The Surge of IPOs in India’s Energy Sector: A Transformative Shift
The Indian initial public offering (IPO) market has recently experienced a remarkable surge in activity, with an increasing number of firms eager to go public. This trend reflects a growing appetite for capital among Indian businesses and highlights the rising participation of both retail and institutional investors in the IPO space. Notably, energy companies are showing unprecedented enthusiasm for public offerings. For these firms, an IPO not only provides access to substantial capital but also enables them to scale operations, enhance research and development, and expand their project portfolios. These developments align seamlessly with India’s ambitious renewable energy goals, accelerating project deployments and fostering innovation in clean energy technologies.
IPO Market Boom in India
According to the Reserve Bank of India’s State of the Indian Economy report for September 2024, a significant number of listed companies have turned to qualified institutional placements (QIPs) for raising capital, which is estimated to reach Rs 600 billion within the first eight months of 2024. The EY IPO Trends Report further emphasizes that India’s IPO landscape has shown impressive growth, positioning the country at the forefront of global IPO activities in the first half of 2024. India accounted for nearly 27 percent of worldwide IPOs during this period. The robust macroeconomic environment, combined with market confidence and a projected GDP growth rate of 7.2 percent for 2024-25, has enhanced the attractiveness of the IPO market. With benchmark indices Nifty 50 and Sensex 30 trading near their all-time highs and investor sentiment strong, unlisted companies are expediting their IPO filings to access public funding.
A crucial element driving this IPO boom has been the role of the Securities and Exchange Board of India (SEBI), which has enhanced transparency and efficiency in capital markets. By implementing reforms such as simplifying filing requirements, eliminating the 1 percent security deposit, and allowing certain shareholders to contribute to the minimum promoters’ contribution, SEBI has made it significantly easier for companies to access capital.
Case for IPO Uptake in the Energy Sector
Several factors are fostering a positive environment for energy companies to pursue IPOs. First, the Indian government has set an ambitious target of achieving 500 GW of installed electricity capacity from non-fossil fuel sources by 2030. The Union Budget’s allocation for the Ministry of New and Renewable Energy has seen a significant increase to Rs 191 billion, up from Rs 128.5 billion in the interim budget. Second, the government has made remarkable strides in auctioning renewable energy projects, with an impressive 35 GW slated for auction in FY 2024, significantly higher than the average of 14 GW between FY 2021 and FY 2023. The decline in average solar tariff rates has also created a sustainable and viable solar market in India. Third, the production-linked incentive scheme is establishing a robust ecosystem for manufacturing high-efficiency solar photovoltaic modules domestically, thus reducing reliance on imports. The National Green Hydrogen Mission (NGHM) has gained momentum, supported by a Rs 6 billion allocation in the Union Budget 2024-25, marking a 102 percent increase from the previous year.
These initiatives have improved the risk profile of the renewable energy sector, with median ratings rising from BBB in 2018 to A+ in 2024. With a record capacity addition of 65 GW over the past five years, this environment has set the stage for increased financing and a burgeoning market. Consequently, the renewable energy sector is witnessing a surge in IPOs, paving the way for companies to go public and capitalize on this transformative shift. Several key players in the energy sector have announced ambitious IPO plans or have successfully gone public, signaling their readiness to leverage favorable market conditions and government support.
Recent IPOs
Over the past year, numerous IPOs have been issued, showcasing the growing interest in the energy sector. Premier Energies, which recently launched its IPO, generated remarkable interest, being oversubscribed 74.38 times. The offering attracted bids for 3,320.2 million equity shares against the 44.6 million shares available, as reported by NSE data. With India’s solar cell exports expected to rise sharply, Premier Energies stands to benefit significantly as the leading exporter of solar cells to the US for FY 2024, contributing over 95 percent to the country’s total exports.
Another notable issuance was by the Indian Renewable Energy Development Agency (IREDA) in November 2023, which saw its issue price of Rs 32 soar to a 52-week high of Rs 214. Following this success, IREDA plans to raise approximately Rs 45 billion through a fresh equity issuance, with the government set to dilute its stake by up to 7 percent via a QIP.
Alpex Solar Limited’s IPO also sparked significant excitement, achieving an impressive subscription rate of 303 times. The offering, which took place from February 8 to February 12, 2024, sought to raise Rs 745.2 million. Alpex Solar Limited plans to invest Rs 195.5 million to increase its solar module manufacturing capacity from 450 MW to 1,200 MW, alongside other strategic investments.
In October, Danish Power, a seasoned transformer manufacturer, set a new benchmark on the SME platform by launching the largest IPO to date, surpassing the previous record held by KPI Green. The IPO saw strong demand, with an impressive 12.01 times oversubscription by the second day.
Upcoming IPOs of PSUs
Government entities such as NTPC Green Energy Limited (NGEL), Oil and Natural Gas Corporation Limited (ONGC), and SJVN Limited are strategically preparing to launch IPOs for their green energy subsidiaries. ONGC Green Energy is set to unveil its IPO, focusing on innovative initiatives in biofuels, green hydrogen, and carbon capture technologies, supported by a recent funding boost of Rs 990 million. Simultaneously, SJVN is preparing for the IPO of its subsidiary, SJVN Green Energy Limited, with an ambitious goal of developing 25,000 MW of renewable energy capacity by 2030.
NLC India Limited aims to list its renewable arm, NLC India Renewables Limited, by the first quarter of the next financial year. NGEL has filed its draft red herring prospectus (DRHP) for an IPO valued at Rs 100 billion, set to launch in the first week of November 2024. This IPO aims to support expansion plans targeting over 60 GW by 2030, with NGEL’s AAA credit rating allowing fundraising at lower interest rates—crucial for the capital-intensive renewable energy sector.
Upcoming IPOs of Private Companies
The private sector is also gearing up for significant IPO activity. Waaree Energies stands at the forefront, having secured SEBI approval for its IPO, which includes fresh equity shares worth Rs 30 billion and an offer for sale of 3.2 million equity shares. The proceeds will fund the establishment of a 6 GW manufacturing facility for solar components in Odisha.
In the small and medium enterprises IPO segment, Solarium Green Energy has submitted its DRHP to the BSE, intending to offer up to 5.5 million equity shares. Similarly, ACME Solar Holdings has filed a DRHP with SEBI to raise Rs 30 billion through its IPO, which includes a Rs 10 billion offer for sale from its parent company and a Rs 20 billion fresh issue of shares.
The government’s promotion of green hydrogen through initiatives like the NGHM has prompted companies focused on this sector to prepare for IPOs in 2025. Matrix Gas & Renewables plans to raise up to Rs 12 billion for the development of 1,000 MW of capacity over the next three years.
Conclusion
The surge of IPOs in India’s energy sector marks a transformative phase for both the market and the environment. As India’s peak power demand is projected to reach 270 GW next fiscal year and soar to 446 GW by 2035, the government is actively increasing generation capacity to meet this growing need. Renewable energy and power companies, bolstered by robust government support and enhanced investor sentiment, are poised to leverage public funding for expansion and innovation. This convergence of factors not only aligns with India’s ambitious renewable energy goals but also fosters a sustainable future, presenting significant opportunities for investors and stakeholders in the sector.