IPO Size: Rs. 2,830 cr 

• Rs. 1,291 cr Fresh Issue for greenfield capex
• Rs. 1,539 cr is Offer For Sale (OFS) by (i) GEF Capital (21% stake to drop to 14%) (ii) promoter (72% to shrink to 66% post IPO)

Price band: Rs. 427-450 per share

M cap: Rs. 20,284 cr, implying 14% dilution

IPO Date: Tue 27^th Aug to Thu 29^th Aug 2024, Listing Tue 3^rd Sep 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Solar Cells and Modules Manufacturer

Premier Energies is a Telangana-based integrated solar energy player with an installed manufacturing capacity of 2 GW solar cells and 4 GW solar modules. But effective capacity is 1.5 GW solar cells and 2.5 GW solar modules, due to technological obsolescence. Of the current effective capacity, 1 GW module capacity was commissioned on 30.6.24, providing bright outlook for future revenue. 

India’s #2 Solar Cell Manufacturer

With 28% market share based on installed capacity, Premier Energies is one of the very few players in India having cell manufacturing capability (most peers are limited to solar module mnaufactuirng). Solar cells are the most complex piece in the solar manufacturing value chain, as it determines energy efficiency and requires heavy capex.

Huge Capacity Increase in Next 24 Months

Current effective capacity utilization is over 80% and company is undertaking massive capex and backward integration. By FY27E, installed cell capacity will rise from 2 GW at present to 7 GW while module manufacturing capacity from 4 GW to 8 GW. The split is as under:

1. A 1 GW brownfield cell facility, to be commissioned in FY25E itself, is under construction from IREDA loan.
2. Rs.3,358 cr capex for greenfield expansion of 4 GW TOPCon cell and 4 GW TOPCon module manufacturing plant is planned in Telangana. This will be funded via Rs. 969 cr fresh issue proceeds, Rs. 2,225 cr 9.5% pa term loan from IREDA, and balance internal accruals. The technology-agnostic module facility will be commissioned by March 2026 while cell facility by Sep 2026. On a 3.5x fixed asset turnover ratio, incremental revenue potential is over Rs. 11,500 cr FY27E onwards.

Besides new domestic capacity, Premier Energies is looking at backward integration for solar wafer in India and a cell manufacturing joint venture with Heliene USA to for TOPCon cells. US market module capacity is 40 GW, while cell capacity is only 6 GW. Thus, this huge gap is planned to be filled through local manufacturing.

Evolving Technology

Technology obsolescence is one of the biggest risk for the rapidly developing solar energy sector. Premier has learnt lesson well by transitioning from 385W per module polycrystalline technology to monocrystalline PERC technology and is now focusing on higher-capacity Tunnel Oxide Passivated Contact / TOPCon (25% efficiency for TOPCon cells vis-à-vis 23.5% for PERC).

Fabulous Q1FY25 Earnings

After new capacity addition stabilized (takes 1-2 years), Q1FY25 revenue rose 171% YoY and 47% QoQ to Rs. 1,657 cr with EBITDA up 383% YoY and 89% QoQ to Rs. 370 cr, translating into 22% EBITDA margin. Q1FY25 PAT stood at Rs.198 cr, up from Rs. 31 cr in Q1FY24 and Rs.104 cr in Q4FY24, resulting in a net margin of 12%. On a small equity of Rs.42 cr (FV Re 1 each), Q1FY25 EPS is Rs. 4.7.

Net debt to equity ratio, as of 30.6.24, stood at 0.6:1 (credit rating BBB+), which will rise to 1:1 by FY25E to fund capex. But capacity doubling in 24 months with strong sector tailwinds does not make the debt concerning.     

Very Attractive Valuation

Annualising Q1FY25 profit leads to FY25E EPS of about Rs. 19. This translated into a PE multiple of 23.7x on current year basis, which is very attractive. Smaller peer Websol Energy has mcap of Rs. 3,800 cr, on Q1FY25 PAT of Rs. 20 cr and debt-equity ratio of 1.7:1, entailing PE of about 40x. Even solar EPC player Waaree Renewables is ruling at a PE of 70x. Thus, room exists for valuation to expand.

Multibagger Returns in 3 Years

Climate-investing fund GEF Capital, via South Asia Growth Fund, purchased shares of the company at Rs. 20 each in Sep 2021. After 3 years, it is selling 30% of its holding at Rs. 450 per share, implying 22x return in 3 years. Such multibagger return is commendable and highlights potential of the sun-rise sector of renewable energy.

In particular, solar energy sector has massive tailwinds with it expected to become the most preferred and most economical power source globally. In India too, solar power generation capacity is likely to double from 82 GW at present to 198 GW by 2028E.