Sterling & Wilson Solar Ltd. - Will the Sun Keep Shining?

This was a new IPO that came in the 1st half of FY20. As all would be knowing it has gone through a rough patch from day 1. I have tried to compile the important points about the business and the events that have taken place.

  1. Company Background:

SW Solar, part of the Shapoorji Pallonji Group (SP Group) is a global pure-play, end-to-end solar engineering, procurement and construction (“EPC”) solutions provider. It is the world’s largest Solar EPC solutions provider by % of MW installed. It provides its customers which are mainly IPPs, developers & equity funds with solutions encompassing Conceptualizing to Commissioning.

  1. About the Business
    a. Largest EPC solutions provider with ~4.6% market share. It provides End-to-End EPC solutions right from Conceptualizing to Commissioning.

b. Below Picture gives the Project Life Cycle where SW Solar is involved & how.


c. Company’s operations are operations are supported by a competent and sizable design and engineering team that are responsible for designing innovative and cost-effective solutions with an aim to increase the performance ratio of solar power projects. This team operates from India giving the company a ‘Cost Advantage’.

d. The company has an ‘Asset-Light’ business model. Real Estate is to be acquired by customer. Many of the execution tasks are outsourced to sub-contractors. And considering the average time frame of a particular contract is ~8-12 months and that advances are taken from the customers, the working capital requirements are low.

e. In terms of geographical presence, the company has presence in >25 countries across the globe. The current order book of INR ~12,900 crs is broken as follows:


f. Company also undertakes O&M activities. Currently it has active contracts for 7.4 GW of which 40% is 3rd Party.

g. Solar EPC is a highly competitive & fragmented market. There are a lot of regional EPC players. But as per the DRHP in recent years there is a trend towards consolidation in the Industry.


  1. Rationale:

a. Solar Energy Industry itself is poised for a steady multi-year growth. As stated below and in many other articles & primary research on the web.

b. Cost of Solar power generation has reduced and is constantly reducing. In India its below the cost of coal based power. Similar trends are being seen worldwide too.


c. S&W Group and SP Group have a legacy that goes 100 years in the EPC business. This will help SW Solar in many ways to leverage critical Know-How, applying for Bids, etc.

d. Asset-Light Models. So in a down cycle the hit is not as much.

e. Company seems to have some specialized know-how, design capability & automation which helped them win a major project. (Pg120 of DRHP)

‘’For example we believe one of the factors that helped us win the bid for the 1,177 MWp solar power project in Abu Dhabi was our customized, innovative design solutions of placing PV solar modules in an east-west orientation instead of the standard south facing orientation, to maximize electricity generation on limited available land that we submitted as part of our bid.’’

f. Company has the resources & skills to manage & execute large (1GW+) projects as the one they did in Abu Dhabi.

g. Expanding the high margin O&M business which is currently only 3-4% of topline

  1. Inter Company Loan Payment Issue

a. Company had ~INR 2600crs of ICDs which were given to Group Companies and a back to back Loan on its books of approx. the same amount. This entry was to be knocked off with the proceeds of the IPO received by the Promoter/Promoter Entities. But, just a few days prior to the repayment date the company said that they would be unable to pay the amount. This has since caused a lot of damage to the company & its stock price. It has fallen from INR 700 levels to INR 60-70. Post this issue, the company has given a repayment schedule to receive the amount and the promoters have so far adhered to the time lines. Two more instalments are remaining. Company received INR 500 crs from the promoters in March 2020. So it seems that the intent to pay the amount is there. By September the company will be a debt free company after all these transactions have been done.

