With the economy still reeling from the Covid-19 pandemic and the equity market correcting some of its post-lockdown gains, WindForce Limited’s Rs3.2 billion, it seems, was a breath of fresh air for investors.
The WindForce (WIND) IPO was the largest on the Colombo Stock Exchange (CSE) since 2011. The Rs3.2 billion initial offer (202.6 million shares issued at Rs16 each) was eight times oversubscribed. The share commenced trading on 22 April 2021. A week later, the share traded at Rs17.90, up by nearly 12% from its IPO price.
WIND is the largest and most diversified renewable energy company in Sri Lanka, operating ten solar parks, seven wind farms, and ten mini-hydropower plants with a combined capacity of 126MW, higher than the total energy generation capacity of five of the largest CSE listed utility companies combined.
In addition to Sri Lanka, WIND operates renewable energy plants in Pakistan, Uganda and Ukraine. The company operates 27 power plants with an installed generation capacity of 218Mw of which 55% is in Sri Lanka, 32% in Pakistan, 9% in Uganda and the rest in Ukraine.
Akbar Brothers Group, the Hirdaramani Group, Debug Group and Amaliya, a company connected to Sri Lankan multinational clothing manufacturer, MAS Holdings, are all major investors in WIND. There are several reasons why investors swayed. They are encouraged by WIND’s expertise in renewable energy and its prospects to grow the business both here and abroad.
Solar and wind power accounts for approximately 87% of WIND’s total generation capacity, making it a pioneer in the area. Sri Lanka has only scratched the surface when it comes to harnessing the solar and wind power potential, estimated at less than 5%, which leaves significant room for expansion for a company like WIND.
WindForce Limited was incorporated in July 2010 to promote and handle all aspects of renewable energy development. It is today the largest independent power producer in the country. The company specialises in conducting feasibility studies, design and engineering management, procurement, and commissioning, construction, erection, operation and maintenance of power plants – the entire life cycle of a power project.
According to market analysts, WIND has locked in higher tariff rates in Sri Lanka, mainly due to the firstmover advantage, which gives them a margin benefit over local competitors. A track record for identifying locations with high wind density and solar irradiance is another advantage.
The company will use a part of the proceeds (Rs927 million) on a wind power project in Mannar and Rs1.4 billion on a solar power project in Senegal, leaving a balance of nearly a billion rupees (Rs932 million) in its war chest for future projects. “The total installed capacity of the company will increase from 218MW to 263MW with the completion of (these) projects, and strengthen our position as the largest renewable energy IPP in Sri Lanka, and one of the largest in the region,” the company’s IPO’s prospectus said.
“With the commencement of the new power projects WIND would be able to diversify its project portfolio further and enhance the future profitability of the company. This in turn would enhance the possibility of the company maintaining its historical dividend payout to its shareholders. With the commencement of the Senegal power project, WIND will have more access to power projects in Africa, a region abundant with untapped renewable energy resources,” the company said.
WINDFORCE GLOBAL FOOTPRINT
Combined capacities and number of plants in hydro, solar and wind
WIND maintains strong relationships with foreign parties in the renewable energy space which is likely to support WIND’s offshore expansion in the long run amid the global push towards sustainable power generation.
Revenue is expected to grow 16% annually to Rs6.3 billion by 2023 while net profits will grow 22% annually to Rs3.4 billion during the same period, CT CLSA Stockbrokers estimates.
“We expect WIND to maintain its existing dividend payout ratio of around 70-80% and return an attractive dividend yield of around 10-13% (on the offer price) over the next three years, well above the 3-year Treasury yield of around 6.4%,” it said.
WIND has already declared and paid an interim dividend of Rs 400 million for the ongoing 2021/22 financial year and CT CLSA believes the company may declare a final dividend of 90 cents to Rs1.2 per share.
“Based on a sum-of-the-parts (SOTP) valuation, using discounted cash flows (DCF) of all the power plants based in Sri Lanka, Pakistan, Uganda, Ukraine and the two proposed projects, we value a share of WIND at Rs20.7, suggesting an upside potential of over 29%,” CT CLSA said. An impressive return as any should it come to pass.