Sterlite Power Transmission IPO

Objects of the Offer :

The Offer comprises of a Fresh Issue. The Fresh Issue aggregates up to ₹ 12,500 million. Out of the net proceeds from the fresh issue, ₹9550 million will be used for Repayment or pre-payment, in full or part, of certain borrowings availed by the Company and KTL. The balance would be used for corporate general purposes.

Sterlite Power Transmission ltd IPO ANALYSIS

Consistent track record of financial performance:

The company's revenue from operations has decreased from ₹35550.06 million in Fiscal 2019 to ₹20,923.91 million in Fiscal 2021. The company’s EBITDA increased from ₹3233.63 million in Fiscal 2019 to ₹18,317.68 million in Fiscal 2021. Its PAT also increased from ₹ (5247.95) million in Fiscal 2019 to ₹8701.24 million in Fiscal 2021.

CONSOLIDATED FINANCIAL SUMMAry of Sterlite Power Transmission

(`₹ in Millions)	FY19	FY20	FY21
Revenue from Operations	35,550.06	30,043.19	20,923.91
EBITDA	3,233.63	22,770.09	18,317.68
EBITDA Margin (on total income)	9.05%	44.14%	47.99%
PAT	(5,247.95)	9,429.73	8,701.43
EPS (₹)	(85.78)	154.13	142.22
ROE	97.00%	234.64%	68.42%

Competitive Strength:

Leadership position in the Indian power transmission sector

According to CRISIL Research, Sterlite Power Transmission Limited is the largest private player in terms of project portfolio under the inter-state TBCB route, with a market share of 26% of transmission projects awarded through the TBCB route, which is second only to Power Grid Corporation of India Limited ("PGCIL"), the Indian state-owned electric utility company. The power transmissions industry in India has high growth potential. The demand for electricity in densely-populated Indian cities is expected to continue to rise as a result of end-use electrification. The country also has a target of setting up 450 GW of renewable energy by 2030. The company is well-positioned to benefit from this increased deployment of renewable energy going forward. Further, in relation to Brazil, for projects auctioned by ANEEL between January 2017 and June 2021, according to data from ANEEL, it has a market share of 13%. Fitch Solutions expects that Brazil's power sector is set to see robust growth over the coming decade, in which they forecast total electricity capacity to increase from 181.6 GW as of the end of 2020 to 238.5 GW in 2030. Sterlite Power Transmission Limited is well placed to benefit from this expected increase in capacity, based on its track record of executing strategic projects in Brazil. It believes that its presence in both India and Brazil allows it to hedge against any cyclicality in the release of new tenders in these countries.

Track record of executing complex projects with the use of technology and innovative solutions

Sterlite Power Transmission Limited has a leading reputation in the market and a track record of executing complex projects successfully. It has completed the construction and development of 10 transmission projects in India and one transmission project in Brazil. Its on-time and cost-efficient execution of projects provides it with a competitive advantage, particularly in view of the large size of these projects and the diverse geographies in which they are located. It has delivered projects that are located in areas that are challenging due to the difficult terrain or limited corridors. It has a strong track record of completing projects on time. For example, the company commissioned its first project in Brazil 28 months ahead of schedule. It believes that its (i) access to financing, (ii) industry expertise in identifying and valuing new projects and assessing risks and (iii) experience in implementing large projects, allow it to build and operate transmission and distribution systems efficiently. It has experience in managing the entire life cycle of transmission systems, from conceptualization to commissioning to operation. The company has in-house capabilities to undertake end-to-end project design.

An integrated player offering solutions with high growth potential for Solutions and Convergence business units

Through its Global Infrastructure and Solutions business units, Sterlite Power Transmission Limited offers integrated solutions to complex problems in the power transmissions industry. The company provides services across the value chain, including manufacturing of conductors, cables and OPGWs used in transmission systems; development and construction of greenfield transmission infrastructure; consulting and bespoke contracting services; and brownfield projects involving upgrade and uprate of existing transmission lines. This integrated model provides it with a strategic advantage in delivering complex projects that differentiate it from its competitors, strengthen its brand identity and diversify its revenue base. While as part of its Global Infrastructure business unit, it has a track record of executing projects successfully, as part of its Solutions (products) business unit, Sterlite Power Transmission Limited manufactures and sells a diversified portfolio of products, covering conductors, OPGW and power cables, to international customers, including central and state electricity transmission companies, transmission developers and transmission engineering, procurement and construction ("EPC") contractors.

