Renewable energy producer ReNew Power is the largest pure play renewable energy producer preparing to list on the stock exchanges this year.
The Golman Sachs backed company, headed by ceo Sumant Sinha, is likely to be valued at $4 billion, and the public offering could be around $1 billion.
The company has a pan India wind & solar energy capacity of 5850 MW out of which 3920 MW is operational currently.
Edited Excerpts: What makes your IPO issuance compelling for the investors to buy?
We have a differentiated model which is fairly unique. The business is de-risked at execution, operation and growth levels. We have lower gestation period with 12 months of construction time period, no fuel risk like in the case of thermal and the units generate cash to service the debt. There is no other Indian listed company with pure play renewable energy generation and we are the largest in the space by far.
We are well diversified across states and buyers with least risk of concentration. ReNew Power gives a good opportunity to an investor to bet on the high growth renewable energy sector. We are growing at a rapid pace with a mix of organic and inorganic routes.
What’s you capacity expansion roadmap? Are more acquisitions on the card?
As we speak, we have 700 MW of capacity addition at advance stages through acquisitions. Renewable energy market is fragmented which will lead to more consolidation and we are ready for it. We have been winning government contracts as well which will enhance our portfolio. We have grown double in capacity in the last few years.
What is the timeline of the IPO and what will be the proceeds utilized for?
ReNew Power has filed the DRHP with the SEBI in early May and waiting for the regulator’s approval. Will assess the market conditions once we get the approval. ReNew Power to get Rs 2600 crore via IPO fund raise and will be primarily used for debt reduction by Rs 1800-1900 crore, Rs 200 will be used for new acquisition opportunities and rest for general corporate purposes.
ReNew has marquee investors like Goldman Sachs, ADIA, GEF, CPPIB. Which investors will exit via IPO?
Part exit to some investors is one of the important reasons for going public. Goldman Sachs is the largest investor with 48.6% stake, will be reduced to 25% post the IPO. ADIA holds 16% and Global Environment Fund owns 3.7% stake, both will reduce their stake by 20% through the IPO. Japan’s Jera & Canada’s pension fund CPPIB are not selling any stake via listing process.
How much do you own? Are you also selling your stake?
I own 6.9% and my holding in ReNew will be reduced to 6.3% by way of the IPO.
How is the debt position of the company, are you looking at ways of further reduction?
Net Debt at FY18 end is at Rs 23,000 cr which is a debt/equity of 3:1. After we use the IPO proceeds to reduce debt, it will come down to 2.5:1. We are quite comfortable with these debt levels since our business generates cash. Our average finance charge is at 10.31% and we have diverse instruments like Masala Bonds worth $475 million for lower interest and longer tenures.
How is ReNew doing operationally?
We enjoy EBITDA Margin of 86-87%. Our FY18 9 month revenues were at Rs 2718.58 crore crore, EBITDA at Rs 2338.95 crore and PAT at Rs 230.17 crore.
Which companies would be your peers and what has been their valuation drivers?
ReNew can’t be compared to Suzlon or inox Wind which have a different model of equipment manufacturing, thermal power companies are very different from clean energy space.
Global companies like EDPR of Portugal, Northland Power of Canada, Encavis of Latin America are some of the peers which are trading at a multiple of 10-12% of their EV/EBITDA.
What in your view is working for the renewable energy sector in India?
Government’s huge impetus to this sector is also propelling the growth. Government has ambitious targets and is rolling out 10000 MW of wind power contracts and 30000 MW of solar contracts every year.
The demand is likely to outpace the capacity addition in this space. Tarriff levels had hit a low last year but are at much more reasonable levels of Rs 2.60-2.70 for both wind and solar energy.
What are the challenges in the sector and what are the future hurdles you foresee?
Health of the discoms is the perpetual issue in the Indian power sector. Distribution has to be smooth for the well-being of power producers. Government has also decided against the import duty on solar panel or it would have hiked the tariffs. Also, this space is attractive and has a risk that competition may drive down the returns.