Block Deal Details; Sellers Will Retain Their Equity For The Next 5 Months: Premier Energies

Summary

In this conversation, Mr. Vine Rustagi, the Chief Business Officer at Premier Energies, discusses the company's plans for expansion, including a significant increase in manufacturing capacity and forays into new segments like battery storage and inverter manufacturing. He talks about funding their capex through internal accruals and conservative debt management. Vine also shares insights on the solar industry's growth, future demand projections, and the potential for exports to markets like the US and Europe. He highlights the importance of government support and diversification away from reliance on China for critical materials.

Takeaways

• 😀 The South Asia Growth Fund sold 5.5% of its stake in Premier Energies, with plans to retain the remainder for at least 5 months.
• 😀 Premier Energies plans to invest ₹12,500 crores, with 90% allocated to expanding solar cell and module capacity and backward integration into wafer manufacturing.
• 😀 The company is venturing into battery storage and inverter manufacturing, requiring ₹800 crores of cash.
• 😀 Premier Energies aims to fund its capital expenditure primarily with internal accruals (₹2,000 crores) and incremental debt (₹4-5,000 crores).
• 😀 Premier Energies is targeting a debt-to-equity ratio of 1.5 times, which is considered conservative for the solar industry.
• 😀 The Indian solar industry demand is expected to double over the next five years, with Premier Energies’ current 25 GW capacity likely to increase to 50-55 GW by 2028.
• 😀 Premier Energies believes the domestic market will remain balanced or under-supplied in the next 3-5 years despite new entrants in the market.
• 😀 Exports are seen as a potential growth lever, with the U.S. and Europe as key markets, which have demand that is double India’s current demand.
• 😀 The company is working to reduce dependence on China for key raw materials by sourcing from Europe and the U.S., with support from the government.
• 😀 Premier Energies is focused on sustainable growth, projecting a 25% return on capital over the long term, though final margins will depend on market dynamics.

Q & A

What is the status of the South Asia Growth Fund's stake in Premier Energies?

The South Asia Growth Fund sold approximately 5.5% of its stake in Premier Energies but has indicated that they will retain the remaining equity for at least the next five months.

How is Premier Energies planning to finance its large capital expenditure (capex)?

Premier Energies plans to finance its capex using a combination of internal accruals and some incremental debt, aiming to maintain a conservative capital structure. The company is focused on staying at a debt-to-equity ratio of 1.5 times.

How much is Premier Energies' current cash balance, and what role will it play in funding their capex?

Premier Energies currently holds ₹2,000 crores in cash, which, along with internal accruals estimated at ₹4,000 to ₹5,000 crores, will fund a significant portion of their capex.

What is the expected growth in India's solar capacity over the next few years?

India's solar industry demand is expected to grow more than double over the next five years. The country added about 24 GW of solar capacity in the last financial year, and projections suggest demand could reach 50-55 GW in the next 3 years.

How does Premier Energies view the potential challenges of increased solar manufacturing capacity?

While the solar industry is seeing strong growth, there are concerns that new large-scale capacities may outpace demand. However, Premier Energies believes that the Indian market will remain in balance or even undersupplied for the next three to five years.

What role do green hydrogen and exports play in Premier Energies' future growth?

Green hydrogen and export markets are seen as additional demand levers for Premier Energies. The company is exploring export opportunities, particularly in the US and Europe, which have a combined demand more than double that of India's current demand.

What is Premier Energies' strategy for managing its supply chain and dependencies on China?

Premier Energies is working to diversify its supply chain, looking for suppliers in Europe and the US to reduce reliance on China. The company is confident that with proper planning and government support, it can manage potential risks.

How does Premier Energies plan to manage its capital structure with the large capex plans?

Premier Energies aims to maintain a very conservative capital structure with a debt-to-equity ratio of about 1.5 times, even with its significant capex plans, ensuring that the company remains financially stable.

What new areas of business is Premier Energies venturing into?

Premier Energies is expanding into battery storage and inverter manufacturing, along with its existing focus on solar cell and module production. This will consume around ₹800 crores of cash.

What is the expected return on capital for Premier Energies in the long term?

Premier Energies aims for a long-term return on capital of around 25%, although the actual margins will depend on various market factors, including rapidly changing technology and capital-intensive industry conditions.