Purpose driven organization, with a strong focus on ESG

Sterlite Power Transmission Limited believes that access to electricity transforms society and acts as a platform for prosperity. Hence, it believes its business is purpose driven and has an immense social impact, which acts as a driving force for its employees and stakeholders. Further, its core purpose resonates even more strongly with its stakeholders in the "post-pandemic" era, as electricity has become critical for society and economy. The company is also proud of its focus on integrating renewable energy sources with transmission grids. Since its inception, it has endeavoured to adopt a sustainable approach to developing power infrastructure. The company has integrated ESG best practices to many of its business processes. The ESG focus is demonstrated through sustainable practices adopted throughout its project life cycle, such as optimizing transmission routes to minimize the impact on environment and bio-diversity, innovations such as tree translocation and drone-stringing, and adopting a "safety-first" culture.

Management:

• Pravin Agarwal (Chairman and Non-Executive Director):He holds a bachelor’s degree in commerce from the Patna University. He has been associated with the Sterlite Power group since its inception and has significant experience in general management and commercial affairs. Previously, he has held directorship positions in Sterlite Technologies Limited, East-North Interconnection Company Limited and Speedon Network Limited and has an overall experience of 24 years as a director in overseeing and handling management of companies.

• Pratik Pravin Agarwal (Managing Director):He holds a master’s degree in business administration from the London Business School, University of London and a bachelor’s of science degree in economics from the University of Pennsylvania. He has an overall experience of 10 years as a director in overseeing and handling management of companies. Previously, he held directorship positions in Sterlite Technologies Limited, Sterlite Ports Limited, Vizag General Cargo Berth Limited, and Speedon Network Limited. In 2018, he was awarded the Economic Times 40 under 40 award.

• Anuraag Srivastava (CFO):He holds a bachelor’s degree in commerce (honours) from the University of Delhi and passed the final examination held by the Institute of Chartered Accountants of India. He is responsible for strategic financial management, mergers and acquisitions and the legal and secretarial functions of the Company.

Risks:

• A significant portion of its total income in prior years is derived from net gain on the sale of its completed projects. There is no assurance that it will be able to successfully sell its ongoing projects as they reach operational stages going forward.

• The company operates in a highly competitive environment, and increased competitive pressure could adversely affect its business and its ability to successfully bid for projects and execute its growth strategy.

• The construction, operation and maintenance of its transmission systems involve significant risks that may cause injury to people or property and that may lead to significant disruption to its business and consequent decreases in its revenues.

• Delays in obtaining, or a failure to maintain, governmental approvals and permits required to construct and operate its projects may adversely affect the development, construction and operation of its projects.

• Changes in technology may render its current technologies obsolete or require it to make substantial capital investments

• * For complete list of risk factors kindly refer to the Draft Red Herring Prospectus.

Weakness:

• The power sector in India involves governance by the Central and state regulatory agencies. The sector is highly regulated with various functions being distributed between multiple implementing agencies.

• A challenging geography increases costs and time required to connect to the national grid power plants located in remote areas.

• Brazil will remain heavily dependent on hydropower, which poses a risk of supply shortages and spiking wholesale prices in times of drought.

• Obtaining environmental licenses has proved a lengthy process for projects with a large impact on people and the environment.

Opportunities:

• Growing opportunities for international companies in the development of power transmission lines and smart-grid infrastructure.

• With healthy availability of power, India is evaluating opportunities to tap neighboring countries for better integration and synergies.

• Strong investor interest in the development of renewable energy projects and the acquisition of power companies, with distributors a key target.

Threats:

• The construction and operation of its power transmission systems and substation projects may have significant consequences on grazing, logging, agricultural activities, mining and land development as well as on the ecosystem of the affected areas. Opposition from local communities and other parties may adversely affect the company’s financial condition.

• Its results of operations could be adversely affected by strikes, work stoppages or increased wage demands by employees or other disputes with employees.

