An expensive power company

There is a huge untapped opportunity in the solar power space and governments across the globe are focusing on attempts to harness this potential as a part of their diversification towards greener energy.

This can be gauged from the fact that global solar power capacity has grown 47 per cent annually during 2004-08 to reach 13,424 Mw.

In India, the industry is yet to take off as policies are still being framed. The country has a solar-based power generation capacity of over 200 Mw, which the government aims to expand to almost 20,000 Mw by the end of year 2022 under the national solar mission plan.

Seeing the light
Several companies have now begun to see potential in the field. Indosolar is one such company. It forayed into the solar power business very recently in 2009. The company makes poly-crystalline solar photo-voltaic (‘SPV’) cells, which are supplied to system integrators.

These system integrators, in turn, market them in the domestic as well as such international markets as the US, Europe, Spain, Japan, Asia and Canada. Within a short span of time, the company has established itself in international markets and has built an order book of Rs 1,011 crore at present.

ISSUE DETAILS
Price band (Rs)	29-32
Crisil grading	3/5
Opened on	13-Sep
Closes on	15-Sep
Issue size (Rs cr)	357

Volume: A game changer
The company started with two SPV cell manufacturing lines with a total 160-Mw capacity. The first line of 80 Mw was commissioned in July 2009 and another 80 Mw was commissioned in March this year. As the capacities are recently commissioned, the company sold cells worth only about 27 Mw and reported a revenue of Rs 131 crore in the year 2010.

Led by lower utilisations and a higher interest cost of Rs 27.22 crore (incurred on a total debt of Rs 543 crore raised on account of capacity expansion), the company reported a net loss of Rs 66.21 crore. The next two-three years will be crucial as utilisation and volumes from existing and new capacities will increase significantly, leading to higher sales and profits.

Additionally, through the IPO’s proceeds, the company will spend about Rs 337 crore for adding another 100 Mw of new capacity, taking its total capacity to 260 Mw by the end of 2012. The new capacities are also targeted at the domestic market, which could offer a good opportunity by that time.   

Outlook
There are enough growth opportunities within the company through the expansion of new capacities, along with benefits of a growing industry demand. However, along with these opportunities, there are risks as the company has no prior experience. Also, the technology for manufacturing SPVs is still evolving.

Additionally, industry demand largely depends on government support as the employed technology is capital-intensive. Further, manufacturing of solar cells is a relatively competitive market and competition is growing all the time as several large as well as small players are expanding capacities.

The company is a non-integrated player in the value chain and depends on suppliers and integrators for demand. Besides, the IPO’s pricing is considered to be expensive since a competitor like Euro Multivision, which has a 40-Mw capacity, currently has a market cap of Rs 77 crore, or Rs 1.92 per Mw as against the expected market cap of Rs 6.50 per Mw in the case of Indosolar.