sterling and wilson solar ipo: Sterling and Wilson Solar’s Rs 3,125 crore IPO opens Tuesday; should you invest?

NEW DELHI: Shapoorji Pallonji-led Sterling and Wilson Solar’s (SWSL) Rs 3,125 crore IPO will hit the market on Tuesday. Analysts said the firm, a leader in the solar EPC space, is well placed to capitalise on the opportunities from the solar power sector and thereby they have given ‘subscribe’ ratings to the issue from a long-term perspective.

The IPO comprised entirely of an offer for sale of 4.01-4.03 crore shares. Its main objective is to carry out disinvestment by the promoter, and SWSL will not receive any proceeds from the offer. The issue is priced at Rs 775-780 per share.

At the upper end of the price band of Rs 780, the issue seems fairly priced at a P/E of 19.6 times (post dilution) on FY19 consolidated basis, said Centrum Broking. The company has no domestic listed peer.

Strong parentage, asset-light business model and low capex requirements work in favour of the company. SWSL is also a leading solar EPC solutions provider in India, Africa and Middle East with 16.6 per cent, 36.6 per cent and 40.4 per cent market share, respectively, according to IHS Markit.

“SWSL operates in a niche but high-growth solar industry, which has aided in a 72 per cent CAGR in net profit over FY2016-FY2019. The company has high return ratios with lower working capital cycle. At the upper price band, the company is valued at P/E and EV/EBITDA of 20 times and 22 times, respectively, on FY2019 earnings. Considering all the above factors, SWSL’s prospects look promising for the long term,” Sharekhan said in a report.

As of March 31, the company’s order book stood at Rs 7,740 crore, which includes letters of intent worth Rs. 3,908 crore for solar power projects for which it has won the bid, but has not yet executed definitive.

“Operating in a highly competitive environment, SWSL with its strong parentage, geographic-specific strategy and execution track record has been able to garner global market leadership position with a share of 4.6 per cent in 2018 (based on annual installations of utility-scale photovoltaic (PV) systems of >5 MW Peak – MWp) vs 0.3 per cent in 2014 (IHS Markit),” Centrum Wealth Research said in a note.

Choice Broking forecasts a 32.8 per cent rise in revenue in FY20 to Rs 10,939.36 crore. The brokerage expects the EBITDA and PAT margin for FY20 to come in at 8 per cent and 6.8 per cent, respectively as against respective margins of 7.8 per cent and 7.8 per cent in FY19. Similarly, it sees the FY21 top-line to be at Rs 136,74.2 crore (a growth of 25 per cent over FY20), while EBITDA and PAT margin are anticipated to be at 8.8 per cent and 7.7 per cent, respectively.

However, with the current turbulence in the domestic equity market, the brokerage assigned a “Subscribe with Caution” rating for the issue.