Premier Energies

Integrated solar PV module manufacturer

Strong capacity to aid in gaining market share due to emphasis on domestically produced products

Premier Energies (PEL), promoted by Surender Pal Saluja and Chiranjeev Singh Saluja, is an integrated manufacturer of solar PV cells and solar modules, including custom-made modules for specific applications. EPC projects comprise end-to-end solar services for ground-mounted, rooftop, floating, canal bank, canal top and hybrid power generation systems as well as O&M services for projects executed. Further,the company makes customized products such as bespoke solar tiles. It is an independent power producer, generating 2MW solar power from its plant in Jharkhand.

Bifacial monocrystalline PERC cells, using the M10 wafer size in a 182mm x 182mm format,are assembled into solar modules. The solar modules are manufactured using different module technologies such as monocrystalline PERC and TOPCon, cell sizes and quantity, power output ranges and formats such as monofacial and bifacial.

The aggregate annual installed capacity for solar cells stood at 2 GW and solar modules 4.13 GW, spread across five manufacturing facilities in Hyderabad, as of August 2024. Of the total annual installed capacity, about 1.25 GW of solar cell and 1.6 GW of solar module manufacturing is housed in PEL, a 74% subsidiary. The balance is with two other 100% subsidiaries. Further, all the solar module production lines are automated,reducing the incidence of human error and possible degradation in the quality of the modules.

Additionally,the annual installed capacity for solar cells is being enhanced by adding one more line of 1000 MW of TOPCon solar cells in Unit II at an estimated project cost of Rs 669.4 crore. Necessary equipment and machines have been ordered. Funds have been secured funds from IREDA. The new cell line is expected to be ready in FY2025.

The annual installed capacity for solar cells and solar modulesis to be increased to 4GW of TOPConsolar cells and 4GW of TOPCon solar models,at an estimated cost of Rs 3358.329 crore. Part of the project cost will be funded through proceeds from the fresh issue portion of this IPO.

Manufacturing operations discharge zero liquid waste, with a system to recycle 100% of water used in the manufacturing process. In the zero-discharge system, 91% of water is recovered for reuse and 9% is lost through evaporation. Solar panels of 6.61 MW have been installed on the roofs of the manufacturing facilities. They provided 10% of the power consumption requirements of the manufacturing facilities as of June 30, 2024.

The EPC solutions and O&M services are offered by Premier Solar Powertech, a 100% subsidiary. The 2 MW solar power generation capacity is with PEL.

Some of key customers for the product and service offerings include several IPPs, OEMs and off-grid operators such as NTPC, TATA Power Solar Systems, Panasonic Life Solutions Pvt Ltd (Panasonic), Continuum, Shakti Pumps, First Energy, Bluepine Energies Pvt Ltd, Luminous, Hartek Solar Pvt Ltd (Hartek), Green Infra Wind Energy(a subsidiary of Sembcorp Green Infra), Madhav Infra Projects (Madhav), SolarSquare Energy Pvt Ltd (SolarSquare), and Axitec Energy India (Axitec).

PEL is the largest Indian exporter of solar cells to the United States, one of the largest markets for solar modules globally, with a market share of 100% in FY 2024. A total of 312.22 MW solar cells were exported in FY2024.About 13.99% [USA 8.77%, Hong Kong 4.68%, others 0.53%] of the revenue came from exports, with balance 86.01% from domestic market in FY 2024. About 0.10% of the revenue came from exports and 99.90% from domestic market in Q1 FY 2025.

Within the solar module production value chain, the solar cell production is a complex and technical process as it requires multiple chemical and gas-based steps and encompasses intricate procedures such as texturing, diffusion, selective emitter laser, polishing and oxidation annealing to convert raw silicon wafers into solar cells. Moreover, solar cell manufacturing involves high capital expenditure, technical know-how and long lead times in set-up and process stabilization. The solar cell manufacturing capacity increased by just 7.1 GW to 8.1 GW between FY2020-FY2024 as against solar module’s capacity expansion from 64.4 GW to 72 GW in FY2024. Thus,the experience in the cell manufacturing process will allow bypassing the initial stabilization lead times for new lines, offering a competitive advantage over newer market participants.

Sale of manufactured goods accounted for 86.80% [solar cells 22.48% and solar modules 64.32%], traded goods 8.21% [solar modules 5.65%, solar cells 2.02% and solar accessories 0.54%], income from contracts 4.73%, and other operating revenue 0.14% in FY 2024.

The order book as on July 31, 2024, stood at Rs 5926.565 crore, comprising non-DCR solar modules Rs 1609.114 crore, DCR solar modules Rs 2214.060 crore, solar cells Rs 1891.118 crore, and EPC projectsRs 212.272 crore. Moreover, the order book as of Jul 31, 2024, consisted of PSU and government entities accounting for 25.13% and private entities the balance 74.87%. Of the order book, Rs 2214.06 crore was for DCR (domestic content requirement) solar modules, Rs 1609.114 crore for non DCR solar modules, Rs 1891.118 crore for solar cells, and Rs 212.272 crore for EPC projects.

