    Key Points

    SWSL 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, according to IHS Markit. It was also the largest solar EPC solutions providers in each of India, Africa and Middle East in 2018 with 16.6%, 36.6% and 40.4% market share, respectively (according to IHS Markit). Currently SWSL has presence across 26 countries with operations in India, South East Asia, Middle East and North Africa, rest of Africa, Europe, United States and Latin America and Australia. These markets are expected to see a steep growth in solar power capacity additions over 2018-21E, according to IHS Markit – CAGR of 11.7% in India, 70.6% CAGR in South East Asia, 22.2% CAGR in the Middle East and North Africa, 42.0% CAGR in the rest of Africa, 30.0% CAGR in Europe, 17.4% CAGR in the United States, 5.4% in CAGR Latin America and 8.1% CAGR in Australia. The total cumulative installed solar PV generation capacity is expected to reach ~1,090 GWDC globally by 2022E (vs. less than just 100 GWDC at the end of 2012). Also, the levelized cost of electricity for solar PV projects decreased sharply between 2012 and 2018 and is expected to continue to decrease until 2030. Given the execution track-record, relationships with customers and suppliers, and innovative and cost-effective engineering project designs, SWSL is well positioned to benefit from this positive trend and continue to expand its operations globally. Revenue from operations outside India accounted for 59.1% and 69.8% of SWSL’s total revenue in FY18 and FY19, respectively.

    The company operates under an asset-light business model - customers are responsible for sourcing and acquiring real estate. Company typically leases equipment required for the operations, entailing low capital expenditures and fixed costs, and offers flexibility and scalability to meet the customers’ needs, provide customized solutions and respond quickly to market conditions. Additionally, the company’s operations are supported by (a) its global supply chain, (b) relationships with suppliers and (c) a large design and project execution team in India, which provides cost advantage over competitors and helps the company win bids and repeat orders. For instance, supported by diligence, detailed market studies, cost-effective supply chain and engineering and design capabilities, the company won the bid for the 1,177 MWp solar power plant in Abu Dhabi.

    Key Risk

    • Top five customers accounted for 76.4% and 53.7% of the company’s revenue in FY18 and FY19 respectively. Loss of a key customer could significantly impact company’s business and future prospects, resulting in material effect on company’s financials.

    • The solar power market is still developing and the extent of acceptance of solar power as a form of energy generation remains uncertain. If solar photovoltaic (PV) and related technologies are regarded as unsuitable for widespread adoption, or if demand for solar power does not develop or takes longer to develop than anticipated, company’s revenues may decline and it may be unable to sustain its profitability.