Sterling & Wilson shares gain most in two years after reporting first positive gross margin in ten quarters

An increased operational leverage or falling fixed cost is expected to drive Sterling and Wilson Renewable Energy’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) turnaround by the third quarter of the current financial year.

The company has managed to achieve its standalone operational EBITDA breakeven in the June quarter, while the net debt stood at Rs 2,100 crore as of June 30, 2023.

Brokerage firm Nuvama has recommended a ‘Buy’ rating on Sterling and Wilson Renewable Energy, with a price target of Rs 454 per share. At the stock’s current trading price, Nuvama’s target projects a potential upside of 39.67 percent from Friday's closing levels.

The brokerage forecasts an accelerating ‘V-shaped’ recovery for Sterling and Wilson Renewable Energy, while the gross profit has beaten estimates from the execution of new profitable orders in the June quarter.

SWREL is in the process of cutting fixed costs from approximately Rs 400 crore per annum to Rs 250 crore a year, stated Nuvama, further adding that the company’s current bid pipeline stands at 22 GW with a domestic project mix of 58 percent.

Shares of Sterling & Wilson Renewable Energy are trading 13.7 percent higher at Rs 328.20. This is the biggest single-day gain for the stock in nearly two years.