Q3 results. Sterling and Wilson Continues To Answer More Questions

With the fracas over repayment of loans to promoters barely dying down, Sterling and Wilson’s rocky start to its relationship with the markets was supposed to become steadier. Instead, the firm found itself preparing for a barrage of questions, after underwhelming results. Readers might recall the punishment the firm’s stock price took, when it was discovered promoters have been unable to follow through on a key objective of the stock listing, which was to repay promoter debts to the firm. That issue is finally closer to a resolution with a big repayment of close to Rs 10 billion in December 2019. A big dividend declaration of Rs 6 per equity share should also hasten the process of promoter repayments.  The firm’s current stock price is at Rs 274, versus its issue price of Rs 780 for the IPO.

But the firm failed to enthuse investors with its actual results. Sterling and Wilson Solar has reported a sharply lower Q3 revenue of Rs 10764 million in Q3 of 2019-20, as compared to Rs 16,440 in Q3 of 2018-19. Final profit after tax, at Rs 503 million versus Rs 1885 million in the corresponding quarter last year. Meanwhile, revenues for the 9 month period during the financial year are down over 40 percent over last financial year.

Sterling and Wilson has blamed the sharp fall on two factors. A delay in commencement of a large project in the middle-east, and the disproportionate impact of a large project that was in peak execution in the corresponding quarter last year. Again in the MENA region.

The firm has offered the more than doubling of its O&M (Operations and Maintenance) revenues during the quarter, except that O&M revenues still contribute barely 3.7 percent to total revenues.

An improvement in margins has also been highlighted at both gross and net margin levels, but clearly, the firm continues to face credibility issues, as seen in its stock price slump by over 8 percent , the day after results.

While sounding a warning over the possible impact of Corona Virus on shipments from China, the firm has seen it fit to give a revenue guidance of Rs 15 to Rs 20 billion for Q4, to allay doubts over project delays.

Among other positives, the firm highlighted its order inflow of 2.2 GW (Rs 85,507mn) until 12 Feb 2020, 7.4 GW contracted O&M as at 12 Feb 2020.  Gross Unexecuted Order Value (UOV) as on 12 Feb 2020 is above Rs 129,000 mn compared to over Rs 77,000 mn as at 31 Mar 2019, according to the firm.

For industry insiders aware of the impeccable reputation and credentials of the firm, its corporate troubles have been a huge surprise. Which is why hopes are high that the firm will take steps to work on its relationship with its equity investors also. Unfortunately for now, the coronavirus might have put paid to any immediate relief , for the foreseeable future too.