Started in 2017, Sterling and Wilson Solar Limited is a Mumbai based global end-to-end solar engineering, procurement and construction ('EPC') solutions provider, and were the world’s largest solar EPC solutions provider in 2018 based on annual installations of utility-scale photovoltaic ('PV') systems of more than five mega-watt peak ('MWp'), according to IHS Markit. Company provides EPC services primarily for utility-scale solar power projects with a focus on project design and engineering and manage all aspects of project execution from conceptualising to commissioning. Company also provides operations and maintenance ('O&M') services, including for projects constructed by third-parties. Initially, company commenced operations in 2011 as the Solar EPC Division of SWPL and demerged from SWPL with effect from April 1, 2017. Over a span of seven years, they became the largest solar EPC solutions provider in each of India, Africa and the Middle East according to IHS Markit in 2018 and currently have a presence across 26 countries. As of March 31, 2019, they had 205 commissioned and contracted solar power projects with an aggregate capacity of 6,870.12 MWp. The order book, which defined as the value of solar power projects for which they have entered into definitive EPC contracts minus the revenue already recognized from those projects, was Rs 38,315.77 million as of March 31, 2019. The customers include leading independent power producers ('IPPs'), developers and equity funds. Company follows a 'hub-and-spoke' business model where they manage the complete supply chain from India, including the design and engineering functions, and engage a few suppliers and third-party subcontractors and procure part of the raw materials for the operations locally in each of the markets, where there is a cost advantage or to comply with local regulations. In Fiscals 2018 and 2019, the revenue from operations outside India accounted for 59.11% and 69.82% of the total revenue from operations, respectively. As of March 31, 2019 customers in India and outside India for whom company has executed more than one project constituted 83.26% and 64.35% of the total commissioned solar capacity, respectively. Company benefits from the brand reputation, industry relationships and project management expertise of the Shapoorji Pallonji group (the 'SP Group') and the Sterling and Wilson group ('S&W'). The SP Group is a global conglomerate and has over 150 years of experience as an EPC solutions provider in various industries across 45 countries. S&W has over 90 years of experience in offering EPC solutions with operations across 34 countries. In particular, before entering a new market, company typically leverage from the presence of the SP Group and S&W in that market to get a head start in establishing the operations. Company operates an asset-light business model, under which the customers are responsible for sourcing and acquiring real estate while they typically lease equipment required for the operations. They are able to operate with low working capital requirements as the EPC contracts are typically of short duration. They typically require an advance payment from customers for certain deliverables and the EPC contracts include shorter payment cycles from the customers compared to longer payment cycles from the suppliers. As at May 31, 2019, Company had 1160 employees of which 946 were in India. As per financial performance, SWSL has posted total income/net profits of Rs. 2746.47 cr. / Rs. 124.64 cr. (FY16), Rs. 1650.07 cr. / Rs. 27.18 cr. (FY17), Rs. 6884.42 cr. / Rs. 452.23 cr. (FY18) and Rs. 8449.93 cr. / Rs. 643.22 cr. So company has posted consistent growth over last couple of years. Trade receivables as per consolidated account is Rs 1900.22 Cr which is around 22.49% of total FY19 revenue. SWSL has posted approx an average EPS of Rs. 36.56 and average RoNW of 80.67% for last two fiscals. Issue is priced at a P/BV of 12.23 as per consolidated NAV of 63.79 on 31.03.19. If we attribute latest earnings on fully diluted equity post issue, then asking price is at a P/E of around 19.57. As per RHP, there is no peers available in local market. With this much P/E, issue looks fully priced in current market. As per management talk, in some TV interviews related to IPO money, they will pump the OFS money to other group companies and which will use this money to pay loans received from SWSL to make this company almost debt free. So indirectly IPO money will be used to pay company debt. On BRLM's front, 8 merchant bankers associated with this issue and have handled 87 public issues in the past three years. When we take recent 10 IPOs of each BRLM then out of those 3 issues opened below their offer price and 7 opened above issue price on listing dates. As of now from last 10 IPOs, 8 are trading above issue price and remaining below issue price. As per financials, company's growth is consistent and very good, RoNW is 80.67% for two two fiscals and issue is priced at P/E of around 19.57 as per latest earnings. Company is a global Solar EPC solution provider and whole world is moving towards clean energy, so there is very huge opportunities in this market. The only concern is higher value of trade receivables. So we give 'SUBSCRIBE FOR LONG TERM' rating for this IPO.
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