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Sterling and Wilson Solar IPO subscription begins, should you subscribe?

While assigning three-out-of-five rating to the issue, Centrum Wealth also suggests investors can subscribe to the issue from a long term perspective. It believes it is fairly priced.

August 06, 2019 / 02:19 PM IST

Sterling and Wilson Solar, the second initial public offering of the month, has been launched for subscription on August 6 with the intention to raise Rs 3,125 crore from capital market.

The company has fixed the issue price band at Rs 775-780 per share.

Out of the total fund raising, the company already garnered Rs 1,406 crore from 18 anchor investors, including global and domestic funds and investors on August 5.

The stellar response for public issue from anchor investors, scheduled to be closed on August 8, indicated that there could also be good demand in the coming three days.

Even the brokerages advised to subscribe for the issue that consists of an offer for sale by promoters Shapoorji Pallonji and Company Private Limited (Rs 2,083.33 crore) and Khurshed Yazdi Daruvala (Rs 1,041.67 crore).


The key reasons, which backed recommendation from brokerages, are its dominant position in solar EPC segment, robust order book providing strong revenue visibility, asset light business model, strong parentage of Shapoorji Pallonji Group and strong financials etc.

"We recommend 'subscribe' rating on Sterling and Wilson Solar (SWSL) given 1) its dominant position as world's largest solar EPC player with 4.6 percent market share and presence across 26 markets, 2) strong business visibility due to planned addition of around 190 GW over CY19-21E (as per IHS Market), 3) Asset light business model leading to healthy return ratios (RoE/RoCE of 66/51 percent), 4) strong management quality with parentage of Shapoorji Pallonji Group (the 'SP Group') and the Sterling and Wilson Group (S&W)," Prabhudas Lilladher said.

SWSL is the largest player with 16.6 percent market share in the domestic market (30 percent revenue contribution). Over FY16-19, SWSL has reported revenue/EBITDA/PAT CAGR of 44/50/75 percent respectively with reported EPS (Pre-IPO) of Rs 39.9 in FY19.

The company's profit in FY19 increased by 41.66 percent year-on-year (YoY) to Rs 638 crore and revenue grew by 19.9 percent to Rs 8,240 crore compared to FY18.

"With strong order backlog and robust pipeline and execution track-record, we see the stock as a strong play on solar industry with all the ingredients of shareholder value creation," the brokerage said, adding the offer at 19.5x FY19 EPS looks attractive.

Motilal Oswal has also said the company is likely to benefit from being the largest global EPC contractor in an industry that is seeing a massive thrust towards renewable energy, an asset-light business model, and strong parentage. But, considering the current market environment and the absence of past comparable financials, investors can subscribe only from a long term perspective.

Sterling and Wilson Solar, a subsidiary of Sharpoorji Pallonji, is among the largest global solar engineering, procurement and construction (EPC) solutions provider. SWSL also provides operations and maintenance (O&M) services, including for projects constructed by third-parties. SWSL has 205 commissioned and contracted solar power projects with an aggregate capacity of 6,870 MWp (March).

Around 70 percent of the company's revenue comes from international geographies. Gross margins hovered in the range of 11-12 percent with EBITDA margins at 8 percent, said Prabhudas Lilladher, adding that the tax rate is expected to be in the range of 15 percent given the large share of foreign projects.

SWSL’s current order backlog stands at Rs 6,500 crore.

"On valuation parse at the upper end of the issue price Rs 780, SWSL commands Rs 12,508 crore market cap with P/E of 19x and P/BV of 12x times on its FY19 financials, which is relatively above market expectation considering the current market environment, while considering optimistic factors (strong market share, asset-light business model and strong parentage) for investment, SWSL's prospects look promising for the long term," Mehta Equities said.

While assigning three-out-of-five rating to the issue, Centrum Wealth also suggests investors can subscribe to the issue from a long term perspective. It believes it is fairly priced.

Going ahead, SWSL is looking at geographic expansion and building its O&M, rooftop solar EPC and solar storage solutions. Being a market leader in the solar EPC space (global share 4.6 percent and India 16.6 percent - based on annual installations of utility-scale PV systems of >5 MWp), Centrum believes SWSL is well placed to capitalise on the opportunities from the solar power sector.

Choice Broking, too, advised subscribing the issue, but with caution to Sterling and Wilson Solar. It is a long term solar play, but the current market turbulence is not supportive, it reasoned.

After the public issue, the shareholding of promoters Shapoorji Pallonji and Company Pvt Ltd and Khurshed Yazdi Daruvala will be reduced to 49.11 percent and 25.01 percent from 65.77 percent and 33.33 percent respectively.

The promoters will utilise a portion of funds towards the full repayment of loans due to the company and Sterling and Wilson International Solar FZCO from SWPL and Sterling and Wilson International FZE (a subsidiary of Sterling and Wilson Private Limited-SWPL), respectively.

Disclaimer: The views and investment tips expressed by investment expert on are his own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
first published: Aug 6, 2019 09:12 am
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