Order Book The Bright Spot in Sterling and Wilson Solar Q2 Results

Sterling and Wilson Solar Limited has declared its financial results for the quarter ended September 30, 2020, also the end of the first half of the financial year for the firm. The nature of the EPC business, along with the impact of the Corona pandemic on execution schedules, means, the firm is yet again forced to stick to an unconventional explanation to explain its less than stellar results so far. Thus, net profit for the quarter is down 81 percent over the corresponding  quarter last year, at Rs 15.09 crores, versus 79.41 crores in September 2019.

According to the firm’s release,

• Order inflow of 1.4 GW amounting to Rs 5,696 crores from 1^st April 2020 until 30^th September 2020. i.e. 124% of restated FY20 order booking (after exclusion of non-contracted projects)
• Strong order backlog: Unexecuted Order Value exceeds Rs 9,000 crores
• Revenue from operations for H1FY21 stood at Rs 2,405 crores driven by significant pickup in execution of projects in Q2FY21 (Versus Rs 2438 crores in the same period last year)
• PAT for H1FY21 stood at Rs 32 crores (Versus Rs 125.4 last year)
• Cash flow from Operations in H1FY21 stood at Rs 242 crores (Versus Rs 154 crores in the same period last year)
• Negative net working capital of Rs 72 crores as at 30^th September 2020

For the quarter, the firm’s EBITDA (excluding interest income) stood at Rs 26 crores and PAT stood at Rs 32 crores.  The main solar EPC business continues to dominate in the quarter, accounting for over 95 percent of revenues at RS 1278 crores out of Rs 1336 crores in the quarter. The O&M business, which has been pushed heavily by the firm in recent quarters as a way to smoothen out revenues, continues to grow,  ending  Rs 57 crores in the September quarter versus 47.5 crores in the same quarter last year, but remains a very small part of the overall business yet.

Commenting on the results, Mr. Bikesh Ogra, Director and Global CEO, Sterling and Wilson Solar Limited said,

“Execution has picked up significantly across all geographies and we have also commenced construction at the project sites which we had recently won. Our current operational efficiency is now more than 90% and are poised to reach pre-COVID levels in Q4 of FY21, subject to no lockdowns in geographies where projects are under execution.

Despite the challenges posed by the pandemic, we are very pleased to have booked a healthy order inflow till date, which is in excess to what we had recorded (as restated) in FY20.

Post entering the major solar markets of Australia and Americas a few years ago, we have today established ourselves as one of the leading solar EPC players, executing projects for some of the leading global Independent Power Producers (IPPs). Our strategy to expand our operations in these markets continues to bear fruits, as in Q2FY21 we have booked additional order inflows for adding capacity of 415 MWp worth Rs 2,063 crores.

The European market, after a hiatus of 4-5 years, is now showing promising signs for solar power sector and is expected to witness a surge in annual solar PV capacities of about 7 GW for the coming years. We have been reinforcing our management teams over the last few months and have recently set up a new office in Spain to capitalize this opportunity.

Leveraging our EPC expertise, we have a current O&M portfolio of 8 GW (16% higher as compared to Sep 2019) and are on track to add further capacities in domestic as well as international markets both for in-house EPC and third-party clients as well.”

The statement by Mr Ogra is forward looking for a very good reason. The company continues to suffer the indignity of announcing the continued inability of its promoters to return loans advanced to them by the firm. The balance of Rs 560.29 crores and Rs 607 .07 crores (net) respectively by way of inter corporate deposit with a subsidiary and loans respectively, is still outstanding, for which the firm gets a note from its auditor in its financial statement, along with the auditor’s view that extending repayment to September 2021 might require creation of some provisioning now. Despite the firm getting partial security against said loans from the promoters.

It is widely conjectured that the latest miss on the deadline was caused by the issues the promoter group has with the Tata’s, where they had a significant stake in the Tata’s holding firm, Tata Sons. There was an expectation that the group’s promoters would be able to leverage said stake in Tata Sons for raising funds to repay loans including amounts owed to Sterling and Wilson Solar, but the Tata’s have managed to get a stay on any such attempt.

For now, it remains to be seen if the capital markets buy the bright story of a strong order book, great track record of execution, and the strong expected growth in solar capacity growth, which should have made Sterling and Wilson Sola a shining success story for the sector.