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Hero Future Energies (HFE), part of the Hero Group, is gearing up for a ₹3,500 crore initial public offering (IPO) to raise capital from public investors. The company is currently in discussions with potential underwriters, and four investment banks are expected to manage the offering. Legal counsel for the IPO is likely to be provided by Cyril Amarchand Mangaldas. The public offering will also serve as an opportunity for existing investors such as KKR and the International Finance Corporation (IFC) to partially exit their stakes. The Munjal family remains the controlling shareholder of HFE, overseeing its strategic direction and expansion into renewable energy. HFE has established a significant presence in India, where most of its renewable power generation assets are concentrated. However, the company has been expanding internationally, with operations in the UK, Ukraine, Singapore, Vietnam, and Bangladesh. Its official headquarters are based in the UK, where it is focusing on battery energy storage and behind-the-meter projects, which involve installing renewable energy generation units in buildings and homes. In Bangladesh, the company is engaged in solar energy projects tailored for the fisheries sector, while in Vietnam, it is actively developing rooftop solar installations. The company has broader plans to deepen its presence in Southeast Asia, capitalizing on the region’s growing demand for clean energy solutions. Additionally, HFE is exploring opportunities in the Middle East, considering joint ventures as a means to enter the market. In September 2024, Chairman Rahul Munjal shared the company’s ambitious plans at an industry event, revealing that HFE aims to invest $20 billion over the next six years to scale up its capacity by nearly 16 times. This investment will cover solar and wind energy projects, along with significant advancements in battery storage technology. As part of its growth strategy, HFE recently signed a Memorandum of Understanding (MoU) with the Karnataka government, committing ₹11,000 crore toward green projects, including hydrogen production. This initiative is expected to create approximately 3,000 jobs and significantly contribute to India’s renewable energy goals. The company also recently commissioned a 29 MWp solar project in Chitradurga, Karnataka, which is designed to supply clean energy to commercial and industrial customers. This project alone is set to produce 33 million energy units annually, reducing carbon dioxide emissions by over 31,000 tonnes. HFE currently operates 1.8 gigawatts of renewable energy generation assets in India, with projects spread across Rajasthan, Maharashtra, Karnataka, Tamil Nadu, Telangana, Andhra Pradesh, and Madhya Pradesh. In addition to its operational capacity, the company has a broader portfolio of 5.2 gigawatts, with many projects still under construction. Nearly 43% of the power generated by HFE’s operational plants is sold through contracts with the Solar Energy Corporation of India (SECI), while the remaining energy is supplied directly to state distribution companies and captive customers, including the Hero Group itself. By leveraging both long-term power purchase agreements and direct industrial supply, the company ensures steady revenue streams and mitigates risks associated with fluctuations in market demand. Ahead of the IPO, HFE has engaged in a pre-IPO fundraising round with JP Morgan, aiming to secure $200 million in equity. This move is part of a broader financial strategy that combines internal resources, debt financing, and equity issuance to optimize its valuation post-IPO. The timing of HFE’s IPO aligns with India’s aggressive push to achieve 500 gigawatts of non-fossil fuel capacity by 2030, making the company an attractive investment prospect for those looking to capitalize on the country’s green energy transition. However, HFE will face strong competition from established players like Tata Power and Adani Green Energy, both of which have substantial footprints in the renewable energy sector. To differentiate itself, HFE is focusing on integrating Artificial Intelligence (AI) for grid optimization and energy storage, enhancing efficiency and reducing costs. Despite its strong growth trajectory, HFE will face challenges in executing its expansion plans. Navigating complex regulatory landscapes, securing approvals for large-scale projects, and managing global supply chain disruptions will be crucial factors influencing its success. The overall performance of the IPO will depend on investor sentiment toward clean energy investments, as well as HFE’s ability to position itself as a leader in the space. Given its track record in project execution and commitment to innovation, the company appears well-positioned for long-term success. A successful IPO could also encourage other renewable energy firms in India to consider public listings, further boosting investment in the sector. While the IPO presents a significant opportunity for investors, it is important to approach it with an understanding of the risks involved. The renewable energy sector, despite its potential for high growth, is still subject to policy changes, infrastructure challenges, and market fluctuations. Investors should evaluate the long-term viability of HFE’s business model, particularly its ability to sustain profitability while expanding aggressively. The transition to clean energy is inevitable, and companies like HFE are at the forefront of this shift. Whether the IPO meets its fundraising goals and attracts strong investor interest remains to be seen, but it certainly marks a pivotal moment for Hero Future Energies and the broader renewable energy landscape in India. Disclaimer: This news is for educational purposes only. The securities and investments mentioned are not recommendations.

