SW Solar: The Turnaround Potential of Sterling and Wilson Renewable Energy Ltd In 2024

A Storied Past, a Promising Future

SW Solar In the ever-evolving world of renewable energy, one company has captured the attention of savvy investors – SW Solar, formerly known as Sterling and Wilson Renewable Energy. With a history spanning nearly a century, this solar energy giant has weathered its fair share of challenges, only to emerge as a potential powerhouse in the making.

From Electrical Contractor to Solar Powerhouse

The story of Sterling and Wilson Renewable Energy Ltd begins in 1927, when prominent industrialist Shapurji Saklatwala made a deal with Maran Darala of Wilson Electric Works. The union of the two entities gave birth to Sterling and Wilson, an electrical contracting firm that would go on to tackle iconic projects like the Taj Mahal, the Reserve Bank of India building, and the World Trade Center in Mumbai.

By the 1980s, Sterling and Wilson had established itself as the largest MEP (Mechanical, Electrical, and Plumbing) and EPC (Engineering, Procurement, and Construction) player in the subcontinent. In 2019, the company’s solar EPC business was demerged and listed as Sterling and Wilson Renewable Energy, or SW Solar.

The Ebb and Flow of SW Solar’s Journey

SW Solar’s journey has been one of highs and lows, marked by both exponential growth and challenging setbacks. In 2011, the company ventured into the solar EPC business, and by 2015, it had become India’s largest solar EPC company. Its global presence and market share continued to soar, reaching a remarkable 4.6% by 2018.

However, the company’s fortunes took a turn for the worse after its IPO in 2019. The COVID-19 pandemic, coupled with a series of contract-related challenges, resulted in a sharp decline in revenue over the next four years. The company found itself facing litigation from clients, defaulting on loan payments, and dealing with credit downgrades that further increased its borrowing costs.

1. Reliance Becomes Promoter in Sterling and Wilson Renewable Energy Ltd:
   • In January 2022, Reliance Industries (RIL) took a significant stake in SWREL. Through its wholly-owned arm, Reliance New Energy Solar Ltd (RNESL), Reliance acquired interest in SWREL from the Shapoorji Pallonji Group.
   • The deal involved an initial payment of ₹259 crore for the acquisition of 25.90% equity stake in SWREL.
   • As a result, RNESL became the promoter of SWREL, holding over 40% stake in the company.
2. Indemnity Claim and Repayment:
   • Sterling and Wilson Renewable Energy Ltd has been dealing with an indemnity claim related to dues from Shapoorji Pallonji and Company Private Limited.
   • The company utilized the indemnity claim amount towards short/overdue repayment of loans.
3. Qualified Institution Placement (QIP):
   • In December 2023, Sterling and Wilson Renewable Energy Ltdraised ₹1,500 crore through a Qualified Institution Placement (QIP) route.
   • The QIP was a strategic move to strengthen the company’s financial position and support its growth initiatives.
4. Challenges and Recovery:
   • Sterling and Wilson Renewable Energy Ltd faced challenges during the COVID period, including increasing debt, execution delays, and cost escalation.
   • However, the company is now on a path to recovery, with a focus on solar energy projects and operational improvements.
5. Reliance’s Stake Acquisition:
   • Reliance Industries aims to install 100 GW solar capacity by 2030, positioning itself as a major player in the domestic market.
   • The acquisition of a 40% stake in Sterling and Wilson Renewable Energy Ltd is part of Reliance’s ambitious renewable energy plans.
6. Global Footprint:
   • Sterling and Wilson Renewable Energy Ltd is a global player in the renewable energy sector, with a strong presence in various countries.
   • The company has successfully executed solar projects across different geographies, contributing to the global transition toward clean energy.
7. Solar EPC Services:
   • Sterling and Wilson Renewable Energy Ltd specializes in Engineering, Procurement, and Construction (EPC) services for solar power projects.
   • Their expertise spans the entire project lifecycle, from design and engineering to installation and commissioning.
8. Diverse Portfolio:
   • Sterling and Wilson Renewable Energy Ltd has an impressive portfolio of solar projects, including utility-scale solar parks, rooftop installations, and hybrid energy systems.
   • Their projects cater to diverse sectors such as commercial, industrial, and residential.
9. Quality and Innovation:
   • The company places a strong emphasis on quality, adhering to international standards and best practices.
   • Sterling and Wilson Renewable Energy Ltd continuously explores innovative solutions to enhance energy efficiency and optimize project performance.
10. Financial Stability:
    • Despite facing challenges, Sterling and Wilson Renewable Energy Ltd has demonstrated financial resilience.
    • The recent Qualified Institution Placement (QIP) helped strengthen their financial position, enabling them to pursue growth opportunities.

The Reliance Boost and Domestic Market Focus

The turning point for SW Solar came in 2022 when Reliance Industries’ subsidiary, Reliance New Energy, acquired a 40% stake in the company for ₹375 per share. This strategic investment not only provided a much-needed financial boost but also instilled confidence in the company’s future prospects.

Alongside the Reliance partnership, SW Solar shifted its focus to the rapidly growing domestic Indian solar market, where the responsibility for solar module procurement often lies with the client rather than the EPC company. This shift, combined with the resolution of the company’s litigation cases, has resulted in a remarkable turnaround, with the company’s order book growing by a staggering 60% in the past year.

A Promising Future Ahead

As of March 2024, SW Solar boasts an unexecuted order book of around ₹8,000 crore, with 85% of these orders coming from the domestic Indian market. The company’s revenue guidance for FY25 suggests continued growth, and its debt levels have been significantly reduced, leading to a substantial decline in interest expenses.

The company’s recent successful ₹1,500 crore QIP (Qualified Institutional Placement) further bolsters its financial position, attracting the interest of prominent institutional investors like Goldman Sachs, Nippon, and ADIA.

Navigating the Risks and Rewards

While the turnaround story of SW Solar is undoubtedly compelling, it is essential to acknowledge the risks inherent in the EPC business. Project execution delays, cost overruns, and fluctuations in order book growth can pose significant challenges. However, if the company can navigate these obstacles and continue its upward trajectory, the potential for wealth creation is substantial.

Recent research reports, such as the one by Nuvama, have issued a “buy” call on SW Solar with a target price of ₹850, suggesting that even after the recent 20% jump in the share price, there is still significant upside potential.

Conclusion: A Promising Bet in the Solar Sector

The journey of SW Solar is a testament to the resilience and adaptability of companies in the renewable energy sector. From its humble beginnings as an electrical contractor to its current status as a solar powerhouse, the company has weathered storms and emerged stronger, poised to capitalise on the growing demand for solar energy.

While the risks cannot be overlooked, the potential rewards make SW Solar a compelling investment opportunity for those willing to take on the challenge. As the company continues to execute its projects and capitalize on the booming domestic solar market, the stage is set for SW Solar to become a significant wealth creator for its investors in the years to come.

Disclaimer: The information is only for information purpose only. It is always recommended to consult with certified financial experts before making any investment decisions. Follow busymoneyfreak.com .