Premier Energies IPO analysis

Premier Energies IPO will open for subscription on August 27, 2024 and close on August 29, 2024. We break down the solar cell manufacturer's strengths, weaknesses, and growth prospects to help investors make an informed decision.

Premier Energies IPO in a nutshell

• Quality : The company's three-year average ROE and ROCE were nearly 12 per cent each between FY22 and FY24.
  
• Growth : The company's revenue and profit after tax jumped 105.7 and 443.6 per cent per annum, respectively, between FY22 and FY24.
  
• Valuation : Post the IPO, the stock will be valued at a P/E and P/B ratio of 50.9 and 10.6 times, respectively.
  
• Overview: With the rapid growth in the economy's energy consumption, the demand for renewable energy is ever-increasing. This will likely translate into higher use of solar power as well, benefitting Premier Energies , which manufactures solar cells and modules (critical components used to make solar panels). However, the company's high dependence on China for raw materials and the intense competition in the industry can challenge its growth.

About Premier Energies

Incorporated in 1995, Premier Energies is India's second largest solar cell and module manufacturer. The company operates five manufacturing facilities, all of which are located in Hyderabad, with a total annual capacity of 4.14 GW. Its clients include large players such as NTPC and Tata Power , among others. Most of the company's revenue is generated from domestic operations, with exports contributing only 14 per cent to its FY24 revenue.

Strengths of Premier Energies

• Large scale: Premier Energies is India's second-largest manufacturer of solar cells and modules with a total installed capacity of 4.14 GW. It has also planned further capacity expansion in the coming years. The company's large scale will allow it to meet a significant part of the growing demand for solar panels.

Weaknesses of Premier Energies

• Dependence on China: China is the world's largest manufacturer of silicon wafers, which is a key raw material for manufacturing solar cells and modules. Premier Energies is naturally dependent on China for sourcing its raw materials. Thus, any supply chain disruption can prove to be fatal for the company.
  
• Revenue concentration: The company's top 10 customers alone generated 67 per cent of the company's revenue in FY24. A lack of a diversified customer base risks hitting its financials.

Risk report

Company and business

• Are Premier Energies' earnings before tax more than Rs 50 crore in the last 12 months?
  Yes. The company reported a profit before tax of Rs 492 crore in 12-months ending June 2024.
• Will Premier Energies be able to scale up its business?
  Yes. The expected growth in renewable energy usage will help the company scale its business.
• Does Premier Energies have a recognisable brand recall with client stickiness?
  Yes. The company has long-standing relationships with many of its big clients.
• Does the company have a credible moat?
  No. There are multiple solar cell manufacturers operating in the same segment as Premier Energies.

Management

• Do any of the company's founders still hold at least a 5 per cent stake? Or do promoters have over 25 per cent stake in the company?
  Yes. Post the IPO, the promoters will hold a 66 per cent stake.
• Do the top three managers have over 15 years of combined leadership at Premier Energies?
  Yes. The company's managing director has been associated with the company since 1997.
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. No information suggests otherwise.
• Is the company's accounting policy stable?
  Yes. No information suggests otherwise.
• Is Premier Energies free of promoter pledging of shares?
  Yes. The company's promoters have not pledged any shares.

Financials

• Did Premier Energies generate a current and three-year average ROE of more than 15 per cent and a ROCE of more than 18 per cent?
  No. Premier Energies' three-year average ROE and ROCE were 11.9 and 11.7 per cent, respectively. Its ROE and ROCE were 26.5 and 14.3 per cent, respectively, in FY24.
• Was the company's operating cash flow positive during the last three years?
  Yes. The company's operating cash flows were positive between FY22 and FY24.
• Is the company's net debt-to-equity ratio less than one?
  Yes. Premier Energies had a net debt-to-equity ratio of 0.93 as of March 2024.
• Is Premier Energies free from reliance on huge working capital for day-to-day affairs?
  No. The company is dependent on short-term borrowings for financing its working capital requirements.
• Can the company run its business without relying on external funding in the next three years?
  No. The company has a history of relying on debt and it has planned to undertake significant capex in coming years. The fresh proceeds from the IPO are unlikely to suffice. It would thus require external funding ahead.
• Is Premier Energies free from meaningful contingent liabilities?
  No. As a percentage of its net worth, the company had contingent liabilities of 439 per cent as of June 2024.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. The stock offers an operating earnings yield of 3 per cent on its enterprise value.
• Is the stock's price-to-earnings less than its peers' median level?
  No. The stock will trade at a P/E ratio of 50.9 times. Its only other listed peer ( Websol Energy System) has negative earnings per share.
• Is the stock's price-to-book value less than its peers' average level?
  Yes. The stock is valued at a P/B ratio of 7.3 times. The other listed peer trades at a P/B of 31.5 times.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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