Renewable IPOs see boom as investors eye stellar returns in solar sector

The humungous response to the stock of a small, nondescript distributor of solar panels reflects the prevailing craze for such offerings on Indian bourses

Until yesterday, very few had heard of GP Eco Solutions, a distributor of solar inverters and panels. The Noida-headquartered GP Eco distributes solar panels made by Chinese behemoth Longi Solar and Saatvik Green Energy, and inverters from Sungrow and an in-house brand Invergy. On a turnover of Rs 101 crore, it made a net profit of Rs 3.7 crore, according to its website, where it lists Deepak Pandey and Anju Pandey as directors on the board.

This Monday, GP Eco listed at Rs 375, a fourfold jump over the fixed price band of Rs 94. The initial public offering (IPO) was oversubscribed 856 times. “For an issue of Rs 31 crore, the public gave Rs 16,624 crore. It was an overwhelming response,” said Kulbhushan Parashar, founder and director of Corporate Capital Ventures, which has steered three successful solar IPOs, including the GP Eco one, since last August.

The humongous response to the stock of a small, nondescript distributor of solar panels, lacking the attractiveness of Paytm or Ola, reflects the prevailing craze for renewable offerings on Indian bourses.

“This is not a cycle that will end very soon. It's a necessity because we cannot run on thermal all our life,” says Parashar, when asked if the renewable boom will fizzle out like previous dotcom and IT booms. Parashar makes a conservative estimate of at least Rs 50,000 crore that small- and medium-sized companies in the solar universe will raise via IPOs by 2030.

“There is a big craze in the industry, no doubt about it,” says Ashwani Sehgal, president of the Indian Solar Manufacturing Association (ISMA). “I would say it's a good thing, because the environment for investment and expansion of companies that are already in this line of business is tremendous,” he adds.

Sehgal had first-hand experience earlier this year of the enthusiasm for solar offerings. His firm Alpex Solar was one of the first solar IPOs to be launched in 2024 to raise Rs 74.5 crore at an offer band of Rs 109-Rs 115. The IPO, issued to add manufacturing capacity, was oversubscribed 324 times, garnering Rs 16,062 crore. It got listed at Rs 329, and is now trading at Rs 887. Revenues jumped 121 per cent in FY24 to Rs 404 crore while net profit increased by 680 per cent to Rs 29.05 crore. In August 2023, Oriana Power, a provider of solar energy solutions, lead-managed by Parashar's firm, raised around Rs 60 crore at a price band of Rs 115-Rs 118 per share and was oversubscribed 176 times. The stock is now trading at Rs 2,579.

Such unparalleled valuations have ignited the IPO market for small- and medium-sized renewable companies, leading to a surge in offerings, though the overall amount raised is still a small portion of the total amount mopped up through IPOs. India’s IPO market amassed a total of $2.4 billion through 79 IPOs in the January-March quarter of 2024, according to EY’s Global IPO report. That compares to 220 IPO deals for the entire 2023, raising $6.9 billion.

Typically, the funds raised from these IPOs are used to clear loans or invest in new facilities, according to company prospectuses. Some of the notable renewable IPOs in the past year include the Indian Renewable Energy Development Agency’s, which raised Rs 2,150 crore at a price band of Rs 30-Rs 32 in November 2023 (the stock trades at Rs 189). Two other issues from Sterling and Wilson Renewable, and KPI Green Energy raised Rs 15 billion and Rs 3 billion, respectively, via Qualified Institutional Placements in mid-December to reduce debt, among others. In August 2023, Suzlon Energy raised Rs 20 billion to pay off Rs 18 billion in loan obligations, and IndiGrid, India’s first and largest InvIT in the power transmission sector, raised Rs 10.7 billion the same year for debt reduction. Inox Wind Energy in October 2023 completed a successful fundraising of Rs 8 billion through an equity share sale of its subsidiary.

