Stock Fundamentals

Why did Sterling and Wilson Solar take a knock?

Vivek Ananth | Updated on November 24, 2019


Last week, Sterling and Wilson Solar’s shares plummeted nearly 50 per cent after the company announced on November 14 that its promoters had asked for a revised payment schedule for a loan due to the company, of ₹2,341 crore, including interest. The company granted the extension, and investors were breathing fire on the betrayal.

The reason for the delay in repayment by its promoters, Shapoorji Pallonji and Co and Khurshed Daruvala, emanates from the slowdown in the real-estate sector. This has singed most players in the sector, and it seems Sterling and Wilson Solar’s promoters were no different.

Just three months ago, the stage was set for one of the largest IPOs of 2019 by Sterling and Wilson Solar. The company is the demerged solar EPC division of Sterling and Wilson, a subsidiary of Shapoorji Pallonji and Co.

Sterling and Wilson Solar and its subsidiaries had taken loans earlier this year, which were further loaned to the promoters. The promoters — Shapoorji Pallonji and Co and Khurshed Daruvala — expected to raise ₹ 4,500 crore from the offer for sale (OFS) and use the money to repay the debts owed to Sterling and Wilson Solar and its subsidiaries. However, the lack of enthusiasm from the capital markets for an offer of such a huge size made them cut the OFS size to a little less than ₹ 3,000 crore.

Essentially, as admitted by the management of Sterling and Wilson Solar, the loan transactions were routed through the solar EPC company by the promoters, and the IPO was used to raise resources to repay that debt. The solar power business is booming, and Sterling and Wilson Solar’s business as a result was hot. Its expertise in implementing large projects for power utilities across the world, and the business model of having a low working capital requirement (because many solar power projects are funded by development finance institutions), made its business very valuable. As a result, lenders were ready to lend to it.

The company has decent cash flows from operations of around ₹165 crore, according to its consolidated cash flow statement for the quarter ended September 30, 2019, and cash of nearly ₹405 crore. And it’s a good business.


The management has stated that Sterling and Wilson Solar has sufficient cash to service the loans and the company will be repaying the dues on time. The company has also clarified that the promoters will be repaying up to ₹1,000 crore by December 31, 2019.

Given the sharp decline in stock price, most of the negatives appear to be priced-in.

Published on November 24, 2019

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