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Shares of Sterling and Wilson Renewable Energy Ltd rose sharply in Monday’s trade amid heavy volumes. The stock surged 17.82 per cent to hit a day high of Rs 339.50 over its previous close of Rs 288.15. Around 8.63 lakh shares changed hands today on BSE, which was way more than the two-week average volume of 59,000 shares. Turnover on the counter stood at Rs 27.60 crore, commanding a market capitalization (m-cap) of Rs 6,309.20 crore.
Today’s sharp upward move in the share price came after the company said it expects to be profitable in the ongoing financial year (2023-24) based on a healthy order book. The management told analysts in a conference call that it hopes to bag a substantial portion of Reliance Industries’ (RIL’s) roll-out of 100GW of solar projects by 2030. RIL subsidiary, Reliance New Energy, has a 40 per cent stake in Sterling and Wilson Renewable.
On the earnings front, the company narrowed its losses to Rs 95.32 crore in the June 2023 quarter (Q1 FY24) compared to a loss of Rs 355.99 crore in the year-ago period. Revenue from operations, however, fell to Rs 514.96 crore, from Rs 1,206.93 crore a year ago.
Brokerage Nuvama has assigned a ‘Buy’ call for Sterling and Wilson Energy, suggesting a target price of Rs 454.
“The company has maintained a high fixed cost, targeting 2x order flows back to historical average of Rs 8,000 crore/year, for high operating leverage. A recent allowing Rs 2,200 crore NTPC order and a $1.5 billion MoU in Nigeria along with potential 20GW ( Rs 20,000-25,000 crore) order by parent company Reliance (RIL) for in-house solar power are key variables.It also enjoys game-changing synergies with RIL-in-house sourcing of modules and co-bidding, low borrowing cost, strong bank guarantees and greater risk mitigation,” the brokerage stated.
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We argue Sterling and Wilson Energy presents a high-risk high-return opportunity—currently, loss-making with erosion in shareholders equity, a turnaround in its fortunes hinges on lumpy order inflow. We value the company at 6x versus 8x for multi- business global EPC players to reflect higher risk, yielding a target price of Rs 454. We initiate with a ‘Buy’, arguing it is an early opportunity in the nascent, but potentially gigantic environmentally positive New Energy space currently devoid of pure-play opportunities it further said.
Nuvama also said that RIL aims to transition to G H2 from gray H2 as it targets to become net carbon-neutral by 2035. “During its August 2022 AGM, RIL stated that it shall set up 20GW of solar energy generation capacity by 2025. As a group company, it is highly likely that the company shall bag this order, which we estimate could be as large as Rs 20,000-25,000 crore, broken down over a few years,” it highlighted.
Meanwhile, Indian equity benchmarks touched their fresh lifetime highs today. The 30-share BSE Sensex pack surged nearly 600 points to touch its all-time high of 66,656, while the broader NSE Nifty moved nearly 200 points higher to scale a record high of 19,732.
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