  1. Risks

a. The promoters cannot pay the balance payment of the ICDs. But I personally feel that they will pay and stand by their commitment. I get the confidence from the recent payment made in Mar 2020

b. Exposure to MENA region (Major Oil Producing Countries). Since there has been a major fall in Crude prices many MENA countries are pretty vulnerable. This can cause delays & reduction in Order inflow and also Order execution

c. Effects of Corona Virus. Due to the current Pandemic the execution of & inflow of orders has virtually come to a stand-still. This is more on a short term nature. The supply of PV cells from China has stalled.

d. What happens to Solar Power’s cost in a high inflationary environment? Will it be as competitive as other forms? (Because IPPs currently Lever up their Balance Sheet to generate a decent IRR). High inflation can come in the future years due to excessive supply of money in the world and countries running wide deficits.

  1. Conclusion

The value erosion that has occurred due to the misjudgement of the promoters is massive. Considering that they have given a commitment and are abiding by it gives comfort now. While I believe that there is absolutely no visibility in putting a guesstimate to FY21&22 numbers, even if one assumes to be a cyclical issue and that we will come out of the current Pandemic and gradually recover then PAT of ~INR 400-450 crs that it did in FY18 can come in FY24. This gives a PE of (Mcap -1500/ PAT -400) = 3.75x. I feel that such a business (High ROCE, Headroom for growth, Asset-Light, Debt-Free) should atleast command a 10x PE in a good market. Which takes the potential upside to INR 4000 crs of Mcap on a conservative estimate. That comes to a CAGR of 22%.

What I am worried about in my projection is Risk Factor d. stated above and the whole Solar theme dying down due to that. Would appreciate if seniors on this forum can help. @Donald, @hitesh2710, @ayushmit, @dd1474, @desaidhwanil.

Also, this is the 1st time I have posted a company analysis on the forum. So please let me know if I have missed out. Thank You

Disclosure: Tracking Position @ 138.

Source: DRHP, Company Presentation & ConCall Transcripts.


I’ve traded a bit in this stock and quite familiar with the solar sector. For me, there are just too many moving parts.

  1. Promoter has proven to be low on integrity.
  2. SP Group’s real estate business is a mess (which causes the inter group lending fiasco in the first place). Who knows what other related party transactions will continue to happen to support the group
  3. Hard to value - I won’t give a multiple to an EPC business as there are no predictable revenues. Management themselves say don’t look at our quarterly numbers…
  4. The numbers look definitely juiced up for the IPO… would caution against anchoring on such high numbers to gauge potential of the business
  5. Downstream the solar IPPs are struggling too with lack of funding and receivable issues. Some of the larger players are doing EPC in-house to make their IRRs work. Projects are hardly attracting bidders these days.
  6. Obviously severely impacted due to Covid. First they didn’t get panels when China was locked down and now panels are shipping but project execution can’t happen globally. At least in India most projects commission in March quarter so delay will lead to contract renegotiations / force majeure events which will be very messy.

EPC businesses have not been wealth creators so would avoid taking any long term view on SW Solar.


@enelay thank you very much for the reply and insights.

My Observations:

  1. I would call what has happened as total mis-judgement rather than low integrity on part of the promoter. If they would have not adhered to their stated repayment schedule then i would totally agree that there is promoter integrity issue.

  2. Yes. Currently all real estate players are in a soup. But as far as SW Solar is concerned, the Management has clarified that the Companies Articles of Association has been amended. This Prohibits the company from giving any loan to Promoter/Affiliates

  3. My back of the envelop calculation was on a yearly number and not a quarterly number. Please guide on how one should value an EPC business in general then.

  4. Can you substantiate this? Any instances in the DRHP that make you feel to say this? As far as I know there is a legit order book and its execution is done. Can the order book be Juiced up? Considering the work is done for big IPPs.

  5. Is this is case with international IPPs too? I am aware about the Indian IPPs and the way in which SECI bids are not getting filled. But India has other issues. Is the same happening to IPPs in MENA, Australia & USA. The order book that these guys have does not show the stress atleast in those markets.

  6. Yes, I agree, the short term is pretty uncertain. Force Majeure events are gonna happen or for a matter of fact would already have started.

  7. Yes, I agree. And a great point. I was wanting to study the peers. And when I see the historical performance of these. They have been performing very badly. Even the Chinese players.