On January 5, 2024, Nestle India announced a stock split in the ratio of 1:10. This meant that each share, previously priced at an astonishing ₹27,000, was converted into ten shares of ₹2,700 each. As a result, Nestle’s stock became more accessible to retail investors, increasing liquidity and potentially making the stock more attractive to a broader range of market participants. Stock splits are often undertaken to enhance liquidity by making shares more affordable, encouraging greater participation from investors, and ensuring efficient price discovery. Naturally, this raises an important question—why hasn’t MRF, one of India’s highest-priced stocks, considered a stock split? MRF’s stock is currently trading at around ₹1.3 lakh per share, making it out of reach for most retail investors. If MRF were to consider a split, what would be the possible scenarios? More importantly, does the company have any incentive to do so? Stock splits are generally announced in common ratios like 1:5, 1:10, or 1:20. Given MRF’s extremely high share price, it would require a significant split to make the stock more affordable. Currently, MRF’s share has a face value of ₹10. A 1:20 split would bring the face value down to ₹0.5, but since the face value cannot go below ₹1, this scenario is not feasible. A 1:10 split, however, would reduce the face value to ₹1, which is acceptable. This would bring the stock’s market price down to approximately ₹13,000 per share. However, this is still a high price for most retail investors. In many cases, stock splits lead to a rally in share prices due to increased demand, so the post-split price could be even higher than ₹13,000. Therefore, even after a 1:10 split, MRF shares would remain expensive, defeating the primary purpose of making the stock more accessible. Instead of a split, MRF could consider a bonus issue, where existing shareholders receive additional shares at no extra cost. For example, if MRF announced a 19:1 bonus issue, meaning shareholders would receive 19 additional shares for every share held, the equity share capital would increase from ₹4.2 crore to ₹84.8 crore. MRF has ample free reserves to support this, and such a move would divide the stock price by 20, bringing it down to ₹5,500 per share. While this is an improvement, it is still on the higher side for most retail investors. To make MRF shares truly affordable, an even bigger dilution would be required—perhaps a 1:39 or 1:49 bonus, which would mean issuing 40 or 50 shares for every existing share held. However, such a large-scale dilution is unprecedented in Indian markets. This brings us to the crucial question: Why hasn’t MRF already taken this step? One of the primary reasons companies opt for stock splits or bonus issues is to increase trading liquidity. More outstanding shares at a lower price attract a wider investor base, increasing trading activity and making price movements more efficient. But what if MRF doesn’t want its shares to be highly liquid? It is possible that MRF prefers a smaller base of serious long-term investors rather than attracting short-term traders. With a high price point, only well-capitalized investors are able to buy the stock, reducing speculative trading and ensuring that the stock’s market value remains closer to its intrinsic business value. A similar approach was taken by Warren Buffett with Berkshire Hathaway. Berkshire Hathaway’s Class A shares currently trade at approximately $550,000 (~₹5 crore) per share, making them one of the most expensive stocks in the world. There have been persistent calls for a Berkshire stock split since the 1990s, when its per-share price first crossed $10,000. However, Warren Buffett has deliberately resisted splitting the stock to discourage speculative trading and attract only serious long-term investors. In the mid-1990s, a new problem emerged in the U.S. market—certain unit trust funds started mimicking Berkshire’s portfolio. Some of these funds only held Berkshire Hathaway stock and sold their own units against it. This led investors to believe that they were essentially investing in Berkshire at a more affordable price. Buffett knew that simply copying a portfolio does not result in similar performance. To counter this, Berkshire introduced a newer, lower-priced share class—Class B shares—which initially carried 1/30th of the voting rights of Class A shares. These Class B shares have since been split further, but Class A shares have never been split. Could MRF find itself in a similar situation? If an investment fund were to emerge that only buys MRF shares and sells its own units against it, retail investors could indirectly gain access to MRF stock without requiring a stock split. This would be similar to what happened with Berkshire Hathaway’s unit trust funds in the 1990s. If such a fund were to gain traction, MRF might consider introducing a lower-priced share class, similar to Berkshire’s Class B shares, rather than undertaking a stock split. But as of now, MRF has shown no indication that it plans to take any such step. While a stock split or bonus issue could make MRF shares more accessible and increase liquidity, the company does not seem to be in favor of such a move. Possible reasons include: Unless MRF sees a clear benefit in making its stock more affordable, it is unlikely to announce a stock split or bonus issue anytime soon. However, if a fund were to emerge that exclusively holds MRF shares, it could force the company to reconsider its stance—just as Berkshire Hathaway did in the 1990s. Until then, MRF will likely remain one of India’s most exclusive stocks, accessible only to a select group of well-capitalized investors.

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