WAA Solar SME IPO – Should you invest in this IPO?
Gujarat based WAA Solar SME IPO would open for subscription on 31st May, 2018. WAA Solar Limited is one of the leading Solar Power Generation company in India. Generally SME IPOs margins are thin (between 0.5% to 5%). However, WAA Solar Limited Margins are between 10% to 30%. Its issue price is Rs 161 which looks high on the face of it. What are positive factors in the IPO of WAA Solar Limited? What are the hidden factors in WAA Solar IPO? Should you invest in a WAA Solar IPO? Let me provide some insights about this IPO and do the review.
About WAA Solar Ltd
Gujarat based, Waa Solar Limited is engaged in solar power generation by setting up Solar Power Project and by investing in Special Purpose Vehicle associate and subsidiary companies which are engaged in solar power generation activities.
WAA Solar IPO Issue details
IPO opening date: 31-May-2018
IPO closure date: 4-Jun-2018
Face Value: Rs 10 per share
Price Band: Rs 161
Issue size: Rs 28 Crores
IPO Lot size: 800 shares and 800 shares, there-off
Minimum investment: Rs 128,800 on higher price band
Leading Managers: Guiness Corporate Advsors Limited
Listing: BSE SME
Objects of the WAA Solar Limited IPO issue
The Objects of the issue are
a) The Offer for Sale
The company will not receive any proceeds from the Offer for Sale.
b) Fresh Issue
The proceeds of Fresh Issue will be utilized as under.
1) Investment in Subsidiary Companies
2) General Corporate Purpose,
3) Meeting Public Issue Expense
he promoter of the company is Madhav Power Private Limited.
Company Financials (reinstated-Standalone)
1) The company generated revenue of Rs 27.7 Crores for the year ended Mar-13 and Rs 26 Crores for the year ended Mar-17. Revenues for the 8 months ended Nov-2017 was Rs 16.2 Crores.
2) The company posted a profit of Rs 8.28 Crores for the year ended Mar-13 and profit of Rs 4.27 Crores for the year ended Mar-17. Profits for the 8 months ended Nov-17 was Rs 1.61 Crores.
3) Its FY17 EPS is Rs 8.75 and last 3 years average EPS is Rs 12.4 (Post Bonus issue).
What are the key strengths of WAA Solar Limited?
Here are the key strengths of the company.
1) Proven and experienced management team
2) Investment in Subsidiary and Associate Companies
3) Cost efficient sourcing and completion of project in schedule time
What are the Strategies of WAA Solar Limited?
Here are the strategies company want to follow.
1) Optimal Utilization of Resources
2) To build-up a professional organization
3) Diversification and Expansion
Reasons to invest in a WAA Solar IPO
The company earns good margins. Profits are between 10% to 30% in the last 5 years. Generally SME company's margins are thin.
Risk Factors / Reasons not to invest in a WAA Solar IPO
1) Not much growth in revenues in the last 5 years. Its revenues in FY2013 Vs FY2017 are almost same. This is due to dip in revenues in FY17. It is difficult to predict FY18 revenues at this point of time.
2) They do not own registered office from which they operate.
3) They Promoter and Directors and group companies are involved in certain legal proceedings. Any adverse decision against their Promoter/Directors in such proceedings may have a material adverse effect on their reputation.
4) Company requires several statutory and regulatory permits, licenses and approvals for their business. Their inability to obtain, renew or maintain these licenses, permits and approvals required to operate their business may have an adverse effect on their business & operations.
5) The company has given short term loans/advances to relatives of Directors, Holding company, Subsidiary companies and also corporate guarantees to group companies in which they Directors are interested and which is not in compliance with the provisions of Section 185/295 of the Companies Act, 2013/1956.
6) Company has certain contingent liabilities which may adversely affect their financial position they solar power industry is vulnerable to seasonal and weather fluctuations. This could result in fluctuations in power generation and demand which will adversely affect their sales and profitability.
7) The company had changed the method of depreciation since written down value to the straight line method in the current financial year.
8) Company is partner in M/s. Prakash Potheyr having a 93 % share in the profit/Loss of the partner firm and its accounts are not yet prepared.
9) They PPAs may expose us to certain risks that may affect their future results of operations and cash flows.
10) They revenues are dependent on a limited number of they customer(s). The loss of their Customer may adversely affect their revenues and profitability.
11) They may face significant risks that could result in reduced power generation and increased expenses in the maintenance of their solar power generation facilities.
12) Their Group companies are making loss in last three years.
13) Other risk factors (Internal and external) can be viewed in the red hearing prospectus (RHP).
Recommendation / Investment strategy – WAA Solar IPO
On FY2017 standalone EPS of Rs 8.75 (Post bonus) and on price of Rs 161, P/E works out to be 18x. On last 3 years average standalone EPS of Rs 12.4 (Post Bonus), P/E works out to be 13x. Based on 8 months ended Nov-17 EPS of Rs 4.95 (annualized), P/E works out to be 32x. There are no listed peers in similar business. However, considering the latest P/E ratio, it is fully priced.
Company revenues have not grown much in the last 5 years. This was due to majorly drop in FY17 revenues. However the company is earning good margins compared to any other SME companies. Its issue price is also fully priced. High risk investors can subscribe to this IPO for medium to long term of 3-5 years. One may or may not get listing gains.
Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
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WAA Solar SME IPO – Should you invest