Premier Energies Ltd IPO Analysis – GMP, Subscription Status, Strengths & Risks

The IPO (Initial public offering) of Premier Energies Ltd (PEL), a solar cells and modules manufacturer, commences on August 27 and concludes on August 29, 2024. The offering, carrying a hefty Grey Market Premium (GMP) of 80%, has received a solid subscription response. However, investors need a clear understanding of both potential rewards and risks before subscribing. This IPO analysis provides a comprehensive review to help make an informed decision.

Premier Energies IPO Details

Issue Size: 2,830.40 crore
Fresh Issue: 1,291.40 crore
OFS: 1,539 crore
Price Range: 427 - 450
Lot size: 33
Minimum Investment Value: Rs 14,850
Listing Date: September 03, 2024

Premier Energies IPO Subscription Status

The IPO of Premier Energies Ltd kicked off impressively, achieving full subscription on its first day of bidding. The offering was oversubscribed by 2.16 times with 949,057,723 shares bid against an available 438,728,888 shares.

Non-institutional investors led the surge in subscriptions, subscribing 5.52 times their allotted quota. Retail investors also demonstrated significant interest, subscribing 1.90 times their reserved portion, whereas qualified institutional buyers subscribed just 0.04 times their reserved portion.

Overview of Premier Energies Ltd

PEL produces solar modules and cells and offers EPC services in the solar sector. Operating five units in Telangana, it has capacities of 2 GW for cells and 4.13 GW for modules. Transitioning to advanced technologies like PERC and TOPCon, PEL aims to enhance cell efficiency.

By 2025, it plans to add a 1 GW integrated line and is forming a joint venture with Heliene USA to build a US solar cell facility, while exploring wafer production to strengthen its supply chain and market presence.

Premier Energies Ltd Key Strengths

Market Leadership: PEL is India’s second-largest solar cell manufacturer, fourth in module production, and the top US cell exporter in FY24, holding ~27.7% of India’s integrated capacities.
Impressive Growth: From FY22 to FY24, PEL's revenue and EBITDA soared at a CAGR of 106% and 207%, respectively, turning a Rs 14.48 crore loss into a Rs 231.36 crore profit.
Robust Return Metrics: By FY24, PEL achieved a Return on Equity of 43.73% and a Return on Capital Employed of 25.65%.
Strong Order Book: PEL’s order book has grown at a CAGR of 314% between FY22-24. As of July 2024, the firm’s order book stood at Rs 5,926 crore, with planned executions over the next 18 months.

Premier Energies Ltd Risk Factors

Client Dependence: 67% of PEL’s FY24 revenue came from its top 10 customers, making the loss of any key clients a significant risk to its financial stability.
Volatility in Raw Material Prices: PEL has benefited from a decline in international solar wafer and cell prices since mid-2022, which enhanced its financial performance in FY24 and Q1FY25. However, potential volatility in these raw material prices poses a risk to the company's ongoing profitability.
Global Supply Gut: The solar industry has experienced a significant reduction in panel prices due to global production exceeding demand, leading to prices nearing historic lows. This surplus makes it challenging for PEL and other Indian manufacturers to compete against the large-scale, cost-effective operations of Chinese firms.

Premier Energies Ltd Valuation & Recommendation

PEL has shown significant growth in revenue and earnings over the past three years, supported by strong return metrics. Furthermore, a robust order book of Rs 5,926 crore provides strong growth visibility in the medium term.

The solar industry in India is booming, with installed capacity tripling to 87.2 GW as of July 2024, supported by government mandates and a target of 500 GW by 2030. PEL, with its strong market presence, is well-positioned to capitalize on these opportunities.

While the IPO's valuation at a P/E ratio of 65x based on FY24 earnings is high, an 80% grey market premium signals potential for a strong market debut. Considering PEL’s strategic positioning, impressive financial performance, expansion initiatives and strong industry tailwinds, investors may consider subscribing to the IPO from a medium-to-long term perspective.

For a deeper dive into this IPO, explore: IPO Corner on Liquide

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