Premier Energies IPO Opens: GMP Soars, But Here Are 12 Key Risks You Must Know Before Investing

Premier Energies has launched its ₹2,830.40 crore initial public offering (IPO) for subscription today, August 27, 2024. The IPO will close on August 29, 2024, with a price range set between ₹427 and ₹450 per share. Ahead of the public issue, the company raised ₹846 crore from anchor investors.

IPO Details

The Premier Energies IPO is a mix of a fresh issue of 2.87 crore shares, worth ₹1,291.40 crore, and an offer for sale (OFS) of 3.42 crore shares, worth ₹1,539.00 crore. In the OFS, South Asia Growth Fund II Holdings LLC will sell 2.68 crore shares, South Asia EBT Trust will sell 1,72,800 shares, and promoter Chiranjeev Singh Saluja will offload 72 lakh shares.

Share Distribution

In this IPO, 50% of the shares are reserved for qualified institutional buyers (QIBs), 15% for non-institutional investors (NIIs), and 35% for retail investors. Employees get a discount of ₹22 per share, and retail investors can start with a minimum investment of ₹14,850 by purchasing 33 shares.

Key Dates

The IPO subscription ends on August 29, 2024. The share allotment is expected to be finalized by August 30, 2024, and the shares are likely to be listed on the BSE and NSE on September 3, 2024. The issue is managed by Kotak Investment Banking, JP Morgan, and ICICI Securities.

About Premier Energies

Premier Energies, founded in April 1995, specializes in making solar cells and modules. They also offer monofacial and bifacial modules, as well as EPC (Engineering, Procurement, and Construction) and O&M (Operations & Maintenance) solutions. The company operates five manufacturing facilities, all located in Hyderabad, Telangana. According to its red herring prospectus (RHP), Websol Energy System Ltd. is its only comparable peer.

Premier Energies has seen rapid growth in recent years. From FY21 to FY23, their revenue grew at a compound annual growth rate (CAGR) of 42.71%. In FY24, the company’s revenue jumped 120% to ₹3,143 crore, with a profit of ₹231 crore, a significant improvement from a loss of ₹13.3 crore in the previous year.

Grey Market Premium (GMP)

The IPO is trading at a premium of ₹378 in the grey market, suggesting an expected listing price of ₹828 per share, 84% higher than the issue price of ₹450.

Key Risks

Premier Energies has highlighted several risks that could impact its business:

1. Revenue Dependence on Limited Customers: The company relies heavily on a few customers. Losing any could significantly affect its financial health.
2. Core Product Reliance: The company’s success is closely tied to its solar cells and modules. A drop in demand, especially for monocrystalline products, could hurt profitability.
3. Geographical Concentration: All manufacturing facilities are in Telangana, exposing the company to regional risks that could disrupt operations.
4. Financial Losses: The company reported losses of ₹14.4 crore in FY22 and ₹13.3 crore in FY23. Continued losses could weaken its financial position.
5. Negative Cash Flows: The company had negative cash flows of ₹15.53 crore in FY23 and ₹41 crore in Q1 FY24, which could strain its finances.
6. Under-Utilization of Capacity: Not fully utilizing manufacturing capacity could negatively impact financial performance.
7. Capacity Expansion Risks: Expanding capacity amid existing underutilization could be risky if demand doesn’t meet expectations.
8. Decline in Production: A decline in solar module production could impact business performance.
9. Past Non-Compliance: Previous regulatory non-compliance could lead to penalties and affect operations.
10. Intense Market Competition: Strong competition could lead to lower prices, reduced margins, and loss of market share.
11. Dependence on Government Projects: Relying on government projects exposes the company to policy risks.
12. Import Risks: The company imports key machinery from China, making it vulnerable to tariffs, import restrictions, and delays.

These risks highlight the potential challenges Premier Energies may face as it moves forward with its IPO and business expansion plans.