Sahaj Solar NSE SME IPO review (May apply)

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Review By Dilip Davda on July 6, 2024

•    The company is engaged in the manufacturing of PV modules, solar water pumping systems and EPC services related to renewable energy.
•    The company reported growth in its top and bottom lines for the reported periods.
•    The sudden boost in top and bottom lines for FY23 and FY24 raise eyebrows and concern over its sustainability as the segment is getting over crowded.
•    Based on FY24 super earnings, the issue appears fully priced.
•    Well-informed/cash surplus investors may park moderate fund for the long term. 

ABOUT COMPANY:
Sahaj Solar Ltd. (SSL) is a renewable energy solution provider engaged majorly into three businesses being manufacturing of PV modules, providing solar water pumping systems and providing EPC services to PAN India customers. The company is a Solar Solutions providing company having experience of almost one decade in majority of the verticals of renewable power generation. It is a manufacturing as well as a service provider company which gives it an edge in the solar power market. 

First being PV Module manufacturing, for which company has a PV module manufacturing plant having a capacity of 100 MWs at its plant in Bavla, Ahmedabad, Gujarat, India enabling the company to deliver quality and affordable solar panels to its customers. The Company's automated production facility offers mono & poly crystalline PV Modules for various solar projects across India and abroad. The plant is an integrated manufacturing facility for PV modules. Apart from polycrystalline module, the facility manufactures Mono PERC (Passivated Emitter and Rear Contact) module, with not less than 21% and higher efficiency also. To enhance efficiency and brand positioning, it uses Crystalline Photovoltaic Technology for manufacturing Solar PV Modules. Its plant has the capacity to manufacture customized size PV modules. The Company has built a reputation for solar PV modules and is sold under the brand name of 'SAHAJ'. It strives to deliver reliable solar solutions through products and achieve this majorly through its streamlined PV module manufacturing line and comprehensive EPC solutions.

Secondly, the company is engaged in providing solar water pumping systems. A solar water pump is an application of Solar PV System which one of our subsidiary company). These components comprise of more than 70% of the total
system cost. 

The balance components of the solar water pumping system are being outsourced. As a
part of the Central Government's initiative to increase farmers' income, the Ministry of New and Renewable Energy (MNRE) has launched the Pradhan Mantri Kisan Urja Suraksha evem Utthan Mahabhiyan (PM KUSUM) Scheme for farmers for installation of solar pumps and grid connected solar and other renewable power plants in the country. Through this scheme, more than 20 lakh farmers (MNRE PM KUSUM scheme) will benefit with standalone solar water pumping system which will enable them to produce crops in multiple seasons and thereby increase their incomes. The standalone solar water pump has provided the farmers with the opportunity to work independent of grid power. The company also designs and customizes solar mobile trolleys for the usage in rural and remote areas as and when required to produce electricity for solar water pumping, for off grid power and to run other utilities by producing electricity on the move. 

Thirdly, the Company being an integrated solar energy solutions provider, also offers engineering, procurement, and construction ("EPC") services to customers. Its EPC services include design, supply, installation, testing, commissioning and maintaining of all sizes of projects ranging from simple domestic solar installation to setting up a large scale Solar Power Plant.

Its debtor days of 161 raises concern as its trade receivables were Rs. 88.56 cr. as of March 31, 2024. Its contingent liability of Rs. 15.80 cr. for performance guarantee also raise concerns. As of March 31, 2024, it had 62 employees on its payroll. It also employs contract labourers as and when required. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 2920000 equity shares of Rs. 10 each to mobilize Rs. 52.56 cr. at the upper cap. It has announced a price band of Rs. 171 - Rs. 180 per share. The issue opens for subscription on July 11, 2024, and will close on July 15, 2024. The minimum application to be made is for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.58% of the post-IPO paid-up capital of the company. From the net proceeds of the issue, it will utilize Rs. 39.42 cr. for working capital, and the rest for general corporate purposes. 

The company has reserved 24000 equity shares for its eligible employees and offering them a discount of Rs. 15 per share. From the rest, it has reserved 146400 shares for Market Maker, not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The issue is solely lead managed by Kunvarji Finstock Pvt. Ltd., and KFin Technologies Ltd. is the registrar to the issue. Aftertrade Broking Pvt.  Ltd. is the market maker for the company. The issue is underwritten to the tune of 15% by Kunvarji Finstock, and 85% by Aftertrade Broking Pvt. Ltd. (erstwhile known as RCSPL Share Broking Pvt. Ltd. 

Having issued initial equity shares at par value, the company issued/converted further equity shares in the price range of Rs. 37.00 - Rs. 167.00 between February 2018 and January 2024. It has also issued bonus shares in the ratio of 4 for 5 in March 2018, and 1 for 2 in January 2023. The average cost of acquisition of shares by the promoters is Rs. 0.01, Rs. 5.96 and Rs. 19.68 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 8.07 cr.will stand enhanced to Rs. 10.99 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 197.75 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 62.19 cr. / Rs. 0.71 cr. (FY21), Rs. 67.29 cr. / Rs. 1.03 cr. (FY22), Rs. 185.81 cr. / Rs. 6.48 cr. (FY23), and Rs. 201.72 cr. / Rs. 13.37 cr. (FY24). 

For the last three fiscals, it has reported an average EPS of Rs. 11.27, and an average RoNW of 34.61%. The issue is priced at a P/BV of 4.41 based on its NAV of Rs. 40.83 as of March 31, 2024, and at a P/BV of 2.31 based on its post-IPO NAV of Rs. 77.82 per share (at the upper cap). 

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 14.79, and on the basis of FY23 earnings, its P/E stands at 30.51. Thus the issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 0.96% (FY21), 1.52% (FY22), 3.42% (FY23), 6.52% (FY24), and RoCE margins of 8.62%, 11.37%, 35.11%, 26.47% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Shakti Pumps, Zodiac Energy, and Solex Energy, as their listed peers. They are trading at a P/E of 63.8, 103 and 133 (as of July 05, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 2nd mandate from Kunvarji Finstock in the ongoing fiscal.  The only listing took place opened at a discount of - 8.70% on the date of listing. 

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