Sterling and Wilson Solar Stock Analysis

Sterling and Wilson Solar Limited (“Sterling” or the “Company), a subsidiary of Sharpoorji Pallonji, is among the largest global solar engineering, procurement and construction (EPC) solutions provider.

The Company also provides operations and maintenance (O&M) services, including for projects constructed by third-parties. Sterling and Wilson have 205 commissioned and contracted solar power projects with an aggregate capacity of 6,870 MWp (Mar’19). The order book stood at Rs. 3,831.57 Cr. (Mar’19).

As on March 31, 2019, it has provided O&M services to 116 solar power projects in India, the Middle East and North Africa, the U.S. and Latin America and the Rest of Africa, aggregating to 5,558 MWp.

The Company operates as the world’s largest solar EPC player with a 4.6% market share and presence across 26 markets. Sterling and Wilson is the largest player with a 16.6% market share in the domestic market (30% revenue contribution). Around 70% of the Company’s revenue comes from international geographies.

Sterling & Wilson

Shares of Sterling made a tepid debut on 20th August 2019, as the scrip got listed at Rs 700, a 10.26% discount to its issue price of Rs 780.

Current Price (30th August 2019) – Rs. 610

Financials

Particulars

FY18

FY19

Revenue (In Rs. Cr.)

6,871.71

8,240.41

Growth

19.92%

EBITDA (In Rs. Cr.)

537.76

642.10

EBITDA Margin

7.83%

7.79%

EBIT (In Rs. Cr.)

534.59

634.30

EBIT Margin

7.78%

7.70%

PBT (In Rs. Cr.)

528.68

759.17

PAT (In Rs. Cr.)

452.18

638.99

PAT Margin

6.58%

7.75%

EPS (In Rs.)

28.20

39.85

EPS Growth Rate

41.3%

Historic P/E (Closing Price of 31st March)

CURRENT P/E (based on price of 30th  August – Rs. 610)

15.31

EV/EBITDA

18.74

D/E

1.02

2.70

Interest Coverage

7.59

ROCE

20.80%

ROE

92.02%

There are no listed entities in India whose business portfolio is comparable with that of its business.

Sterling and Wilson

WHAT’S DRIVING THE STOCK?

Largest Global Solar EPC Solutions Provider

According to IHS Markit, Sterling and Wilson was the largest solar EPC solutions provider in each of India, Africa and the Middle East in 2018 with 16.6%, 36.6% and 40.4% market share, respectively. Additionally, solar energy is one of the fastest-growing forms of renewable energy with an expected 20% CAGR over 2018-21. The Company’s track-record, relationships with customers and suppliers, make it well-positioned to benefit from this trend and expand operations. In FY19, the Company reported a growth of 20% in revenue and 42% in PAT.

Currently, the Company has a presence across 26 countries with operations in India, South East Asia, Middle East, and North Africa, rest of Africa, Europe, the United States, and Latin America and Australia, which has helped to diversify its business globally.

Asset-Light Business Model

The Company operates a business model, under which customers are responsible for sourcing and acquiring real estate while the Company leases equipment required for operations. The asset-light business model generally entails low capex & fixed costs and offers flexibility and scalability to meet its customers’ needs, provide customized solutions and respond quickly to market conditions

Strong Parentage And Ability To Leverage the Sharpooji Pallonji Brand – The Sharooji Pallonji Group is a global conglomerate with over 150 years of experience as an EPC solutions provider in 6 major business areas across 45 countries.

Strong Growth and Financial Performance

Customers – The Company offers a complete range of customized solutions for solar power projects. Its customers include leading strategic IPPs and developers, such as Marubeni, EDF Renewables, Alten, Sunseap, Sao Mai, Enfinity, ACWA Power and BNRG Renewables, and equity funds.

The Company often receives repeat orders from its customers. As of March 31, 2019 customers in India and outside India for which it has executed more than one project constituted 83.3% and 64.3% of its total commissioned solar capacity, respectively.

Focus On Expanding O&M, Rooftop, Solar EPC, Solar Storage – The Company plans to continue expanding its O&M operations for solar power projects that were not constructed by it. The Company intends to first expand its O&M operations in regions where it has EPC operations and enters markets that have conducive solar power policies with commissioned solar power projects. In addition, it plans to expand its rooftop solar EPC solutions and also benefit from the evolving energy storage and ancillary service technologies.

Proceeds from IPO – The promoters will utilize a portion of funds towards the full repayment of loans due to the Company and Sterling and Wilson International Solar FZCO from Sterling & Wilson Private Limited and Sterling and Wilson International FZE (a subsidiary of Sterling and Wilson Private Limited), respectively.

WHAT’S DRAGGING THE STOCK?

Solar Power Market | Nascent Stage of Development

The solar power market is still developing and the extent of acceptance of solar power as a form of energy generation remains uncertain. In many geographies in which Sterling & Wilson operates, the solar power market is at an early stage or nascent stage of development.

Revenue Concentration

In FY 2018 and FY 2019, the 10 customers in terms of revenue generated accounted for 90.26% and 71.91% of its revenue from operations, respectively. Around 70% of the Company’s revenue comes from international geographies.