The DCR policy implemented by the Indian government mandates a specific percentage of components including cells and modules used in solar power projects, particularly those funded by the government, to be sourced from domestic manufacturers.

The Issue

The IPO comprises offer for sale (OFS) of 34200000 equity shares and fresh issue of equity shares, aggregating to Rs 1291.4 crore. Of the OFS, sales by the promoter shareholders constitute 7200000 equity shares [all by Chiranjeev Singh Saluja] and balance by investor selling shareholders [26827200 equity share by South Asia Growth Fund II and 172800 equity shares by South Asia EBT Trust]. Ofthe post-issue expanded equity, South Asia Growth Fund II will hold 13.59% stake and South Asia EBT Trust about 0.09%.

Object of the Issue

Of the net proceeds from the fresh issue, about Rs 968.603 crore will be used for Investment in Premier Energies Global Environment, a subsidiary, for part-financing the establishment of 4 GW Solar PV TOPConcell and 4 GW Solar PV TOPConmodule manufacturing facility in Hyderabad. The balance will be for general corporate purposes.

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Strength

Integrated solar cell and solar module manufacturer with 29 years of experience in the solar industry.

A healthy diverse order book at Rs 5926.565 crore, which is about 1.414 times of TTM sales ended Jun 2024, as of end July 2024 provides strong revenue visibility.

Has the largest solar module installed capacity in the country, with a capacity to manufacture 4.13 GW solar cells. The second largest player Mundra Solar has a solar module capacity of 4 GW.

Emphasis on adoption and use of domestically produced solar products. GoI schemes such as PM-KUSUM Scheme, the CPSU solar power project scheme and the recent Grid Connected Solar Rooftop Program emphasis utilization of DCR insolar modules.Thegrid-connected solar rooftop program exclusively requires the utilization of DCR solar modules.

Ability to adapt to new and changing technologies in solar cell manufacturing, as evidenced by the successful completed transition from polycrystalline solar cells to more efficient mono-crystalline PERC solar cells (efficiency of 23.2% to 23.7%) in 2022 and now plans transition to more efficient TOPCon cell technology (efficiency of 24.5% to 25.2%).

Caters to diversified customer segments in domestic market, accounting for 86.01% [IPP 34.83%, OEM 12.75%, Government 7.68%, others 30.75%] of revenue in FY2024.

Weakness

Significant customer concentration with about 67.03% of FY2024 revenue coming from top 10 customers and 43.41% from top 5 customers and 10.63% from the largest customer account.

Incurred negative cash flows of Rs 15.529 crore in FY 2023 and Rs 41.048 crore in the three months ended June 30, 2024, and may continue to have negative cash flows in future.

Failed to comply with certain provisions of the Foreign Exchange Management Act, 1999, and the Companies (Prospectus and Allotment of Securities) Rule, 2014, compounding the non-compliances.

Intense competition in domestic market from other Indian solar cell and module manufacturers as well as solar cell and module manufacturers from China and Southeast Asia.

Significant dependence on projects awarded by government entities and public sector undertakings. These account for about 25% of the current order book.

Change in Exim policies of exporting countries. Any unfavorable policy change may adversely affect its business.

Restrictions or import duties levied on raw materials used in manufacturing operations may adversely affect performance. The materials imported from China accounted for 48.47% of the cost in FY2024.

Availability of wafers (used in manufacture of solar cells) at fair prices is crucial. Any volatility in the prices of wafers will affect profitability.

Continued decrease in prices of renewable energy products such as solar cells and solar modules.Global solar module and cell prices have seen fluctuations, primarily due to dynamics in polysilicon pricing, overproduction and excess supply across the value chain.

Exchange rate fluctuations may adversely affect results of operations.

Valuation

Consolidated re-stated revenue stood higher by 120% to Rs 3143.79 crore in FY 2024. But with the OPM contracting 970 bps to 15.2%, OP was up by 511% to Rs 477.80 crore.Eventually, Pat after MI stood at a profit of Rs 231.36 crore as against a loss of Rs 12.80 crore in the previous year.

The strong growth in revenue and profit in FY2024, was largely due to a strategic shift in product mix by placing a greater emphasis on monocrystalline PERC solar cells, capacity expansion through establishment of more manufacturing units in the last few years and gradual stabilization and expansion of international footprints.

Revenue was Rs 4190.14 crore and net profit after MI was Rs 398.19 crore in the TTM period ended Jun 2024.

On expanded equity (at the upper price band), the EPS for FY2024 and TTM period ended June 2024 was Rs 5.1 and Rs 8.8 respectively. The P/E at the upper price band works out to 51.1 times of its TTM EPS ended Jun 2024. The company quotes at a P/BV of 10.3 times. The company quotes at EV/sales of 5 times on TTM sales ended June 2024.

Websol Energy Systems, a small player with an installed capacity of 0.55 GW of solar modules and 0.60 GW solar cell capacity, reported a loss of Rs 47.34 crore at the PBT level and a loss of Rs 120.96 crore at the Patlevel on sales of Rs 25.86 crore in FY 2024. The company quotes at EV/sales of 30.7 timeson TTM sales in FY 2024.