The Indian renewable energy sector is witnessing unprecedented growth, creating new opportunities for small, medium and large organisations. Apart from the expansion of renewable energy capacity through solar, wind and other sources, there is a focus on developing capabilities in energy storage, green hydrogen and offshore wind for inclusive growth. Further, global supply disruptions and lessons from overdependence on imported equipment have prompted a massive manufacturing drive in the country, with supportive policy interventions. Domestic manufacturing will continue to gain momentum owing to the ongoing green energy transition and efforts to improve the national energy security. Going forward, these factors will lower the entry barriers for private players, developers and manufacturers alike, and give them an opportunity to expand their portfolios.
Renewable energy tariffs have dropped amidst intense competition, thereby lowering profits for developers. Thus, manufacturers must produce high efficiency but cost-competitive products to stay in the game. They need to seek funding not only to expand their operations but also to ensure their profitability. Given the current post-Covid financial market conditions and the global turmoil in oil and gas and commodity pricing, many Indian renewable energy companies prefer to opt for a safer route to raise capital. Thus, many traditional players are choosing to go public and raise capital through an initial public offering (IPO), instead of newer instruments to raise finance.
A look at four Indian renewable energy players that have opted for the IPO route in recent months for raising capital…
Inox Green Energy
Inox Green Energy Services is engaged in the business of providing long-term operations and maintenance services (O&M) for wind farm projects, specifically for wind turbine generators (WTGs) and common infrastructure facilities that support the evacuation of power from such WTGs. The company is a subsidiary of Inox Wind Limited and a part of the INOXGFL Group, which primarily operates in the specialty chemicals and renewable energy sectors. It also has connections with the wider Inox Group, which started operations in 1923. Its authorised share capital is Rs 5 billion and its paid-up capital is Rs 4.35 billion.
Recently, Inox Green Energy Services filed new preliminary papers with the Securities and Exchange Board of India (SEBI) to raise Rs 7.4 billion through an IPO. According to the draft red herring prospectus (DRHP) submitted in June 2022, the IPO consists of an offer for sale of equity stocks totalling Rs 3.7 billion by promoter Inox Wind and a fresh issuance of equity shares worth Rs 3.7 billion. The company had already filed the DRHP with SEBI for its anticipated IPO in February 2022, but in late April 2022, the proposed IPO offer documents were withdrawn without explanation.
ReNew Power, a subsidiary of ReNew Energy Global Plc, is one of the leading renewable energy independent power producers (IPPs) in India and globally. As of June 2022, the company’s total capacity stands at 12.8 GW (including capacity already won in competitive bids). In order to meet the energy requirements of commercial and industrial customers while also reducing India’s carbon footprint, the company has set up utility-scale wind and solar energy projects.
In February 2021, ReNew Power and RMG Acquisition Corporation II announced the execution of a definitive agreement for a business combination that would result in ReNew becoming a publicly listed company on Nasdaq. In August 2021, after redemptions and transaction fees, ReNew received $610 million in net proceeds from this transaction, which included funds from RMG II’s previous trust account and a private placement in public equity (PIPE). The PIPE is supported by institutional investors such as BlackRock, BNP Paribas Energy Transition Fund, venture capitalist Chamath Palihapitiya, Sylebra Capital, TT International Asset Management Limited, TT Environmental Solutions Fund, and Zimmer Partners, among others. The revenues will be used to accelerate ReNew’s expansion, fund operations and pay off debts. Further, RMG II became a wholly owned subsidiary of ReNew Energy Global plc and ReNew’s Class A ordinary shares and warrants commenced trading on Nasdaq as a result of the special purpose acquisition company route.
Established in 1989, Waaree Energies is the flagship company of the Waaree Group based in Mumbai, India. It has one of the highest solar PV module production capacities in India, with 2 GW of capacity at its Gujarat operations in Surat and Umbergaon. Waaree Energies is a leading provider of EPC services, project development, rooftop solutions and solar water pumps in India, as well as an IPP. Waaree has a nationwide presence in over 380 locations and an international presence in 20 countries.
In June 2022, Waaree Energies received approval from market regulator SEBI to launch its IPO. The issue size will be Rs 15 billion. In September 2021, the company filed draft papers with SEBI. The IPO comprises a fresh issue of shares worth Rs 13.5 billion, and an offer for sale of up to 4,007,500 equity shares by the company’s promoters and existing shareholders. The company may consider a further issue of equity shares including a preferential issue aggregating up to Rs 2.7 billion. If such a placement is completed, the fresh issue size will be reduced.
Vikram Solar Limited (formerly Vikram Solar Private Limited) is one of India’s largest module manufacturers in terms of operational capacity, producing solar PV modules. It is also an integrated solar energy solutions provider offering EPC as well as O&M services.
In March 2022, Vikram Solar filed its DRHP papers for its IPO with SEBI. The IPO consists of a fresh issue of up to Rs 15 billion and an offer for sale of up to 5 million equity shares by existing shareholders. The company has proposed to utilise the net proceeds of the IPO towards funding capital expenditure of around Rs 12.38 billion for setting up of a 2,000 MW integrated solar cell and solar module manufacturing facility in Tamil Nadu, and for general corporate purposes.
As of December 31, 2021, the company had an order book (including framework agreements/letters of intent) of Rs 48.7 billion, of which Rs 16.21 billion comprises projects/operations that are already under execution and Rs 32.48 billion comprise projects that are yet to be executed. The company clocked revenues of Rs 16.1 billion in financial year 2021.
While the renewable energy market is growing, the risks for developers and manufacturers have not diminished. For developers, unpaid dues from discoms, land and transmission constraints, regulatory flux and price sensitivity continue to be major issues. For manufacturers, on the other hand, there is still massive competition from foreign players and prices are quite high in the midst of supply gaps for major raw materials like steel, copper, glass and aluminium. These issues will take some time to be resolved even as the government is trying to improve the situation.
While the financing situation for renewables has surely improved tremendously, investors remain cautious owing to these few uncertainties in both global and domestic markets. For a credible player like ReNew Power with strong investor backing and a multi-GW portfolio expanding at a rapid pace, the financing risks are fewer and the company is now successfully listed on Nasdaq. The other three companies – Inox, Vikram Solar and Waaree – with IPOs to be issued soon, have years of experience in the renewable energy space and are amongst the leading manufacturers in the country. Thus, for these three companies, the risks are fewer, especially with the present thrust on manufacturing and expected growth in this space.
Overall, India requires huge capital to meet its renewable energy targets and the success of these IPOs will provide an encouraging avenue for other companies to raise finance.
Note: Vikram Solar has received approval from SEBI to raise funds through IPO. The company received its observation letter on August 10, 2022.
By Khushboo Goyal and Anusshka Duggal