Sterling & Wilson IPO Review: Should you subscribe or avoid?

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Sterling & Wilson Solar is a global pure-play, end-to-end solar EPC solutions provider. The company provides EPC services primarily for utility-scale solar power projects with a focus on project design and engineering and manages all aspects of project execution from conceptualizing to commissioning. It also provides O&M (operations and maintenance) services, including for projects constructed by third-parties. Sterling & Wilson IPO Review evaluates the fundamental and financial aspects of the company and the offer.

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The company currently has a presence across 26 countries and had 205 commissioned and contracted solar power projects with an aggregate capacity of 6,870.43 mega-watt peak (MWp) as of 31 March 2019.

Sterling & Wilson IPO Review: Issue Details

Dates – August 06 to August 08, 2019

Price – INR775 to 780 per share

Minimum Lot – 19 Shares

Minimum Application Amount – INR14,725 – 14,820

Total Issue Size – INR3,150 crore (completely Offer for sale, the company will not receive any proceeds from the issue)

Promoters of the Company – The promoters of Sterling & Wilson Solar are Shapoorji Pallonji and Company Pvt Ltd and Khurshed Yazdi Daruvala.

Sterling & Wilson IPO Review: Risks

With power tariffs coming down in biddings, the awarding company may try to squeeze out every rupee of costs which may impact the profitability of Sterling Wilson.

Some state governments have also canceled solar projects (a recent example being Andhra Pradesh)

They bid for solar power projects and compete with other EPC solutions providers based on, among other things, pricing, technical and design and engineering expertise, financing capabilities, past experience, amount and type of guarantees given and track-record.

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They enter into fixed-price EPC contracts with most of their customers. These cost estimates are preliminary, and at the time of submitting bids for a project or entering into EPC contracts, it may not have finalized these costs in its related contracts with subcontractors, suppliers and other parties involved in the solar power project.

Orders in their order book may be delayed, modified or cancelled, and letters of intent may be withdrawn or may not translate to confirmed orders.

Solar power is highly dependent on weather conditions and the profitability of operations depends not only on observed solar conditions at the project site but also on the consistency of those solar conditions.

Solar power projects and its customers rely on transmission lines and other transmission and distribution facilities to transmit power to electricity grids. If transmission and distribution networks are not readily available, which is the case in certain countries in which they operate, they engage contractors to build transmission lines and other related infrastructure, which may extend project timelines and increase project costs.

Sterling & Wilson IPO Review: Key Growth Drivers
  • Declining costs of solar energy
  • Favorable regulatory environment for growth of the solar energy sector
  • Greater efficiency in installation and commissioning process
  • Solar energy storage to be the next major driver of growth
Sterling & Wilson IPO Review: Strengths
  • Largest global solar EPC solutions provider in a fast-growing solar industry
  • Comprehensive end-to-end EPC solutions provider with a global execution track record
  • A dedicated design and engineering team focused on innovation and developing efficient and cost-effective engineering solutions
  • Strong relationships with customers and other key stakeholders
Sterling & Wilson IPO Review: Opportunities

According to IHS Markit, the share of solar photovoltaic (PV) generation capacity annual additions in global power generation capacity annual additions has increased from 9.8% in 2012 to 25.3% in 2018 and could increase to 38.4% in 2022.

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The cumulative annual solar PV installations in India, South East Asia, the Middle East & North Africa, the rest of Africa, Europe, the United States, Latin America and Australia increased from 64 GW in a three year period over 2013 to 2015 to 120 GW in a three year period over 2016 to 2018 representing a 87.7% increase. This is likely to increase by 232 GW in three years over 2019 to 2021 representing a further 92.9% increase.

Sterling & Wilson IPO Review: Valuations & Peer Comparison
Sterling & Wilson IPO Review: Subscribe or Avoid?

Given the current challenging market conditions, this solar power EPC company has come out with a fully priced IPO as seen from its peer comparison. At the same time, its high debt in such a turbulent financial market can spell trouble in terms of high financial cost and risk of rollovers. Effectively, it means that investors need to take a call on this IPO depending on their risk appetite.

To get a sense of investors’ sentiment about the IPO, head to this discussion page. Check out the latest grey market rates here.

Aditya Kondawar

Aditya Kondawar has been following and investing in IPOs since 4 years. With his first salary of INR15,000 in 2015, he invested in the Indigo IPO and made listing gain, after that there was no turning back for the author from the IPO markets. He blogs at stocksandbiceps.com. He is also one of the top viewed writers on Quora on the IPO Topic. Additionally, he is a contributor to the Delhi Investors Association Magazine.

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