Premier Energies Limited has done the rounds of news in visibility recently with its IPO. The following article covers details about the company, its business segments, industry position, financial performance, and probable risks. By the time you have read through, you will have a fair idea of Premier Energies and whether or not it can prove to be a good investment.
The forthcoming IPO of Premier Energies has created quite a buzz in the market amongst new and experienced investors. In this article, we will deep-dive into the business model of the company, the value chain of solar power, the market position, growth drivers, financials, details regarding the IPO, and also possible risks from an investor point of view when investing in this company. This will help the investor make an informed decision on investing in Premier Energies post listing.
Overview of Premier Energies Limited
Premier Energies Limited was incorporated in 1995 for the manufacture of solar cells and solar modules. It is one of the well-known companies in this sphere of activity in India. To understand better the scale of their work, it is necessary to show the difference between solar cells and solar modules.
Solar Cells vs. Solar Modules
A solar cell is an individual unit that converts sunlight into electricity. A solar module is a larger assembly, a connection of a few solar cells. Sometimes, people use the term to refer to solar cells. When most people think of a solar energy system, they think of a solar panel. Premier Energies manufactures solar cells and modules and isn’t involved in producing the larger panels or arrays.
Understanding the Business Model of Premier Energies
Premier Energies was incorporated in 1995 and has accumulated experience of almost three decades in the solar energy industry. The company operates in different aspects of the solar power value chain, hence this firm is integrated into the above field. Some major operations of the firm include:
- Manufacturing of solar photovoltaic cells, more so a range of Bifacial Mono Crystalline PERC cells.
- Solar Module Manufacturing
- EPC Projects: Undertakes the execution of Engineering, Procurement, and Construction projects that offer end-to-end solar services.
- Operation and Maintenance Services: Solar Power Plants
- Power Production: The Group generates power independently through its 2 MW Solar Power Plant at Jarand.
Market Positioning
Premier Energies is one of the major players of the Indian Solar Market. As of June 2024, it remains the second largest in the manufacturing of solar cells and fourth in solar modules within the country. The company enjoys an excellent reputation with 12 years of experience in the engineering, procurement, and construction of solar energy.
In the solar cell market, Premier Energies holds 25% of the market, whose competitors are under the leadership of Mundra Solar, which commands an incredible 50% of the market. In the solar module segment, Premier Energies commands a 6% share, which is very negligible compared to the company registering the largest market share, that is Wari Energies at 17%. This share is likely to shift upward due to the growing demand for solar energy solutions.
Business Environment Analysis
The demand to generate power through solar sources is pushing the overdrive part of the renewable energy sector. Installed power generation capacity is supposed to grow exponentially in the nation from 6,460 gigawatts in 2015 to over 33,000 gigawatts in 2050. This is one of the reasons for the upsurge that companies like Premier Energies are facing in the solar domain.
Industry reports indicate that renewable energy’s share in the global electricity production will increase from 23.0% in 2015 to 72.0% by 2050. Favorable government policies towards renewable energy are also one of the other major factors for the recent trend of renewable energy consumption, which has enabled companies such as Premier Energies to prosper.
Order Book and Capacity Utilization
Backbuilding order books at Premier Energies add up to a value of about ₹5,926 crore, while over ₹3,800 crore is contributed by solar modules, ₹1,800 crore by solar cells, and ₹200 crore by EPC projects. It is indicated that 75% of the order sources come from private entities, with the other 25% deriving their origin from PSUs and government projects.
Capacity Utilization and Expansion Plans
Its capacity utilization has surged and is presently at around 81%. With the growing demand, Premier Energies contemplates expanding its manufacturing capacity to meet market demand. The rising order book and capacity utilization are healthy signals of the growth prospects of the company.
The prestige list of clients for Premier Energies includes NTPC, Tata Power, Panasonic, and Luminous. Several of these operations form the backbone of its market potential and investment viability.
Solar Power Value Chain
Going all the way from raw material to finished solar panel ready for electricity generation, there are many vital steps in a solar power value chain. It is necessary to understand this value chain in depth in order for investors to understand the sector and take positions with ease. The key stages involve:
- Production of Polysilicon: The refining and purification of the raw material polysilicon into high-purity mono crystalline ingots is done at this stage. This stage is very power-intensive.