Thanks once again. Would appreciate your feedback and guidance.



Some observations :

USD 99 million is IT"S largest project not the LARGEST solar Project in US as filed by the company . Both is different … when I search for abn in Australia business registry it gave me ABN ( Australia Business number effective from 1 Apr 2019 and company is saying 6 % revenue from Australia from DEC 2019 to 31-Mar-2020 … why dec : news appear that they had secured the project ( reference : Sterling & Wilson begins construction of 200 MW solar project in NSW – pv magazine Australia) which will be completed by dec 2020 … Mangment has not given any guidance regarding that …
In the news reporter says it is working since 2017 in Australia so why they have taken ABN in 2019 only … I Don’T know the reason but it is not cleared …

see : Historical details for ABN 35 632 960 680 | ABN Lookup

when one google the office location of SWSL Australia I found that it office in small market

Promotors have difficulty in paying the debt back to company Sterling and Wilson Solar promoters struggle to repay Rs 500 crore debt due to fundraising troubles - BusinessToday

This is not any recommendation to buy Sale or hold . I am not any sebi approved analyst

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Couple of Points:

(1) Regarding the order in USA i think the press release was very clear that it was “the company’s” largest order in US. I’m not sure where they said it was the largest project in the US.

(2) Regarding the delay in repayment of the promoter’s loan- I agree this fiasco should have been totally avoided and has caused a lot of damage to the group reputation. But more than a Corporate Governance Issue i believe it was a case of misunderstanding resulting in massive deterioration of share value. That said I believe that they will make good their promise to repay the outstanding by September 2020. I attended the Con Call and Mr. Daruvala was very upfront and seemed pretty confident that it was a matter of getting a paperwork in place for a larger financing deal. He mentioned 4-6 weeks delay at max so will be watching closely.

Regarding the Office location in Australia I would imagine that it would been low key as majority of the work is done at project sites and lot of engineering/design work is being done in India.

Not sure of the ABN details but there should be a reasonable explanation- just guessing but a lot of EPC companies initially operate with branch offices when executing small value projects and then convert to more permanent entities once the project volumes pick up.

Disclosure: Invested with a short term view of 3 to 5 months.


Sterling & Wilson Solar seems to me a classic case of the kind of an investment scenario that Mohnish Pabrai talks about - high uncertainty but low risk. Such scenarios present opportunities for rapid capital appreciation. There is uncertainty which has brought the price down, but when you look at it closely, there is no real risk.

Lets look at the loan repayment situation rationally. I believe that the SP group will repay the loan sooner rather than later. Let’s be honest, they are a proud multi-billion dollar group that has been around for almost a century, and they are pretty worried about the damage to their reputation that this issue is causing. They are in some short term cash flow stress and that has caused all this confusion. SP stands to gain nothing by wilfully delaying the loan repayment, and so the theories around poor corporate governance seem pretty stretched to me.

On the other hand, when the repayments are made, then you have a debt free company that is among the best in the world in what they do in an industry that is booming, trading at a PE of 10. Seems like a no brainer to me.

Diclosure: Invested with 10% of PF and adding more over the next few days to take it to 20% of PF

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There was a repayment supposed to happen on June 30. Not sure if that happened. Also, do we know what is the current amount loan amount pending from Shapoorji Pallonji?

See this confirmation…

They didn’t pay the amount.


Interesting news. If they manage this soon, a swift re-rating is on the cards given the extremely low float

Renewable energy stocks were always painful for shareholders

As solar power getting cheaper profitability of all firms under huge pressure

Despite being a great management from Shapoorji group, bad business never create great wealth

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They are diversified players and into EPC also…Great company…Rerating in the card

Sterling Wilson is pure play EPC company. They take contract and get paid for the work they do, which in this case of executing solar power project. So they do not (but their customers do) carry any risks like tariff revisions or lower auction prices or cancellations of contracts by state discoms etc. Adaani Green, Renew Power, Waree, Vikram Solar etc would be their customers and not competitors.

