Sterling and Wilson IPO – Is the issue overpriced?

Sterling and Wilson IPO ReviewSterling and Wilson IPO Review


Mumbai based Sterling and Wilson IPO would open for subscription on 6th August, 2019. Sterling and Wilson Solar Limited (SWSL) is engaged in providing solar engineering, procurement and construction (EPC) solutions to the end-users. The company is issuing the IPO price between at Rs 775-780, with a face value of Rs 1, hence investors are thinking whether it is overpriced. Should you invest in the Sterling and Wilson Solar Ltd IPO or avoid? In this article, we would do Sterling and Wilson Solar IPO Review.

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About Sterling and Wilson Solar Limited


They are a global pure-play, end-to-end solar engineering, procurement and construction solutions provider, and were the world’s largest solar EPC solutions provider in 2018 based on annual installations of utility-scale photovoltaic systems of more than five mega-watt peak, according to IHS Markit. They provide EPC services primarily for utility-scale solar power projects with a focus on project design and engineering and manage all aspects of project execution from conceptualizing to commissioning. They also provide operations and maintenance services, including for projects constructed by third-parties. They commenced operations in 2011 as the Solar EPC Division of SWPL and demerged from SWPL with effect from April 1, 2017. Over a span of seven years, they became the largest solar EPC solutions provider in each of India, Africa and the Middle East, according to IHS Markit in 2018 and currently have a presence across 26 countries. As of March 31, 2019, they had 205 commissioned and contracted solar power projects with an aggregate capacity of 6,870.12 MWp.

Sterling and Wilson IPO Issue details


Sterling and Wilson IPO Dates and Schedule

Sterling and Wilson IPO DRHP Prospectus can be downloaded at this link

What are the Objects of the Sterling and Wilson IPO?


Here are the objects of the IPO issue.

1) Offer for the sale (OFS) of equity shares by the Selling Shareholders. The company will not receive any proceeds from the Offer and the entire proceeds from the Offer will go to the Selling Shareholders.

2)  To Achieve the benefits of listing of equity shares on stock exchanges.

4) To enhance visibility and brand image of the company.

Who are the Company Promoters?


The promoters of the Company are Shapoorji Pallonji and Company Private Limited and Khurshed Yazdi Daruvala.

How is the company doing in terms of Financial Performance (Reinstated-Consolidated)?


Company got demerged from parent company few years back, hence it has limited financial details.

1) Company revenues increased from Rs 3,232 Crores for the year ended Mar-17 to Rs 8,449 Crores for the year ended Mar-19.

2) Company profits increased from Rs 173 Crores for the year ended Mar-17 to Rs 638 Crores for the year ended Mar-19.

3) Its EPS for FY2019 is Rs 39.85 and last 2 years average EPS is at Rs 29.97.

Sterling and Wilson Limited - Financial Summary FY2017-2019

What is the of Sterling and Wilson Solar Credit Rating?


Credit rating is not required for issue of equity shares, hence, they have not approached any credit rating agency for credit rating.

What is the Sterling and Wilson IPO GMP now?


Currently Sterling and Wilson Solar IPO GMP data is not available.

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What is the allocation portion in this IPO?


Here is how the allocation would be done

1) QIB (Incl Anchor investors) – Atleast 75%

2) NNIs – Maximum upto 15%

3) Retail Investors – Maximum upto 10%

What are the key strengths of Sterling and Wilson Solar Limited?


Every investor should understand the company’s key strengths so that one can compare with its competitors to know how unique is such company in their business. Their investment decision would change based on these facts. Here are the key strengths of the company.

1) Largest global solar EPC solutions provider in a fast growing solar industry.

2) Comprehensive end-to-end EPC solutions provider with a global execution track record.

3) A dedicated design and engineering team focused on innovation and developing efficient and cost effective engineering solutions

4) Strong relationships with customers and other key stakeholders.

5) Strong parentage and ability to leverage global “SP” brand.

6) Strong growth and financial performance backed by an asset-light business model.

7) Experienced key management personnel, project management and operations team with experience in the global solar EPC industry.

What are the various strategies of Sterling and Wilson Solar Ltd?


Company strategies would help investors to know what company is intending to do in the future and whether these strategies would help in revenue or margin growth. Such information would help investors to decide whether to invest for short term, medium term or for the long term. Here are the company strategies.

1) Maintain market leadership through strategic expansion of overseas operations.

2) Grow their customer base and maintain relationships with other key stakeholders.

3) Focus on increasing operational and financial efficiency.

4) Focus on expanding O&M, rooftop solar EPC and solar storage solutions.

