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Tuesday, July 26, 2011

Indosolar Ltd:-Buy/sell/,growth prospects and recommendation,news and results,target and analysis,view and outlook,multibagger

Scripscan:Indosolar Ltd

Story:Indosolar manufactures poly-crystalline solar photovoltaic (‘SPV') cells from silicon wafers. SPV cells are used in SPV modules for converting sunlight directly into electricity through a process known as the photovoltaic effect. The company sells SPV cells primarily to module manufacturers who in turn supply to the system integrator who install the systems for grid or off grid applications in domestic or overseas markets.Currently the company has an aggregate SPV cells manufacturing capacity of 160 MW per annum with the first manufacturing line having a capacity of 80 MW and the second line have another 80 MW.The first line commenced commercial production in July 2009 and the second one on March 2010.The company is expanding the aggregate capacity to 260 MW by October 2011 by setting up a 3rd line with a capacity of 100 MW.It is one of the few companies selected by the Government of India for grant of financial incentives under the "Special Incentive Package Scheme" of 2007 notified by the Government of India. The Special Incentive Package Scheme provides for 25% of the eligible cost as capital subsidy on achieving a threshold of capital investment of Rs 10 billion, which the company will achieve with investment in 3rd line. It has been granted an in-principle approval on June 1, 2009 by Ministry of Communication and Information Technology, Government of India and has applied for formal approval on March 31, 2010. The manufacturing facility of the company at Greater Noida has been granted the status of ‘Export Oriented Unit' under the Foreign Trade Policy 2009-2014 of the Government of India.Thus the company is entitled to avail of certain direct and indirect tax exemptions including free imports.But Cost of generation of solar power is very high due to prohibitive capital cost of solar power plant either solar PV or solar thermal at about 14-16 crore per MW compared to Rs 4-6 crore per MW in case of other conventional/ renewable sources of power.Since the electricity power generation largely depends on the number of arrays used with more arrays translate to more power, the land requirement is also high in case of non roof-top based grid connected plants. Higher captive cost makes this source of energy uncompetitive compared to coal/hydel/nuclear based power plants as well as that of other renewable sources such as wind power and biomass etc. Thus a solar PV plant is viable only with government support across the globe.Generally Governments in major markets of Germany, Spain, US as well as that of India offers financial incentives as well as policy support in the form of renewable obligations, feed in tariffs etc. Any change in either policy support or incentives will affect the investment for solar power generation through PV which in-turn affect the demand for PVC cells.The company does not have long-term supply contracts for poly-silicon wafer which might impact its profitability if there is any sharp rise in poly silicon prices. Typically material cost accounts for about 88.9% of the total manufacturing cost. Other raw materials in manufacture of SPV cells apart from silicon wafers are chemicals, silver and aluminium pastes.Hence its profitability largely hinges on its ability to procure poly-silicon wafers at low cost and ability to enhance capacity utilisation and SPV cell efficiency and pricing.Currently the company manufactures SPV cells using crystalline silicon technology, a first generation technology with efficiency ranging between 15.4% and 16.6% as against typical industry conversion efficiency of 15-17%. The SPV technology is still in the evolution stage, with lot of research going on in both first generation and second generation technology such as thin film technology etc.Currently the crystalline SPV cells are more popular on account of its higher conversion efficiency compared to 6-7% of the thin film cell technology despite the latter being significantly cheaper. Moreover the company is a single product manufacturer with little backward and forward integration. The chances of technology obsolescence is very high, if the company does not keep pace with advancements in technology.The company and its promoters have less operational experience in SPV industry compared to long standing presence of its competitors across the globe.Further the market is highly competitive globally with more than 100 cell producers excluding around 80 thin film cell producers supplying to 300 odd solar panel producers.On the financial front there's nothing much to talk about as its still in deep losses.Its hard to value these companies but prospect looks bright.Hold on to it and await for for the future numbers to decide about it.

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