Currently it is under the weather as promoter loan repayment issue is muddying the water and take away entire focus from their core business. Once that gets resolved in next 6-9 months time, there can be serious re-rating as they are one of the few large Solar EPC player in the country with proven project execution capability around the world.


Why does this company not appear in

Not sure why. Try it during market time… I purchased in my ICICI direct account last week so its traded and available on their website, maybe some website issue for this stock right now.

I was going through the anual report and I found a couple of very interesting paragraphs on which I’d love to get the opinions of all of you:

  1. Engineering and execution
    Ours is a differentiated business model with high entry barriers, where our capabilities in innovation and technology serve as key differentiators. At the same time, our highly optimised design, execution and installation skills keep us ahead of the curve, as do our years of experience in the industry. A cost efficient base in India, coupled with a meticulous procurement policy, enhances our margins as well as the potential to deliver solutions at the most competitive rates.

  2. Bankable EPC
    The global model of non-recourse financing for renewable projects creates a very strong entry barrier for competition. Since most of the money invested in a renewable project is from the lender, they ensure that the EPC contractor has a strong balance sheet and execution track record. Over the years, our Company has built both these strengths and has become one of the most bankable EPCs globally.

These paragraphs are an attempt by the company to articulate the moat of the business. This is interesting because as far as I was concerned, the Solar EPC business seemed to be one which definitely has rapid growth levers, but was also one in which new entrants can always come in and disrupt existing players on price, especially as the size of the pie increases in the next few years. SWSL seems to be saying that there are inherent barriers to entry for new players, and that they have some level of margin control as well. Would apreciate what others think.

Disclosure: Invested

I spotted these paragraphs in the Annual Report as well and to be frank I feel that the company calling these high entry barriers is a bit of a stretch, At best I feel these factors give them somewhat of a specialization advantage as compared to say a regular EPC player in say road/real estate construction. But if competition did decide to enter these would most definitely not stop them. During the last couple of concalls they were on record saying they were not focusing too much on the Middle East (where they did some really major projects) due to the entry of Chinese competition.

That said my feeling is that the next couple of years should see them bag a plethora of orders purely on account of the interest in solar projects all across the world. Most Governments are using renewable energy as a focus area to revive economic growth so that should see them grow.

Long term i have my doubts but in the short to medium term this should be a real cash generator. Too bad that they have messed up on the promoter debt repayment totally. And the minority investors have been needlessly dragged into the Tata Mistry fight.

A little bit of proactive communication from the management would have done a world of good.
Will have to see their communication in the upcoming result con call.


I know someone from a very high position in the company. For obvious reasons won’t disclose the position. But according to what I’ve heard from his side is that there are alot of corporate governance issues in the company and hence his future stay is being decided on these factors. Of course, I haven’t gone into details of asking about the company & the buisness since I am not looking into this company specifically. But if someone wants information with regards to details that would not disrupt the non disclosure thing you can let me know so I can try to get answers for the same.


OK results. Income down by 30% and PAT down by 63%. Consol level declared loss due to losses on hedging instruments.

But importantly promoter repayment got extended to Sept 2021 with increase of 400 bps on average borrowing rate and total asset security of 1200 Cr matching outstanding loans.
Not too happy with the extension but additional interest and security provides some relief. But till the loan gets paid off, stock would remain under pressure due to lurking concerns of corporate governance due to continuous deferral in loan repayments and related lack of transparency.
S&W Update-on-Promoters-repayment-and-security-creation_200915.pdf (410.6 KB)

@Marathondreams I actually think this may work out well for the company. Now that the security has come, there should be no default risk (not that there was any to begin with, SP is a multi-billion dollar group, but still this offers comfort). Plus the 400 bps increase is about 50 cr as additional income. The company has been maintaining good cash conversion cycles anyway so the outstanding loan makes no material diference to the performance. So essentially the company gets risk free 50 cr