Positive Factors to invest Sterling and Wilson IPO


Investors can consider these factors to invest in this IPO.

1) Its revenues have increased by 2.6x times in the last 3 years.

2) Its profits have improved in the last 3 years, i.e. 5.4% for FY2017 Vs 7.6% for FY2019. Improved margins would always reward investors by share price appreciation and by way of dividends.

3) Largest global solar EPC solutions provider in a fast growing solar industry. Currently there is rising demand for solar power globally which helps such companies to tap the opportunities and grow.

Major risk Factors to consider before investing in Sterling and Wilson Solar Limited IPO

These risk factors can impact company revenue and margins which would affect its share price. Investors should go through and understand these risk factors before investing.

1) If solar photovoltaic 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 they anticipate, their revenues may decline and they may be unable to sustain their profitability.

2) They may work on projects for a limited number of customers in a financial period. The loss of a key customer in a financial period could significantly reduce their revenue and could have a material adverse effect on their business, future prospects, results of operations and financial condition.

3) Several of their key raw materials and components are sourced from a single or a limited group of local or global third-party suppliers giving rise to supplier concentration risks. Any restrictions in supply or defects in quality could cause delays in project construction or implementation and impair their ability to provide their services to customers at a price that is profitable to them which could have a material adverse effect on their business, financial condition and results of operations.

4) Their global business operations are subject to global and local risks related to economic, regulatory and, social and political uncertainties, any of which could have a material adverse effect on their business, financial condition and results of operations.

5) They operate in a competitive industry and as such they may not be successful in bidding for and winning bids for solar power projects to grow their business globally, which may have a material adverse effect their business, financial condition, results of operations and prospects.

6) They may be unable to accurately estimate costs under fixed-price EPC contracts, fail to maintain the quality and performance guarantees under their EPC contracts and they may experience delays in completing the construction of solar power projects, which may increase their construction costs and working capital requirements, and may have a material adverse effect on their financial condition, cash flow and results of operations.

7) They as well as their Promoters may be involved in certain legal proceedings, which may materially and adversely affect their business financial condition and results of operations.

8) They have, and may continue to have, negative cash flows from operating activities

9) One of their Promoter Selling Shareholders has encumbered their Equity Shares with a deposit accepting housing finance company. Any exercise of such encumbrance by such deposit accepting housing finance company could dilute the shareholding of such Promoter and consequently dilute the aggregate shareholding of their Promoters, which may materially and adversely affect their business and financial condition.

10) The solar power industry is heavily influenced by government regulations and policies. Any changes in such regulations and policies, including any reduction, modification, delay or elimination of economic incentives in the solar power industry may have a direct impact on their business and could have a material adverse effect on their business, prospects, financial condition and results of operations.

11) Their business operates in many locations around the world and relies on global supply chains. The occurrence of various socio-political and/or environmental events may disrupt their operations which may have a material adverse effect on their business, financial condition and results of operations.

12) For complete internal and external risk factors, you can refer the IPO RHP of the company.

Sterling and Wilson IPO Schedule


Here are the Sterling and Wilson IPO dates and schedule.

Offer Opens – 6-August-2019

Offer Closes – 8-August-2019

Finalization of Basis of Allotment – 14-August-2019

Unblocking of ABSA and Initiation of Refunds – 16-August-2019

Credit of shares to Demat Accounts – 19-August-2019

IPO Shares Listing Date – 20-August-2019

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Is the issue price of Sterling and Wilson IPO Price is over priced?


The face value of the shares issued by this company is Rs 1, however the issue price is Rs 775 to 780 per share. If we consider its consolidated EPS for last year FY2019 of Rs 39.85 on the higher price band of Rs 780 the P/E works out to be 19.5x. If we consider its consolidated EPS for last 3 years of Rs 29.97 on the higher price band of Rs 780 the P/E works out to be 26x. Means company is asking the higher price band of 780 at P/E between 19.5x to 26x. There are no listed peers to compare, hence we cannot say whether Sterling and Wilson Solar Limited share price is under priced or overpriced.

Sterling and Wilson Solar IPO - SubscribeSterling and Wilson IPO – Should you Invest?


Company revenues have grown by 2.6x in the last 3 years. Company’s margins have improved in the last 3 years. Company issue price cannot be ascertained whether it is under priced or overpriced. Considering some of these positive factors, High Risk Investors can invest in this IPO with a time frame of 3-5 years. Investors may or may not get listing gains.

Disclaimer: The information in this article is for information only. This is not a recommendation to invest in this IPO. Please consult your investment adviser before you invest in such high risk IPOs.

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Suresh

Sterling and Wilson IPO Review

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