Why Investing in India’s Renewable Energy Stocks remains a Perilous Exercise

While India’s renewable energy industry has shown tremendous growth over the last decade with a very high double-digit to a triple-digit growth rate, companies mostly have failed to benefit from this growth. Given the myriad structural problems of the Indian economy, unforeseen risks fructify leading to huge losses for any and all players in the supply chain. There have been quite a few IPOs of both solar and wind stocks over the last decade but most of them have led to catastrophic losses for investors.

This has been the problem faced not only by the Indian investors but international investors as well. Renewable energy has been a fiercely competitive industry ever since it was born and most companies that have entered are now bankrupt. While wind energy companies have faced tumultuous times in the past, many have survived and thrived (Vestas, Gamesa). But Indian companies in both the solar and wind sectors have faced a torrid time. Intense competition and fickle government policies have led to bankruptcies galore. Indosolar and Moser Baer which were large solar manufacturing concerns listed on the stock market have gone kaput. Even wind turbine stocks such as Inox and Suzlon are on their death bed as demand collapsed with a change in policies. Suzlon which used to rank in the top five wind turbine makers in the world may go into liquidation soon despite repeated attempts to revive the company after it went into losses after the 2008 crisis.

Now Sterling and Wilson which is one the largest EPC players in the ground-mounted utility solar area has seen a massive erosion of its stock value after it IPOed a couple of months back. The company which is a part of one of India’s most wealthy family conglomerates was viewed positively from the corporate governance point of view as the Shapoorji Paloonji group is one of the oldest business families with a great reputation as one of the best construction groups not only in India but globally. However, the company’s stock has gone into a tailspin due to a corporate governance issue. The company in its prospectus had said that the promoters would give back a loan of around $600 million from the proceeds of the IPO sale to the company in a couple of months. However, the promoters have delayed that payment leading to a panic situation amongst investors. The environment in the Indian stock market is quite fragile with many big promoters and business families seeing their wealth go down the drain due to liquidity and bad judgments. DHFL, Zee, Anil Ambani, etc. have caused huge investor losses. Now investors are fearing the same from the Sterling and Wilson Solar stock. The stock was anyway being priced at a very high valuation at almost 20 P/E for a construction stock.