Sun shines on Premier Energies; govt’s renewables push can make it brighter

ET Intelligence Group: Premier Energies, a manufacturer of solar cells and modules, aims to raise ₹2,830 crore through an initial public offering (IPO) that is set to open on August 27. Of this, ₹1,291 crore will be generated from a fresh issue of shares, which will be used for capacity expansion. The remaining will come from an offer for sale by the promoter and private equity investors.

After the proposed IPO, the promoter’s stake in the Hyderabad-based company will decrease to 66% from 72%. The company’s earnings are expected to benefit from the government’s push to increase the share of renewable energy in the installed energy capacity, which is projected to reach 500 GW by 2030 from 172 GW now. A significant contribution is anticipated from solar power. India’s installed solar capacity has grown nearly fourfold in the last six years and is expected to reach nearly 200 GW by FY28.

Premier Energies generates revenue from both domestic and international markets and is set to expand its capacity for cells and modules over the next two years, potentially increasing its annual revenue to ₹20,000 crore, based on current realisation. Long-term investors who can withstand cyclical downturns may find this IPO attractive.

Business Model: Premier Energies, founded about 29 years ago, is the second-largest solar cell manufacturer and the fourth-largest solar module manufacturer in India. The company has a total installed capacity of 2 GW for solar cells and 4 GW for solar modules. It is undertaking a capacity expansion project that will increase its solar cell capacity to 7 GW and its solar module capacity to 8 GW by the end of 2026.

The company plans to invest ₹3,358 crore for this expansion, with approximately ₹1,000 crore funded by the IPO proceeds, ₹2,200 crore from debt, and the remaining from internal accruals.

Financials: Between FY22 and FY24, Premier’s revenue increased by 105% annually to touch ₹3,143 crore at the end of FY24, while Ebitda grew by 206% to ₹505 crore, achieving an Ebitda margin of 16.07%.

The company reported a net profit of ₹231 crore in FY24, recovering from losses of ₹13 crore and ₹14 crore in the previous two fiscal years. Revenue growth was limited in FY22 and FY23 due to delays in plant commissioning caused by the unavailability of engineers from China. Installation growth began to accelerate towards the end of the previous calendar year.

For the first quarter of FY25, revenue stood at ₹1,657 crore with net profit at ₹198 crore, nearly matching the previous full year’s profit. The current order book totals ₹5,929 crore, including ₹1,609 crore for non-DCR (domestic content requirement) solar modules, ₹2,214 crore for DCR solar modules, ₹1,891 crore for solar cells, and ₹212 crore for EPC projects.

Risk: China’s dominant market share in polysilicon and ingots, which are raw materials for solar cells, can lead to volatile pricing. Polysilicon prices have dropped by 30-40% over the last six months and are currently at multi-year lows. Imported materials from China account for 48.47% of the company’s total purchases, so any fluctuations in polysilicon prices could impact the company’s profitability.

Valuation: At the upper end of the price band, the company is seeking a valuation of 25 times the annualised profit for the first quarter of FY25. In comparison, its peer Websol Energy is trading at 44 times its annualised profit.