Khurshed Daruvala, chairman of S&W, told Vikas Srivastava in an interview that although the company did not focus on timing the market, the general election results had worked in its favour. Edited excerpts:
Sterling & Wilson Solar, the demerged entity of Sterling & Wilson (S&W) Group, plans to come out with the first IPO of Shapoorji Pallonji Group companies in the September quarter of 2019. Khurshed Daruvala, chairman of S&W, told Vikas Srivastava in an interview that although the company did not focus on timing the market, the general election results had worked in its favour. Edited excerpts:
Do you think the period is ripe for equity raising in the market, especially when the broad macro index is not doing well and other renewable players have shelved their plans?
From our perspective, we believe it is the right time for our solar business to get listed. We have not been focused on timing the market and had been planning our IPO (initial public offering) not knowing what the election results would be. Since the results have been favourable for the market, it has worked out well for us from a timing perspective. We are waiting for the Sebi clearance, once that comes we will start the process of IPO. We are hopeful the IPO will come in the July-September quarter of 2019.
In terms of comparison with independent power producers (IPP) who shelved their plans, the returns on equity are incomparable. Also, there is a lot of cash requirement for an IPP, if they have to grow to, say, Rs 2,000-crore business, which is not the case with us. Our market share as of December 2018 was 4.6%, which is more than double compared to the nearest competitor. If we exclude China, our market share was 8.6% in the solar EPC market.
As we are aware, the company plans to raise Rs 4,500 crore from the IPO. Where do you plan to invest the proceeds?
Our purpose is to strengthen the solar business balance sheet. After the demerger, the banks were more confident of lending to our solar business especially in global market. From the Rs 4,500 crore we will raise, Rs 1,800 crore will be invested back into the non-solar companies so they payback the loans of the solar companies. This will create a high net worth solar balance sheet for our solar business with no debt. The EPC business does not require cash, and we will be able to take large global projects. Just the demerger itself got us the job of $250 million in Montenegro, which would not have come otherwise.
As a major part of your revenue has been coming from abroad, going ahead with challenges in Indian market, would that ratio increase in favour of foreign projects?
Policywise, I do not see much challenge in India. The land and transmission lines will continue to be a challenge just as in any other country. But, payment delays from discoms will be a big factor differentiating the two markets. Another major issue is the higher borrowing cost. My EPC price to the Abu Dhabi client is much higher compared to any Indian client. But, the Abu Dhabi client sells the power at Rs 1.68 per unit, while the Indian client despite much lower capex sells at Rs 2.75 per unit, largely due to higher borrowing cost. In our case, the majority of our work is balance of plant (BoP), for which value of market in India is small, though our margins are same, I can do more work abroad. So, we will definitely not let go the Indian market. It will be a large captive market giving us good base in future as well, though the contribution will come down as we increase our business abroad.
Are there any plans to enter manufacturing segment for solar, since there are a lot of incentives plus safeguard duty to save Indian interests?
We do not have any plans of entering the manufacturing segment. The reason being very tight margins in the space. Also, if we ask the question to ourselves, do we have the competitive edge? The answer is no! In the EPC space, we are mostly number one or number two in most of the fields we operate in. Our model has been an asset light EPC model where we are technology-agnostic and can offer our customers the best technology available at that point of time, at a competitive price.