The IPO of Premier Energies, an integrated solar cell and solar module manufacturer, has hit the street. The offer is a combination of fresh issue to the tune of ₹1,291 crore while existing investors are offloading ₹1,539 crore worth of shares. Post-IPO, the promoter group would hold around 66 per cent of the company down from around 72.2 per cent pre-IPO.
The company proposes to utilise around ₹969 crore of fresh funds raised, for greenfield expansion, setting up 4GW plants each for manufacturing solar cells and solar modules and the remaining for general corporate purposes.
Premier Energies is the second largest solar cell manufacturer in India, at present enjoying market share of around 16 per cent, while Adani’s Mundra Solar leads the pack with 32 per cent. While Mundra Solar, Tata Solar and Premier Energies are the only integrated solar cell and module manufacturers in the country, many other players are in the process of setting up integrated facilities which is expected to intensify competition in the medium to long term.
At the upper price band, the IPO is valued at a post issue PE of 87.7 times based on FY24 earnings. However, based on trailing 12-month earnings, PE is much lower at 50.9 times driven by significant improvement in revenue and profits in Q1 of FY2025. Hence, while significant progress has been made in the recent quarter, such significant change also makes it difficult to assess the sustainable margins for the company. The sector is dependent on government policies and subsidies to not only stimulate demand but also to protect the Indian manufacturers from the Chinese dumping. Further dependence on imports for key raw materials also can result in volatile margins. Hence, we recommend that investors wait and watch for now and assess quarterly earnings and additional information post listing and make an investment decision later.
BUSINESS
Premier Energies manufactures solar cells and modules. At present, it has five manufacturing facilities in Hyderabad, Telangana with 2GW cell and 4.13GW module manufacturing capacity. The solar cells are manufactured from silicon wafers and ingots. These solar cells go into the manufacturing of solar modules/ panels. The manufacturing technology for producing solar cells and modules evolves periodically and at present, the transition is from the existing Passivated Emitter and Rear Contact (PERC) technology to a more efficient Tunnel Oxide Passivated Contact (TOPCon) technology. HeteroJunction Technology (HJT) is also making rounds in the industry, which is touted to be superior than TOPCon, but it is yet to prove cost economics for the manufacturers.
The company is transitioning its entire existing manufacturing capacity to TOPCon technology along with the proposed capex for modules and solar cells and the same is expected to be completed by FY27. After the planned capex, Premier Energies will end up with a total capacity of 7GW and 8.13GW for cells and modules, respectively, all upgraded and commissioned for production, using TOPCon technology.
Additionally, Premier Energies is planning for backward integration into silicon wafers and ingots, though small in scale, the key raw materials for cell manufacturing. While this will help the company derisk from the China-dependent supply chain by around 10 per cent, it will materially contribute only when the scale improves.
The company has also signed a letter of intent with Heliene USA Inc., to set up a JV and manufacture solar cells in USA which will qualify for Inflation Reduction Act (IRA) benefits there. The same is yet to take shape though.
The company exports materials to USA and Hong Kong. The focus, as stated by the management, is to keep the share of export revenue at below 20 per cent, as it has been in the past, considering both the volatility in geopolitical scenarios and robust domestic demand.
Clientele includes several OEMs like Luminous and Panasonic and independent power producers (IPP) like NTPC and Tata Power Solar. Orderbook as on July 31, 2024 stood at around ₹5,927 crore, which is expected to be executed in the next 18 months.
The prospects for the industry appear interesting with the installed power generation capacity in India projected to grow at a CAGR of 8.9 per cent between FY24 and FY28, while the installed solar power generation capacity is projected to grow at a more rapid 24.7 per cent.
FINANCIALS
Solar cells and modules contributed to around 80-90 per cent of the total revenue. Q1 of FY25 was robust with revenue and EBITDA growing 171 per cent and 382 per cent, respectively. EBITDA margins too improved to 22 per cent in Q1 of FY25 while it was at 13 per cent during the same period last year. While the company had a tremendous pick-up in topline since FY22, doubling y-o-y from ₹743 crore in FY22 to ₹1,428 crore in FY23 to ₹3,144 crore in FY24, the company was PAT positive only in FY24 after nominal losses in previous two years.
The company was PAT negative in FY22 and FY23 due to delay in capacity commercialisations, technology upgradation and volatility in the cost of materials consumed.
The company’s borrowings have tripled from FY22 to ₹1,392.2 crore in FY24 and in Feb-2024, the company has availed a project loan to the tune of ₹2,225, which will be deployed for capex planned in FY25 and FY26.
OUTLOOK
Though the addressable market is huge and fragmented, players with high scale and deep pockets are expected to dominate, considering the capital-intensive nature of the industry.
Reliance Industries has announced that it is in the process of setting up an integrated 20GW module manufacturing facility by FY26 using the HJT technology which could disrupt the solar module landscape. Adani’s Mundra Solar is already backward integrated into wafers and ingots.
So, the sector might witness increased competition going forward and investors interested in the space need to track how the demand-supply dynamics shape up.