 |
There is a certain buzz about green businesses today. That’s where the Kolkata-based solar photovoltaic cell manufacturer Webel-SL Energy Systems comes in. It has gradually graduated in respect for the following reasons:
• It mastered the monocrystalline technology used for the manufacture of solar photovoltaic cells, which essentially requires the company to use recycled silicon wafers
• Its use of the recycled stuff resulted in a more efficient raw material use over peer companies
• As production stabilised, it widened its marketing footprint and enhanced installed capacity—from 2.5 MW to 10 MW—through declining capital cost per MW Webel-SL was a fair company with reasonable fundamentals—revenues of Rs 106.8 crore and profit after tax (PAT) of Rs 7.69 crore in 2006-7—until the game changed. Moser Baer announced its entry with a capacity that was multiples of Webel-SL’s; Reliance recently announced an industry entry that is multiples of Moser Baer’s.
So where does that leave Webel-SL?
• One, given the global priority to invest in renewable energy, nobody is crying “overcapacity” just yet
• Webel-SL has formally announced an expansion to 40 MW (cost Rs 180 crore) and thereafter to 100 MW
• The result is that it took Webel-SL 12 years to get to 10MW; it will take the company a mere two years to tenfold this growth
• As an equity picker, I sniff the following opportunity:
• The company is probably undercapitalised at around 10 million equity shares (face value Rs 10 each) and a market capitalisation of around Rs 300 crore (based on fully diluted equity)
• The company has mobilised Rs 120 crore of debt at 350 basis points above London Interbank Offered Rate against a net worth of Rs 85 crore
• At 80% of the company’s 40 MW capacity—expected to be fully commissioned by December 2008—the company can potentially generate more than Rs 500 crore in revenues
• Prevailing surface photovoltage realisations are around $3.8 per watt peak; the management indicates that at $3.5 per watt peak, it can potentially generate an earnings before interest, taxes, depreciation and amortisation (EBITDA) margin of 22-24%
• The company has indicated that it expects to leverage cash flow and debt to fund the next round of capacity growth to 100 MW, no equity dilution; that should translate into a revenue potential of around Rs 1,300 crore (assuming 80% utilisation) on a mere Rs 10 crore of equity
• The company has covered all its requirement of scarce silicon wafers for three years but has an open book for the end product
• Its products are sold across 22 countries with the developed ones accounting for the principal share
• The expansion will derive SEZ advantages and hence save on tax Looks attractive for an interesting play once its expansion goes on stream.
Disclosure: The writer holds stocks in Webel-SL Energy
Patherya heads Trisys, an annual reports consultancy. His column identifies stocks that are not in the limelight. He can be reached at mudar@trisyscom.com
