Premier Energies IPO review (May apply)

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Review By Dilip Davda on August 24, 2024

•    The company is a leading player in integrated solar cell and solar module manufacturing.
•    It marked spectacular performances for the last two fiscals indicating the likely trends ahead.
•    Based on FY25 annualized super earnings, the issue appears aggressively priced. 
•    Well-informed investors may park funds for the long term. 

ABOUT COMPANY:
Premier Energies Ltd. (PEL) is primarily an integrated solar cell and solar module manufacturer with 29 years of experience in the solar industry. Its business operations include: (i) the manufacturing of solar photovoltaic ("PV") cells, in particular bifacial monocrystalline PERC cells using the M10 wafer size in a 182mm x 182mm format which may be assembled into solar modules; (ii) the manufacturing of solar modules using different module technologies such as monocrystalline PERC and TOPCon, cell sizes and quantity, power output ranges and formats such as monofacial and bifacial. It also manufactures custom made modules for specific applications; (iii) the sale of customizable and ad hoc solar-related products depending on customer requirements such as customized bespoke solar tiles;
(iv) the execution of EPC projects which include end-to-end solar services for ground-mounted, rooftop, floating, canal bank, canal top and hybrid power generation systems; (v) the provision of O&M services with respect to EPC projects executed by the Company; and (vi) independent power production through its 2 MW solar power plant in Jharkhand, India.

As of the date of this Red Herring Prospectus, it had five manufacturing facilities, all of which are situated on owned land, in Hyderabad, Telangana, India. Combined, its manufacturing facilities has an annual installed capacity of 2 GW for solar cells and 4.13 GW for solar modules as of the date of this Red Herring Prospectus. Its Unit II manufacturing facility is India's first LEED gold rated solar manufacturing facility as certified by the U.S. Green Building Council ("USGBC") v4 Building Design and Construction: New Construction and Major Renovations in August 2022.

The company has taken steps such as ordering the necessary equipment and machines to increase annual installed capacity for solar cells by commissioning a 1,000 MW TOPCon solar cell line in Unit II. It has procured financing for this additional cell line through IREDA, which has estimated project costs of Rs. 669.40 cr. The company expects the additional cell line to be ready within Fiscal 2025. With the market for solar modules expected to continue to grow in India on account of ambitious government targets and increasing demand for clean energy according to F&S, PEL intends to capitalize on this growth momentum by utilizing a portion of the proceeds from the Fresh Issue to further expand its current manufacturing capacities by commissioning an additional 4 GW TOPCon solar cell line and an additional 4 GW TOPCon solar module line.

PEL established a 75 MW capacity solar cell manufacturing line in 2011 before manufacturing solar cells at scale through the introduction of a solar cell line with an annual installed capacity of 500 MW in Fiscal 2021 and 250 MW in Fiscal 2022. The experience it gained through this process is one of the contributing factors which led to development of its bifacial monocrystalline PERC solar cell based on the M10 - 182mm x 182 mm format in 2022. On a monthly basis, it is able to manufacture up to 14 million M10 sized solar cells. 

PEL's key customers across business offerings include several IPPs, OEMs and off-grid operators such as NTPC, TATA Power Solar Systems Limited, Panasonic Life Solutions Private Limited ("Panasonic"), Continuum, Shakti Pumps, First Energy, Bluepine Energies Private Limited, Luminous, Hartek Solar Private Limited ("Hartek"), Green Infra Wind Energy Limited (a subsidiary of Sembcorp Green Infra Limited), Madhav Infra Projects Limited ("Madhav"), SolarSquare Energy Private Limited ("SolarSquare") and Axitec Energy India Private Limited ("Axitec"). As of July 31, 2024, it had an order book of Rs. 5926.57 cr. of which Rs. 1609.11 cr. was in relation to non-DCR solar modules, Rs. 2214.06 cr. was in relation to DCR solar modules, Rs. 1891.12 cr. was in relation to solar cells and Rs. 212.27 cr. was in relation to EPC projects. As of June 30, 2024, it had 1447 employees on its payroll and also hired 3278 contract labourers in various departments.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden/combo IPO of fresh equity shares issue worth Rs. 1291.40 cr. (approx. 28697778 shares at the upper cap), and an Offer for Sale (OFS) of 34200000 equity shares (worth Rs. 1539.00 cr. at the upper cap). The company has announced a price band of Rs. 427 - Rs. 450 per equity shares of Re. 1 each. The overall size of the issue will be approx. 62897778 shares worth Rs. 2830.40 cr. The issue opens for subscription on August 27, 2024, and will close on August 29, 2024. The minimum application to be made is for 33 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 13.95% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 968.60 cr. for investment in subsidiary Premier Energies Global Environment Pvt. Ltd., and the rest for general corporate purposes. 

The company has reserved equity shares worth Rs. 10 cr. for its eligible employees and offering them a discount of Rs. 22 per share. From the rest, it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The joint Book Running Lead Managers (BRLMs) to this issue are Kotak Mahindra Capital Co. Ltd., J. P. Morgan India Pvt. Ltd., and ICICI Securities Ltd., while KFin Technologies Ltd. is the registrar to the issue. 

Having issued initial equity shares at par, the company issued/based on Rs. 1 FV), between December 2014 and August 2024. It has also issued bonus shares in the ratio of 1 for 1 in March 2008, 3 for 1 in March 2018, and in the ratio of 0.268 for 1 in April 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.25, Rs. 0.32, and Rs. 19.97 per share. 

Post-IPO, its current paid-up equity capital of Rs. 42.21 cr. will stand enhanced to Rs. 45.08 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 20284.33cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit/ - (loss) of Rs. 767.03 cr. / Rs. - (14.41) cr. (FY22), Rs. 1463.21 cr. / Rs. - (13.31) cr. (FY23), and Rs. 3171.31 cr. / Rs. 231.36 cr. (FY24). For Q1 of fY25 ended on June 30, 2024, it earned a net profit of Rs. 198.16 cr. on a total income of Rs. 1668.79 cr. As of June 30, 2024, its order book stood at Rs. 5926.57 cr.

For the last three fiscals, the company has posted an average EPS of Rs. 3.27 (basic), and an average RoNW of 17.00%. The issue is priced at a P/BV of 23.24 based on its NAV of Rs. 19.36 as of June 30, 2024, and at a P/BV of 9.62 based on its post-IPO NAV of Rs. 46.78 per share (at the upper cap). 

If we attribute FY25 annualized super earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 25.60. Based on FY23 earnings, the P/E stands at 87.72. Thus the issue is aggressively priced. 

The company reported PAT margins of - (1.88) % (FY22), - (0.91) % (FY23), 7.30% (FY24), 11.87% (Q1-FY25), and RoCE margins of 3.63%, 5.94%, 25.65%, 14.26% for the referred periods, respectively. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document It has already adopted a dividend policy in February 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Websol Energy System as its listed peer. It is trading at a P/E of 497 (As of August 23, 2024). However, they are not truly comparable on an apple to apple basis.  

MERCHANT BANKER'S TRACK RECORD:
The three BRLMs associated with the offer have handled 62 pubic issues in the past three fiscals, out of which 14 issues closed below the offer price on the listing date. 

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