Oswal Pumps is a manufacturer of solar- and grid-connected motors that are primarily used in agriculture and also industrial and residential segments. The company is in the middle of a rapid growth phase, aided by PM-KUSUM — a government scheme to drive the usage of solar pumps that will last till March 2026. This will help Oswal Pumps sustain its growth momentum.
We recommend long-term investors with a high-risk appetite to subscribe to the IPO. The issue at the upper band trades at 24 times annualised 9MFY25 earnings. While the valuations are modest, investors must monitor the scheme (PM-KUSUM) and its continuation beyond March 2026, which is critical to the stock. Employment, PLI towards solar cells and modules, carbon credits, State electricity costs are factors that support continuation of the scheme. But the scheme and its prospects will be an overhang on the stock till continuation is announced.
The IPO consists of an offer-for-sale (₹497 crore) and a fresh issue (₹890 crore). The fresh issue will be directed to debt repayment (₹311 crore), making it debt free, and capacity expansion in solar modules (₹270 crore) and backward integration for motors (₹90 crore). The promoters will continue to hold 80 per cent stake post-issue.
PM-KUSUM scheme
Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan or PM-KUSUM was launched in March 2019. The scheme aims to install 14 lakh solar agricultural pumps as part of component B of the scheme — a segment which has found reasonable success. Component A aims to set up 10 GW of solar modules on barren/ cultivable lands, and component C aims to solarise 35 lakh existing grid-connected pumps. An amount of ₹34,400 crore was allotted for the Centrally-financed scheme.
Under the scheme, the cost of the solar pump will be subsidised by about 60-75 per cent. The range is dependent on the additional Central/ State allocation. A solar pump costing ₹3 lakh (diesel- or grid-connected pumps cost ₹1 lakh) would cost the farmer ₹1.2 lakh with the rest subsidised equally by the Centre and the State. This is apart from the savings on fuel, maintenance and electricity costs.
Financial boost
By December 2024, an estimated seven lakh pumps were empanelled and ready for tenders under the scheme and 6.1 lakh solar pumps were installed. Of the 6.1 lakh installed, Oswal Pumps, directly or through its clients, has supplied 2.3 lakh pumps by December 2024, which is a 38 per cent share in the scheme. This is clearly reflected in the financial performance of Oswal Pumps, which reported Revenue/EBITDA/PAT growth of 58 per cent/123 per cent/157 per cent CAGR in the period FY22 to annualised 9MFY25. The higher realisations of solar pumps have aided margin expansion as well as shown in the figure.
Oswal Pumps, established in 2003, had been operating in all variants of motors in 2019, when the scheme was announced. The company initially supplied to players operating in PM-KUSUM. By 2021, the company offered solar pumps comprising pumps, solar modules, mounting structures, pump controllers and their installations. The company is currently the most integrated player, according to the Red Herring Prospectus. It is manufacturing solar modules under its subsidiary Oswal Solar Structure that started operations in January 2024. The subsidiary starts from solar cells sourced domestically and manufactures solar modules, which are then integrated with pumps and finally installed at the empanelled site.
Outlook
As per the management, the scheme is a win-win-win for the farmer-State-Centre. The farmer gains from the subsidised cost initially and later on from no electricity or fuel costs (for grid or diesel pumps). This is applicable in non-grid areas as well, increasing its application.
Many States gain from lower electricity costs supplied to the farm sector; and utilise the cost savings for industrial sectors, which provide higher realisations. In some States, electricity is largely subsidised (by the Centre) for the farmer, which the States can save on.
The Centre gains from contributions to climate change and eventually carbon targeting. The Centre has also pushed solar cell/ module manufacturing through PLI schemes, which need downstream applications such as solar pumps to support the industry.
The current scheme itself is halfway through and the management expects it to continue till Q1FY27, which should support short-term growth for Oswal Pumps.
As mentioned, the company will expand Oswal Solar Structure from the current capacity of 600 MW to 1.2 GW, with fresh issue proceeds. This includes EVA (Ethylene Vinyl Acetate) and aluminum brackets, which are ancillary products to solar module and pumps installation. The company is also investing in improving its backward integration in pumps with the issue proceeds.
Financials, valuation
The company has a net debt of ₹339 crore or 1x net debt to EBITDA on account of Oswal Solar commencement in January 2024. The issue proceeds will be used to clear debt, which should cushion valuations further. The trade receivable days though have increased from 40 days in FY22 to 123 days in 9MFY25 owing to a higher exposure to government payments. The current year receivable days have also been impacted by elections last year and the management expects it to improve going forward.
The company prospects are strong and the valuation reasonable for growth. Investors subscribing to the issue should monitor PM-KUSUM, which is central to the investment thesis.