- Wafer Manufacturing: The ingots are sawn into thin single-crystal silicon wafers, complex manufacturing onto which takes place.
- Cell Manufacturing: This will involve a number of detailed steps, such as texturing, diffusion, and laser processes for producing solar cells.
- Module Assembly: Solar cells are encapsulated with protective layers and framed for durability in order to make solar modules.
- EPC Services: EPC companies purchase solar modules and install these, but they also supply inverters and cables.
Financial Performance
First of all, Premier Energies is a company that has reported fabulous financial performances during the last couple of years. From ₹742 crores, the revenue from operations has jumped up to ₹3,143 crores at an incredible CAGR of 105%. Additionally, its EBITDA has marked an astonishing jump from ₹53 crores to ₹505 crores at an incredible CAGR of 206%.
Profitability Trends
After successive losses in previous years, Premier Energies has reported profit status in FY 2024 with a profit margin of 11.87% in Q1 FY 25. This profit return, when combined with an uptrend in revenues, secures the company’s position considerably within the competitive landscape.
ALSO READ : Jio Financial Services: A Share Price Target Analysis 2024 To 2030
Peer Comparison
In the peer comparison, Premier Energies is the only profit-making, while there is one other listed firm – Websol Energy Systems Limited. That firm has a very bad experience with respect to profitability.
IPO Details and Valuation
The IPO window opens between August 27 and August 29 for Premier Energies at a price band of 427-450 rupees per share. The issue size is approximately 2,830 crores, which includes a fresh issue of 1,291 crore and an offer for sale of 1,539 crore.
This includes the use of proceeds from this post-IPO to create additional manufacturing capacity-the result would be to double its solar cell and module making facilities. The IPO has witnessed tepid interest among institutional investors, a fact that reflects very strong market confidence in its future.
Risks to One’s Investment
While this prospect sounds alluringly sound, there are a few risks that could affect not just Premier Energies but, in fact, the entire solar sector:
- Chinese Competition: The Indian solar industry is at risk of supply chain disruption and strategic pricing by Chinese manufacturers.
- Regulatory Changes: Any adverse changes in the government’s policy may affect profitability and prospects of growth.
- Domestic Competition: Increase in players operating in the solar market could lead to margin pressures.
- Concentration Risk: Much of the revenue is constituted by a small number of important customers and is thus quite volatile in nature.
- Raw Material Price Volatility: Any fluctuation in these raw material prices could result in changes in production costs and, subsequently, dent margins.
- Solar Technology Changes: With the rapid changes taking place in solar panel technology, existing processes are likely to become obsolete.
Key Risks
All is not rosy, though, with the investment in Premier Energies. A material part of its material comprises about 46.9 % of imports from China. Any change in regulations or tariffs of imports can badly impact the cost structure. Moreover, the litigations pending against the company and its directors need to be looked into. However, they had less than a 10 % effect on the profits.
The IPO by Premier Energies consists of a fresh issue of ₹1,291 crores and an offer-for-sale of ₹1,539 crores. The company proposes to use the proceeds for expansion of capacity and setting up a new manufacturing facility in Hyderabad, Telangana, for the manufacture of solar cells and modules.
The public issue opens for subscription between August 27 and August 29 at a price band of ₹427 to ₹450. Investors need to consider this fundamentally along with the risks the issue carries in their investment decision.
Is Premier Energies Worth Investment?
Actually, from an investor’s point of view, the proposed investment in Premier Energies seems really exciting, especially for such a fast-growing sector as solar. The company stands a good chance of fully exploiting the increasing demand for solar energy, having an integrated business model, good market positioning, and sound financial performance. Secondly, competition, change in regulations, and dependence on major customers are risks investors should not fail to consider.
Conclusion
Premier Energies Limited is among the leading ones within the Indian solar energy manufacturing sector. With its strong market position, great financial growth, and further commitment to capacity expansion, this company is luring as a good opportunity for investment. However, an investors should be open-eyed in respect to the risk involved, particularly that emanating from international supply chains and ongoing litigations. The forthcoming IPO will form a vital opportunity for the company itself as it goes on reaping benefits from the rising demand for renewable energy solutions.