Bigger offerings are in the offing led by Waaree, India’s biggest maker of solar modules, which filed for an IPO in December 2023 to raise Rs 30 billion to scale up manufacture of solar panels. Vikram Solar, one of India’s largest solar panel manufacturers, plans to make a fresh issue of shares, reported to be of around Rs 20 billion.

Waaree has been guided by the returns generated by its unit Waaree Renewable Technologies, a solar EPC provider, in which it holds 74.5 per cent. “Returns have been phenomenal,” says Dilip Panjwani, CFO of the solar EPC company. Following a stock split of 1:5, it trades at Rs 1,963 — the 52-week low was Rs 157 and the high Rs 3037 — also reflecting the volatility inherent in these stocks, with a small equity base.

Sehgal partly credits the boom to protective government policies like the Approved List of Models & Manufacturers (ALMM), which have kept Chinese solar panel producers out, and given Indian manufacturers the confidence to invest. “This (ALMM) is the backbone of the industry. This should continue. It is very, very important,” he says.

Also, New Delhi's success in inviting bids for a record 70 gigawatts of utility-scale solar projects in FY24 is beginning to echo in the ambitions of companies populating the country’s solar universe, with the booming IPO market partly owing its success to the government’s 500GW renewables target. The buildout requires investments of $300 billion, industry officials say.

IPOs favoured over PE

The blooming of India’s IPO market has given confidence to founders like Hanish Gupta to approach the market directly instead of diluting valuations and controls by reaching out to venture capitalists, with the Securities & Exchange Board of India (Sebi) relaxing rules to enable smaller companies to go to the bourses directly. CEO of Sunkind Energy, a solar EPC company, Gupta plans to offer shares by the end of the first quarter of next year, timing his market entry to the commissioning of his 600MW solar module production unit costing Rs 100 crore.

“See, the thing is that where I am right now, the valuation that I might get would be 8x-10x if I approached private equity,” says Gupta. “But in an IPO, I might be getting around 18x-20x. Also, you have better control over your company, that is the major thing,” he adds.

Parashar agrees: “There is less dilution here. They take the controlling stake there. In the private capital market, the company's valuation increases but the promoter becomes smaller.”

“We were approached by private equity a number of times, but we found that IPO is a much better option, because ultimately you have to go through public offering only, even after private equity,” Sehgal says, adding that listing gives one a lot of value.

SAEL, a solar module manufacturer and developer, has plans to spend as much as Rs 35,000 crore by December 2026 to develop 7GW of renewable capacity and build 2.5GW of module manufacturing capacity, says Varun Gupta, chief investment officer of the company. Varun is currently funding capex via private equity — he says he closed a billion dollars in funding in January and plans to raise another billion dollars soon, counting the governments of the US, India and Norway, and the Asian Development Bank among his backers. For now, he is taking the private equity route rather than approaching the market directly.

Some like Good Enough Energy’s founder Akash Kaushik are willing to wait before approaching the market in a bid to boost valuations. Good Enough is setting up a 7GWh battery manufacturing plant for grid applications in Jammu at an investment of Rs 160 crore, self-funded and expected to be commissioned by October. The working capital needs for such a huge capacity are humongous at around Rs 7,000 crore, he says.

“As a founder, what is most important to us is equity. We would like to preserve it as long as possible,” says Kaushik, an aerospace engineer, adding that he’s not considering an IPO for the next three years.

Uncharted Territory

However, all is not rosy in solar land, nor does the wind always sends cool air. The territory is uncharted, with pockets of darkness. Like many new-age stocks, one cannot read much into the share price of a WRT, or a GP Eco, or an Oriana from the perspective of returns, earnings or price-earning ratio.

“There’s a craze for renewable stocks,” says Vidhya Murtti, a Hyderabad-based marketing director for real estate firm Viya Ventures and an active retail investor. But some companies indulge in round-tripping, he rues.

“Ise behti Ganga mein haath dhona bolte hain,” Parashar says, adding: “As a sector, when it is growing, there is also a lot of grass. So, there will be such possibilities.”

Investors and bankers must do their research well.