Indosolar

Indosolar, promoted by Bhushan Kumar Gupta and Hulas Rahul Gupta, manufactures poly-crystalline solar photovoltaic (‘SPV') cells from silicon wafers. SPV cells are used in SPV modules for converting sunlight directly into electricity through a process known as the photovoltaic effect. The company sells SPV cells primarily to module manufacturers who in turn supply to the system integrator who install the systems for grid or off grid applications in domestic or overseas markets.



Currently the company has an aggregate SPV cells manufacturing capacity of 160 MW per annum with the first manufacturing line having a capacity of 80 MW and the second line have another 80 MW. The first line commenced commercial production in July 2009 and the second one on March 2010. The company proposes to expand the aggregate capacity to 260 MW by October 2011 by setting up a 3rd line with a capacity of 100 MW. The issue proceeds are expected to fund the expansion plan and other corporate purposes.

Typically a frame under a transparent glass or plastic covering mounted with number of SPV cells (usually 20 or more) are called SPV module. Usually two or more modules are connected to form an array. The company uses Crystalline Silicon technology to manufacture SPV Cells from silicon wafers.

The company's SPV Cell manufacturing unit is set up on turnkey basis by Schmid Technology Systems GmbH ("Schmid"), one of the operators in SPV cell manufacturing technology and a vertically integrated player in the SPV cell industry.

As part of its manufacturing capacity expansion plans, it proposes to install ‘selective emitter' technology in one of its SPV manufacturing lines to be commissioned by its turnkey provider, Schmid. ‘Selective emitter' technology will give capability to produce improved SPV cells of higher average efficiency up to 17.20%. Currently, typical conversion efficiencies for solar cells and modules are 15-17% and 11-15% respectively. A solar module's energy conversion efficiency is defined as the maximum electricity output divided by the sunlight-energy input.

Since the commencement of commercial production in July 2009 and until July 31, 2010, the company have sold 44.26 MW of SPV cells for Rs 248.28 crore (including 0.52 MW of SPV modules for Rs 5.29 crore).

Strengths

Total order book to supply SPV Cells as end of July 31, 2010 stands at a healthy 170.36 MW. The total order book translates into Rs 1011.90 crore at a forex conversion rate of 1 Euro = Rs 60.53 and US$ = Rs 46.42. Of the total order book of 170.36 MW the company has so far until 31st July, 2010 has executed about 30.58 MW (worth Rs 170.76 crore). The current order book provides strong revenue visibility as well as strong capacity utilisation in a period where the investment in renewable energy remains subdued globally on the back of economic recession. Moreover the current order book is also fairly diversified with orders coming from eleven customers from seven countries.

It is one of the few companies selected by the Government of India for grant of financial incentives under the "Special Incentive Package Scheme" of 2007 notified by the Government of India.
The Special Incentive Package Scheme provides for 25% of the eligible cost as capital subsidy on achieving a threshold of capital investment of Rs 10 billion, which the company will achieve with investment in 3rd line. It has been granted an in-principle approval on June 1, 2009 by Ministry of Communication and Information Technology, Government of India and has applied for formal approval on March 31, 2010.

The manufacturing facility of the company at Greater Noida has been granted the status of ‘Export Oriented Unit' under the Foreign Trade Policy 2009-2014 of the Government of India. Thus the company is entitled to avail of certain direct and indirect tax exemptions including free imports.

Weaknesses

Cost of generation of solar power is very high due to prohibitive capital cost of solar power plant either solar PV or solar thermal at about 14-16 crore per MW compared to Rs 4-6 crore per MW in case of other conventional/ renewable sources of power.
Since the electricity power generation largely depends on the number of arrays used with more arrays translate to more power, the land requirement is also high in case of non roof-top based grid connected plants. Higher captive cost makes this source of energy uncompetitive compared to coal/hydel/nuclear based power plants as well as that of other renewable sources such as wind power and biomass etc. Thus a solar PV plant is viable only with government support across the globe. Generally Governments in major markets of Germany, Spain, US as well as that of India offers financial incentives as well as policy support in the form of renewable obligations, feed in tariffs etc. Any change in either policy support or incentives will affect the investment for solar power generation through PV which in-turn affect the demand for PVC cells.

The company does not have long-term supply contracts for poly-silicon wafer which might impact its profitability if there is any sharp rise in poly silicon prices. Typically material cost accounts for about 88.9% of the total manufacturing cost.
Other raw materials in manufacture of SPV cells apart from silicon wafers are chemicals, silver and aluminium pastes. Hence its profitability largely hinges on its ability to procure poly-silicon wafers at low cost and ability to enhance capacity utilisation and SPV cell efficiency and pricing.

Currently the company manufactures SPV cells using crystalline silicon technology, a first generation technology with efficiency ranging between 15.4% and 16.6% as against typical industry conversion efficiency of
15-17%. The SPV technology is still in the evolution stage, with lot of research going on in both first generation and second generation technology such as thin film technology etc. Currently the crystalline SPV cells are more popular on account of its higher conversion efficiency compared to 6-7% of the thin film cell technology despite the latter being significantly cheaper. Moreover the company is a single product manufacturer with little backward and forward integration. The chances of technology obsolescence is very high, if the company does not keep pace with advancements in technology.

The company and its promoters have less operational experience in SPV industry compared to long standing presence of its competitors across the globe. Further the market is highly competitive globally with more than 100 cell producers excluding around 80 thin film cell producers supplying to 300 odd solar panel producers.

There were some delays in servicing interest dues towards term loans, but the company indicated that they were serviced within 30 days from the due date.

Valuation

Sine the company have started production only in July 2009 with its first 80 MW capacity line and the started the second unit only in March 2010, there is not much to infer from its financial performance for the fiscal ended March 2010. In FY2010 the company has clocked revenue of Rs 115.52 crore (as against nil in FY09) and a net loss of Rs 66.21 crore (as against Rs 8.27 crore in FY09).

The enterprise value per MW of SPV cell capacity of Indosolar works out to Rs 5.83 crore (on lower price band) and Rs 6.07 crore (on upper price band) considering the post expansion capacity of 260 MW.

The market cap per MW of SPV cell capacity of IndoSolar works out to Rs 3.74 crore and Rs 3.98 crore on lower and upper price band based on expanded capacity of 260 MW. This compares favourably with Rs 5.00 crore per MW for peer Websol Energy.