Is Sterling and Wilson Solar on a right track? (NSE: SWSOLAR)

Updated: Oct 14, 2020

Sterling and Wilson Solar is the largest EPC Solar (Engineering, Procurement & Construction) provider in the world with the highest market share of 4.6%, which is more than double of the immediate competitor. This conglomerate has a market capitalization of Rs. 4,110 crores and outstanding shares of 16 crores. The promoter group and the parent company Shapoorji Pallonji Group owns 77.22% of the stake, out of which Cyrus Pallonji Mistry owns 0.45% of the stake.

The company issued its IPO, a year back at a price of Rs. 780, after 3 months of the launch the stock price came crashing down to Rs. 285.55 due to the default of loan payment. The promoters had sought an extension for repaying the loans, blaming “significant and rapid deterioration in the credit markets". The delayed loan payment, coupled with the business disruption caused by Covid-19, has seen Sterling and Wilson Solar’s stock crash by 90% to ₹ 76.9 on 31st March 2020.

The group had a totally long term debt of ₹2,644 crores which was promised to be paid back by end of the year 2020. So far, the group has paid back ₹1,500 crores and the remaining amount is to be paid in two tranches, ₹500 crores by 30 June and rest by 30 September. The group had asked for an extension of the June payment which is delayed due to the COVID 19 crises. On the Other hand, the group was in talks with lenders to raise up to $1 billion by pledging its stake in Tata Sons Pvt. Ltd, the holding company of the Tata Group, as Shapoorji holds 18.2% stake in Tata Sons. The group has also put up other assets on sale, including its roads business and the water purifier and vacuum cleaner business Eureka Forbes.

Let's have quick look at the business side, Sterling and Wilson Solar sold a solar asset of 317 MW to KKR for ₹1554 crore. SW solar bagged a $99 million solar project order from the US market in June 2020 and ₹ 2600 Crore contract from Australia. Order inflow increased to 2.9 GW which is a 15% increase Y-o-Y. For the financial year 2020-2021, it bagged orders of 0.8 GW (₹ 2,905 crores) from 1st April 2020 until 23rd June 2020. Its O&M (Operations and Maintenance) business is also doing good, so far, it has contracted 7.8 GW as of 23rd June 2020. Gross Unexecuted order as of 23rd June 2020 is ₹14,300 Crore, which is an increase of 84% since March 2019.

Moving over to the returns, As of today, the stock has provided a return of 226% since the fall on 31st March 2020. The stock price has multiplied 3x due to the optimism of recovery and the growth of the company. The face value of the stock is ₹ 1 with a PE of 13, it has declared a dividend of 600% for the year ending March 2020.

Looking forward to the Industry's growth, the Government of India ramped up its pervious target to achieve 225GW of renewable energy capacity by 2022 and 500 GW by 2030. As of April 30, 2020, the installed renewable energy capacity stood at 87.26 GW. Indian renewable energy sector is the fourth most attractive renewable energy market in the world, ranked fourth in wind power, fifth in solar power, and fifth in renewable power installed capacity as of 2018. Around Rs 36,729.49 crore (US$ 5.26 billion) investment was made during April-December 2019 by private companies in renewable energy. The international equity investment in India’s clean energy sector was US$ 283 million in 2016, US$ 532 million in 2017, and US$ 1.02 billion in 2018.

It is expected that by 2040, around 49 percent of the total electricity will be generated by renewable energy as more efficient batteries will be used to store electricity, which will further cut the solar energy cost by 66 percent as compared to the current cost. The use of renewables in place of coal will save India Rs 54,000 crore (US$ 8.43 billion) annually. Renewable energy will account for 55 percent of the total installed power capacity by 2030. More

In Conclusion, the company has great potential to grow as the industry is supported by the government's policies and clean energy targets.

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