• The company may lose tariff revenues or fail to receive payments and incur significant repair and replacement costs in the event there is a delay in commissioning or a shift in the scheduled commercial operation date due to unforeseen circumstances.

Strategies going forward:

Maximize its ROCE by continuing to bid for and execute high IRR projects in India and Brazil

Sterlite Power Transmission Limited has the ability to acquire and execute complex projects successfully, with the use of technology and innovative solutions resulting in high IRR. The company intends to focus on its power transmission business in India and Brazil, which it expects, will contribute to the growth of its business and profitability in the medium term. The company intends to continue to increase its capacity and strengthen its position in the power transmission sector, primarily via organic growth and improved efficiencies. Furthermore, the company intends to strengthen its existing market share by pursuing new growth opportunities in a disciplined manner, focusing on returns. It intends to continue to evaluate opportunities to bid for upcoming ISTS projects via the TBCB process. It also intends to continue to evaluate opportunities to bid for InSTS projects via the TBCB process. In Brazil, it will continue to bid for concessions awarded by ANEEL.

Continue to invest in technology differentiation

Sterlite Power Transmission Limited intends to continue to leverage its technology differentiation and strive towards delivering innovative solutions to problems faced in project development, so as to deliver quality projects in a timely and cost-effective manner. The company is actively pursuing innovation opportunities with educational institutes, start-ups and other organizations. It is also one of the sponsors for MIT EnergyHack 2020, a virtual hackathon aimed at developing rapid, innovative solutions to energy problems. It intends to modernize its infrastructure and services by focusing on the strong market practices in the power transmission industry. As it grows its power transmission business, its engineering department continuously strives to adopt new and improved transmission tower designs with a focus on cost reduction through reducing its consumption of materials such as steel, aluminum and insulators. In-house designs also provide the company the flexibility, not offered by standard designs, to customize environmental and technical parameters. The company has developed TransAnalyst in-house as a gas insulated substation ("GIS") based planning and analytics tool which is expected to aid it in the planning of power transmission lines. The platform suggests the least cost/optimum route by considering all geological and regulatory constraints. This is of great importance to the project management team to avoid frequent manual interventions and corresponding delays. TransAnalyst provides benefits of reducing time, accuracy of digital data, iterative capability, minimizing of manual intervention and data driven decision making.

Pursue inorganic growth on an opportunistic basis

While Sterlite Power Transmission Limited’s focus remains on growing its business through organic growth initiatives, it also endeavours to opportunistically pursue acquisition opportunities, focusing on high returns. The company will consider opportunities for the acquisition of transmission projects under various stages of development or technology companies that would provide it a strategic advantage in its operations.

Grow its MSI and Convergence business units

Sterlite Power Transmission Limited believes that its MSI and Convergence business units have high growth potential. As part of its MSI sub-unit, the company provides bespoke, technology led solutions to brownfield transmission infrastructure projects. The company intends to capitalize on its reputation as an integrated player in the transmissions industry and the track record of executing complex projects in a timely manner to further expand its operations in the MSI business. The order book for its MSI business has grown from ₹ 5,511.8 million for FY2019 to ₹ 8,341.9 million for FY2021. The company’s fiber-ization (i.e., the replacement of ground wire with OPGW) solution is currently used for stringing OPGW under live line conditions on transmission lines. The company has applied for a patent for this solution. In addition, it believes that its Convergence business unit will benefit from the increasing demand for reliable digital connectivity in India. In 2018, the Government of India released a National Digital Communication Policy which outlines a vision to bring fibre access to homes, enterprises and key development institutions. The Convergence services, which include leasing neutral dark fibre, co-location facilities and towers to telecommunications companies and other communication service providers, are aligned with such demand. It also supports cities with smart city fibre solutions. In 2019, its subsidiary, SCL, entered into its first public-private partnership ("PPP") to build an intra city fibre network for Gurugram Smart City (in consortium with Advance Telecom and Power Network Limited). Since then, it has expanded its market presence and acquired new customer segments.

Disclaimer -

The content on this page is made available on the basis of the DRHP (draft red herring prospectus ) filed by Sterlite Power Transmission Limited. The final content could change based on the Red Herring Prospectus (RHP) filed