Coming as it did after the lukewarm response to the issues of Adlabs Entertainment Ltd. and Ortel Communications, the initial public offering of Inox Wind Ltd. was supposed to be a test of the market’s appetite in general. It has passed the test with flying colours, what with a subscription of 18 times.

And in doing so, it has also given a hint about how investors may be viewing the renewable energy sector. Is this enough clue for others in a sector which seems to hold so much promise and needs so much resource to follow in Inox’s footsteps?

“The lack of pure-play solar and wind companies trading on the stock market is evident looking at the Inox over-subscription,” says Raj Prabhu, CEO and Co-Founder of Mercom Capital Group, a global clean energy research and communications firm. “It also shows that there is a massive pent-up demand from investors looking for solar and wind companies to invest in.”

Prime Minister Narendra Modi’s Government has made renewable energy its top priority. It has more than doubled the capacity target to 175 gigawatt by 2022. Of this, wind will account for 60 gigawatt and solar 100 gigawatts.

Bharat Bhushan Agrawal, solar analyst with Bloomberg New Energy Finance, says, “The solar targets have been increased five folds. All major companies would want to scale up to match such ambitions and availability of sufficient capital will play a defining role.” Also, he says, “Many of them have built project portfolios and have been waiting for the right market conditions for listing. A growing stock market and Inox’s successful IPO will give them more confidence,” he points out. A good chunk of them are expected to be solar power companies.

According to a recent renewable energy sector report by IIFL Institutional Equities, private sector firms have mobilised $2.5-3 billion in past 12-18 months alone from private equity funds.

Already, Hindustan Power Projects has stated it wanted to tap the capital market for its solar power unit. The Blackstone-backed company plans to add 450 MW of solar capacity to its existing capacity of 350 MW. That would mean an investment of Rs.3,500 crore.

Ratul Puri, Chairman of Hindustan Power Projects, confirms the initial public offering plan. He says, “The Government’s focus to address the lack of interest amongst the investor community is much needed and could be the game-changer for the country. In the coming years, infrastructure/energy sector would attract more investments than all other sectors put together and, moreover, between 2018 and 2022, a very low incremental capacity would be commissioned through conventional sources.”

There have also been market talks of Welspun Renewables tapping the capital markets. Its spokesperson, however, has played it down, dismissing them as mere rumours. Vineet Mittal, Vice-Chairman, Welspun Renewables, lauds the government for allaying investor worries as also the state governments for being aggressively augmenting renewable energy capacity.

Yet, it won’t be easy. Listed pure-play renewable energy companies have done poorly in the markets. For instance, the stock of Orient Green Power has fallen 65 per cent since listing. Another firm, Suzlon Energy, at one point the poster boy of renewable energy in India, has been pulled down due to the weight of its huge debt burden, which has impacted its stock prices too. Last month, Sun Pharma founder Dilip Shanghvi picked up a 23 per cent stake in the firm, even as the firm is looking to emerge out of a debt recast plan by the end of March.

Mercom’s Prabhu warns that one IPO doesn’t constitute a trend, and it may be a little too early to say anything. He says, “Companies need to reach a certain size and scale before they can start thinking of IPOs.”

Harshvardhan Dole and Devesh Agarwal, analysts at IIFL Institutional Equities, in a note to their clients, point out that “execution challenges should not be underestimated.” Their point is: in order for the government’s aggressive targets to be met, the industry needs a 25-30 per cent annual growth rate. But, “current industry fundamentals (execution issues plus weak fiscal health of State Electricity Boards) do not support such aggressive ramp up. However, a 10-15 per cent per annum growth seems sustainable.”

The question is: will that prove to be a dampener?

sanjay.v@thehindu.co.in

(This article first appeared in The Hindu dated March 30, 2105)

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