IPO Time For India Solar Equipment Manufacturers In 2021

Will Solar bring Profits For All?

After a long wait, initial reports are finally coming out regarding plans by major Indian solar equipment manufacturers planning Initial Public Offers. We refer to a long wait simply  because the markets have been buoyant for a while now, and have duly been followed by an IPO wave the likes of which has rarely been seen before. We have written earlier about how a key area of difference is the access for foreign counterparts to public markets, even as Indian manufacturers have fallen behind. In fact, pure play manufacturing, or manufacturing led solar firms are completely missing, as firms like Adani Green Energy, Sterling and Wilson Solar are more developer/EPC category.

A major reason for the move to consider tapping public markets might also be the impending entry of Reliance Industries with its solar manufacturing setup, expected to start entering in phases from 2023 onwards. We covered this issue earlier. Access to capital markets might just support a speeding up of expansion and marketing plans before Reliance starts making a significant impact.

With massive loss making digital firms like Zomato (successfully listed), Paytm (next in line) and more lining up on the basis of growth promises, firms across sectors like chemicals, metals and more have rushed to market. It was only a matter of time before solar manufacturing majors would also make their move. A report published in business paper Mint  indicates that Vikram Solar and Waaree Energies might be the first two to make their move now.

For Waaree, it may be a different route, as it already has an EPC focused subsidiary, Waaree Renewable Technologies Limited (Formerly Sangam Renewables Limited) listed. For the record, Waaree Energies Limited had closed 2019-20 with a turnover of 1995 crores, and profit after tax of 57 crores.

For the Rs 1651 crore turnover (2019-20) Vikram Solar, as the contours of a broad growth strategy finally fall into place, and 15 years after it started its solar journey, the time seems right for the move too. The firm is currently the largest manufacturer of modules (2.5 GW) in India, after the inauguration of its 1.3 GW facility in Tamil Nadu last month.

Both these firms have a large enough balance sheet, with large turnovers , and are profitable. With the massive projections in place for solar capacity growth, and the buffer of a high duty structure to protect from Chinese imports starting April 2022, this is probably the best time to go public, if you are a solar manufacturer in India. Interestingly, both seem to have plans in the pipeline for a while now, as the existence of an investors section on their corporate websites denotes. Both have done well enough to create thriving export markets for their output, building a reputation for quality too.

The sector has possibly struggled to make it big in the public markets due to its high dependence  on government policy for protection against imports. Or most of the capacity growth. Or the fact that government enterprises continue to play a key role in the broader energy and solar sector. A stronger rooftop solar market, where private sector enterprise and marketing can truly come into its own, would have helped, but that is the one segment that has underperformed relatively, as far as solar growth goes in the past 5 years.

Besides India’s ambitious targets and commitments for the next decade, which entail solar capacity additions of almost 25 GW per annum, a major manufacturing expansion is underway, powered expectedly by government incentives and tariff protection. Quality manufacturers need to grab this opportunity, as the downside risk of protection, poor accountability for quality and performance is too high to be left to a large, opaque private manufacturers market.

The big question now is, what kind of valuations can these solar firms command, considering the risks that remain, especially the continued dependence on imports for key inputs, from wafers to even cells. This is a risk that none other than Waaree Groups Chairman and Managing Director, Dr. Hitesh Doshi highlighted in his column on SaurEnergy recently. Dr Doshi must have seen some significant improvements, if he is finally considering an IPO.