Bucking the Trend

Gensol’s IPO receives a strong response despite stressed market conditions

By Sarthak Takyar

After some delay, Ahmedabad-based solar engineering, procurement, construction (EPC) and advisory company, Gensol Engineering Limited finally decided to go ahead with its initial public offering (IPO) in September 2019, despite the ongoing stress in the renewable energy sector. Just a few days prior to this, one of the country’s largest solar EPC companies, Sterling & Wilson launched its IPO, which remained undersubscribed. Another large developer, ReNew Power, which had been planning an IPO for a long time, decided to defer it due to the stressed market conditions. To everyone’s surprise, Gensol’s IPO has not only been oversubscribed, but has also been listed at a premium on the bourses.

Promoted by two brothers, Anmol Jaggi and Puneet Jaggi, Gensol, like any other start-up, had its share of challenges in the initial years, but has overcome those gradually. The company started off as a pure-play solar consultancy, but eventually diversified, to provide design, engineering, operations and maintenance (O&M), financial and consultancy services for wind and solar companies. Its turnover increased from Rs 121.2 million in 2015-16 to Rs 833.9 million in 2018-19. During the same period, the net profit also increased from Rs 3.6 million to Rs 65 million. The company also reported a 66 per cent return on equity during the period. Its portfolio also expanded substantially. Currently, the company has 3,000 MW of solar assets under O&M contracts, and it expects to reach 10,000 MW in a couple of years. The IPO route was, therefore, essential to fund the growing O&M expenses of these projects. The company also needed funds to expand globally.

The promoters planned to raise Rs 170 million-Rs 180 million from the market by offering up to 2,160,000 shares with a face value of Rs 10 and a price band of Rs 81-Rs 83. Of these, 2,014,400 equity shares were of fresh value and 401,600 were offered for sale by the promoters. The company could have raised more funds, but preferred to start small and gradually gain investor confidence for a second offer in the future. The IPO opened on September 30, 2019 and closed on October 4, 2019.

IPO journey and outlook

By the end of March 2019, Gensol had filed its draft red herring prospectus and announced plans to raise over Rs 130 million through its IPO launch. However, the company later shelved its IPO plans. In fact, many renewable energy companies in the past have faced industry-specific challenges, and withdrawn or postponed their IPO proposals. For instance, the ACME Group had released a draft proposal to float an IPO for its solar power arm in September 2017, but finally decided to defer it. In February 2018, Singapore-based Sembcorp Industries filed for an IPO to list its India energy unit, but cancelled its plan in June 2018. In May 2019, ReNew Power filed its documents for a Rs 70 billion-Rs 75 billion IPO, but has recently shelved its plans. Besides external factors, some sector-specific issues have posed serious concerns for developers, thereby impacting investor sentiment. On the one hand, land- and transmission-related constraints have slowed down project development while on the other, regulatory uncertainties and poor discom health have led to cash flow risks for operational projects. These issues have also contributed to the under-subscription of Sterling & Wilson’s IPO.

At a time when arranging for finance has become a major hurdle, a successful IPO by Gensol will definitely inspire industry peers to follow a similar route. Moreover, Gensol’s decision to go for a domestic market listing on the Bombay Stock Exchange will give Indian investors exposure to the solar energy segment while also helping build awareness and understanding of the segment’s challenges and opportunities.

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