Indosolar Ltd - Review and Recommendation

[sunil]

HDFC Sec has the following Recommendation on the IPO of Indosolar Ltd,

It is engaged in manufacturing of solar Photo voltaic (SPV) cells from crystalline silicon wafers used for converting sunlight directly into electricity. The company markets the products primarily to module manufacturers on a business-to- business platform, who in turn supply to the system integrators who install the systems for grid and off-grid (roof top) applications for use in the domestic/international market. Indosolar has state-of-the art manufacturing facility in Noida, commissioned on a turnkey basis by Schmid, one of the leading global technology providers. The annual manufacturing capacity is 160 MW. The technology for manufacturing SPV (solar photovoltaic) cells is still evolving and, therefore, carries the risk of obsolescence for existing players
including Indosolar.

The growth of the solar industry would depend entirely on governmental support as the cost of power generation currently is very high and the solar industry would take several years to achieve grid parity (cost of generation).

On the other hand, the technology for manufacturing SPV is still evolving and there is a high risk of obsolescence. The operations of the company are capital intensive and hence interest and depreciation could be high in the initial few years, resulting in low possibility of reporting positive bottom line in the
near future. Further its equity post issue will be quite large to service.

While the IPO may give listing gains depending on the secondary market situation, medium term investors could look at the company only after the operations stabilize and there are visible signs of steady execution of the large order book at decent margins.

[sunil]

Uniocn Wealth Research Analyst, Amish Pansuria has the following view on the IPO,

Indosolar is valued at 4.2x at lower price band of its P/BV (FY10) and 4.6x at the upper price band. However, our back of the envelop calculation suggests (INR 3,374Mn would get added toward capacity expansion) that issue is attractively priced at 1.1x at the lower price band and 1.2x its upper price band of its book value.

With a favourable policy framework laid down by the government and meeting energy security requirements, we believe that India is positioned for rapid growth in all the segments of the solar/PV industry value chain, and will increasingly become an important and high growth market for both on-grid and off-grid applications. Indosolar is an early mover to capitalise on this domestic growth story, with the manufacturing systems and tie-ups in place. We believe that the issue is attractively valued considering the growth potential, therefore we advise investors to Subscribe to the issue.

[sunil]

HSBC Analyst Deepan SankaraNarayann has the following view on the IPO,

Indosolar has long-term debt of Rs 4600mn, and would be entitled to get a capital subsidy of Rs 2500mn under the government's semi-conductor policy.

ISL is currently valued at Rs 93.3mn–Rs 97.3mn EV/MW (present capacity of 160MW) based on the price band of Rs 29-32, which is much lower than that of Websol Energy Sytem’s EV/MW of Rs 140.9mn* (present capacity of 42MW). Considering the future growth prospects of PV industry, consistent support from governments and decent order book, we believe investors with a long term view can subscribe to the issue considering the execution risks involved.

[sunil]

India Capital Markets Analyst, Amit Shah's views on the IPO of Indosolar Ltd

The company does not have historical operational record as it has been incorporated in the year 2009 but the company has robust order book which provides decent revenue visibility for the next one year. We believe that the government’s emphasis to boost up solar power generation through its Jawaharlal Nehru National Solar Mission scheme will also help to generate demand for the company’s product in the future. We recommend SUBSCRIBE to the issue with the long
term positive outlook on the power sector and on the Company.

[sunil]

Angel Broking analyst John Perinchery and Hemang Thaker have the following recommendation,

We believe that though the robust order book of ~ Rs1,012cr provides revenue visibility in the medium term, there is uncertainty on EBIDTA and profitability margins embedded in the current order backlog. Moreover, over 80% of the order book is derived from the European markets where the declining FIT has the potential to trigger downward pricing pressures, going forward. Given the volatile global demand for PV products and the company's limited operating history, ascribing a valuation multiple to Indosolar seems challenging at this point of time. P/BV seems to be the most conservative tool on which companies like Indosolar can be valued vis-a-vis its global peers. At the lower price band of Rs29/share, the implied P/BV would be ~ 1.9x FY2011E compared to the average P/BV of 1.0x for its global peers. On a EV/Sales basis, Indosolar is projected to trade at ~ 2.5x FY2011 estimates compared to its global peers who trade at ~ 1.1x CY2010 estimates. Hence, we recommend an Avoid on the IPO.

[chetan]

Aditya Birla Money has the following recommendation,

Given strong demand from both international and domestic markets going forward, Indosolar is well-placed to capitalise on it; we are positive on the prospects of Indosolar. We expect a big jump in Indosolar’s sales in FY11 through strong volume growth from ramp-up of its current capacity of 160MW of SPV cells. Indosolar has an unexecuted order book of ~8.3bn which provides good revenue visibility over the next two years. The management plans to set up another 100MW of SPV cells capacity through the IPO proceeds to position themselves better for the increasing demand for SPV products in the future.

Though, the business prospects of Indosolar look promising, valuations seem a little steep. The company post–issue will trade at a P/BV of 1.95-2.05x FY10 numbers. Given that the business is not as secure as a power generation company and does not have a profitable past record, we feel that valuations don’t leave room for upside in the near future. We recommend only investors with a very long term horizon to subscribe to Indosolar’s IPO and AVOID for Short Term and Medium term Investors.