Sterling and Wilson Renewable Energy Limited: Navigating Q2 FY26 with Resilience and Strategic Vision

Sterling and Wilson Renewable Energy Limited (SWREL) reported its Q2 FY26 earnings, showcasing a quarter of robust operational growth alongside significant one-time financial adjustments. The company, a prominent player in the renewable energy sector, demonstrated strong top-line performance, with consolidated revenue from operations growing by an impressive 70% year-on-year to INR 1,749 crore. This growth was primarily fueled by an accelerated execution pace in both domestic and international EPC projects. However, the quarter's profitability was substantially impacted by non-recurring exceptional items related to legacy legal matters, leading to a consolidated EBITDA loss of INR 470 crore and a PAT loss of INR 478 crore.

The company's operational performance, excluding these one-time events, remained strong. The first half of FY26 saw revenue climb 80% to INR 3,510 crore compared to INR 1,946 crore in the first half of FY25, indicating a consistent upward trajectory. Gross margins for the first half stood at 10.3%, aligning with the previous fiscal year's 10.1%. However, the Q2 FY26 gross margin dipped to 8.9% sequentially from 11.7% in Q1 FY26. This was attributed to the commencement of revenue recognition in large turnkey domestic orders that included module supply, which typically carry lower margins compared to Balance of System (BoS) projects.

Addressing Legacy Challenges and Strategic Outlook

A significant portion of the quarter's financial impact stemmed from the resolution of three critical legal matters concerning its U.S. subsidiary, Sterling and Wilson Solar Solutions, Inc. (SWSS). These included a write-off of INR 580 crore due to an adverse arbitration ruling, an invocation of a Standby Letter of Credit for INR 63.47 crore, and a mutual settlement payment of INR 19.95 crore. Additionally, an impairment provision of INR 2,038 crore was made in standalone financials for the Nigeria project due to inordinate delays. While these actions resulted in a substantial one-time non-cash impact, management emphasized that these resolutions are crucial for cleaning up the balance sheet and enabling a focused approach on operational performance and profitable growth.

Despite these challenges, SWREL's strategic initiatives and market positioning remain strong. The company's order inflows have gained significant momentum, with cumulative order inflows for the fiscal year reaching approximately INR 3,775 crore. This includes five new orders since Q1, with a notable 115-megawatt turnkey project in South Africa valued at approximately USD 120 million. The unexecuted order value currently stands at INR 9,287 crore, providing robust revenue visibility.

Market Opportunities and Financial Discipline

The domestic solar EPC market continues to grow rapidly, with SWREL securing new projects primarily from the PSU space. The company was awarded a 304 MWp turnkey project in Khavda worth INR 818 crore and was declared L1 for two Balance of System projects totaling 943 MWp. The pipeline for the domestic solar EPC market remains strong, with nearly 25.2 GW, including over 17 GW slated for ordering in the second half of the fiscal year. SWREL is also actively targeting Battery Energy Storage Systems (BESS) projects and select hybrid wind EPC projects, aligning with the evolving energy landscape.

From a financial discipline perspective, the company's gross borrowings increased to INR 1,194 crore due to a fresh INR 475 crore term loan from IREDA. However, its credit ratings for working capital facilities and term loans were upgraded to BBB+ with a Stable Outlook by Infomerics Ratings in June 2025. This improvement has helped enhance new working capital facilities and reduce LC/BG charges. The company also secured fresh sanctions for working capital facilities from three new banks, totaling nearly INR 2,000 crore, since the start of the fiscal year.

Conclusion

Sterling and Wilson Renewable Energy Limited is navigating a complex period by addressing legacy issues head-on while simultaneously capitalizing on robust market opportunities. The company's focus on timely execution, cash flow discipline, working capital optimization, and targeting profitable orders underscores its commitment to sustainable growth. Despite the short-term financial pain from one-time write-offs, SWREL's strong order book, diversified offerings, and improved credit access position it for continued leadership in the renewable energy sector.