Short term or listing gains may be there
Indosolar Limited is tapping the capital markets with its public issue to raise Rs 357 crs, in a price band of Rs 29-32. The issue opens on Monday the 13th of September and closes on Wednesday the 15th of September. Indo Solar is a manufacturer of poly-crystalline solar photo-voltaic cells and is currently having an operating capacity of 160 MW per annum.
| Price Band | Rs 29 – Rs 32 |
| Issue size in Rs | Rs 357 crs |
| Offer size in shares | 12,31,03,448 shares at Rs 29 to 11,15,62,500 shares at Rs 32 |
| QIB’s | 6,15,51,724 shares at Rs 29 to 5,57,81,250 shares at Rs 32 |
| Non Institutional Investors | 1,84,65,517 shares at Rs 29 to 1,67,34,375 shares at Rs 32 |
| Retail Investors | 4,30,86,207 shares at Rs 29 to 3,90,46,875 shares at Rs 32 |
| Marketcap post issue | Rs 961.36 crs to 1023.88 crs |
| Book Running Lead Manager | Enam Securities Private Limited |
| Isssue Opening Date | Monday 13th September |
| Isssue closing date | Wednesday 15th September |
| IPO Grade | 3/5 by CRISIL indicating average fundamentals |
| Bidding Lot | 200 shares |
History
The company is promoted by the people who set up Phoenix Lamps, the manufacturers of halogen lamps. Indosolar commenced commercial production of its first line of 80 MW in July 2009. The second line commenced commercial production in March 2010. The lines have been imported from M/s Schmid Technology Systems GMBH Germany and the same people have supplied the machines to Moser Baer. The company has a state of the art plant in Noida and has the experience of manufacturing technological products, even though the experience of solar photo-voltaic cells is fairly limited.
Business
Indosolar as the name suggests is in the solar energy space. It is in the business of manufacturing poly crystalline solar photo-voltaic cells (SPV) from silicon wafers utilizing crystalline silicon SPV cell technology for converting sunlight directly into electricity through a process known as “photo voltaic effect”. The company supplies and markets its products on business to business (B2B) platform, and these persons in turn supply SPV panels to system integrators.
Indosolar has customers across the world particularly in Europe Japan and the United States. The company currently has two fully automated horizontal in-line state of the art technologies for manufacture of SPV. The company has been able to achieve efficiency of upto 16.15% and is in the process of installing ‘selective emitter’ which will help to produce improved SPV cells where the efficiency would reach an average of 17.2%.
The raw material for making the SPV is a silicon wafer which is sold per piece. The standard size of these wafers is 156cm x 156 cm or 6 inches x 6 inches, while the finished product SPV is sold in terms of watts. The higher yield or efficiency automatically means higher realization.
Indosolar is one of the few companies selected by the Government of India for grant of financial incentives under the “Special incentive package scheme” of 2007. The company has applied for formal approval in March 2010 under which the company would get a 25% subsidy on the total investment made by it once it crosses the Rs 1000 cr mark. The same would be achieved once the 3rd line is set up and the SPV capacity is increased to 260 MW. This would effectively mean that the capital cost per MW of capacity which is currently Rs 3.4 – 3.5 crs would reduce by Rs 1 cr per MW and become Rs 2.4 – Rs 2.5 cr per MW giving a big push to the profitability of the company.
The current concern and importance to renewable energy makes this a great business opportunity. The current demand and projected demand globally and in India make this a business which has huge potential and scale and size would be important going forward.
Currently the company believes it would focus on SPV and its expansion in terms of capacity and is not looking at backward or forward integration.
Objects of the issue
The objects of the issue are as follows
| Setting up of line 3 | Rs 337.43 crs |
| General corporate purposes |
It is expected that line 3 would begin trial production by August 2011 and commercial production by October 2011.
Financials
The company commenced commercial production in July 2009 and had net sales of Rs 112.52 crs in the year ended March 2010. There was other income of Rs 18.96 crs as well. There was a net loss of Rs 66.20 crs incurred in the year.
The company has an order book of 170 MW and a rupee value of Rs 1011 crs, which effectively means that they are fully booked for the current year. The moot question is whether they would make enough money to make the issue price attractive enough for investors.
Competition
The competitors in this business include Moser Baer, Webel SL Energy Systems, and Euro Multivision and in the unlisted space Tata BP Solar. As of date financials are just about positive for Webel. This business is dependent on direct or indirect subsidy and this is a big negative for the share
The business is a future growth business but it has a gestation period. The ebitda margins seem to be too good to be sustainable, and it is only a matter of time before competition and matching demand supply drives margins to more sustainable levels.
Conclusion
There is no medium term trigger for the company and though the future is bright it could be more than a year away. The only upside in the immediate short term looks like listing gains but with the issue just about subscribed and under three hours for closure of issue it may or may not happen. The premium could be 10% but I am unsure of whether it is really worth it.
There are about a dozen issues to choose from in these 10 days. Unless a pure speculative play in the next three hours this issue can be given a miss.
Sebi Disclaimer: – I do not intend to subscribe to the issue
