Podcast #2005.09

Scaling Amplus Solar

With Sanjeev Aggarwal

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About Sanjeev Aggarwal: Founder and CEO of Amplus Solar, Amplus, a  leader in clean energy solutions in Asia a group company of Petronas. Amplus is currently developing a portfolio of renewable assets with a significant focus on providing distributed solar generation.

About Sumeet Singh: Sumeet is CEO at GoMassive. He has over 15+ years of experience in finance and fundraising. At GoMassive he focusses on Pollution & Climate Tech Investments. 

Sumeet: Traditionally this was a pure financing business in a way. Why couldn’t traditionally banks or NBFC also get into this kind of a model wherein they were financing these companies to build capabilities. What was the key element that was brought in by the Amplus team?

Sanjeev: So, as you, as you said, let’s say it’s a financing and execution businesses, its not purely financing, clearly not purely financing. And that is true for any business. Why only distributed solar. Why only Amplus business is true for any sort of business that you want to set out. In any industry, they say it’s a mix of the capital and how you execute it. So that was the same thing here also. So if you consider like for example, you said took the example of NBFC’s, the banks like could not they do it. I think the answer is pretty simple because they are only financing, they are not in the execution. They don’t know how to execute the things. Their core competence is something else, they have competencies in lending. So, I don’t think that’s the right comparison to have a financial institution competing with an operations company. We are an operations company; finance is an enabler.

Sumeet: What were the critical steps that you undertook post this funding and what kind of challenges did you face?

Sanjeev: I think the challenges were, as you will expect in any industry, that you want to have a good sales pipeline. You want to have a continuous inflow of the customers. Then once you have the customers, you want to give them the product that you promised them. Ultimately you want to execute it well. And once you executed it, you want to provide the after-sale service. And we have to wrap it up with all types of support, which is required to give all these things effectively. Whether it is the technology side, whether it’s financing, whether it is having the safety and compliances or the corporate governance, which, which has to sort of encompass the entire organization.

So, when you’re building up an organization, you can’t have said, okay, I will only sell what I, I will only arrange financing. It’s a mix of everything and you have to make sure that all parts of this machine are working in synchronization. So, even if one particular machine is out of the system, one particular component fails in that entire machinery, then that organization will not work at an effective speed. So, uh, so during this process, obviously we had this challenge of scaling up in a very new, nascent and challenging industry and also working internally. So, both the external interface and internal interfaces, we had to manage at the same time.

Sumeet: So, I was reading the IIM Ahmedabad case study on Amplus solar. And I think one of the key differentiators was that credit rating system that helped you identify the right teams you wanted to work with. So just what was the thought behind that, where it all originated?

Sanjeev: So basically, we are in the, we, we are in the capital investment business. So, when we are looking at investing this capital, what we are doing is we are getting into the contracts of 15 years, 20 years, 25 years with companies, with, with individual businesses. It’s very important for us to understand who we are getting the contract with. So, the, so the question is that whether while our project will last while our plant will last, whether this company will remain in the business or not, whether this company will continue to make the payments or not.

That is I think where the main differentiator came with respect to the utility scale. Because when people are setting up large solar plants or large power plants, getting into the context of distribution companies there is an inherent comfort that we are selling to the government at the end of the day. There may be delays in payments. The company may not be really the credit worthy but what we have is an entity where we are, we are sure that the governments would survive and this distribution company will survive.

For us the situation was very different. These are the individual businesses. So, when I’m setting up the plant for a hotel, right, so you look at today’s scenario, the Hotel industry is in bad shape. So now if you’ve set up and you’re supplying a lot of electricity to one particular industry, that becomes a question. And when you are setting up for a hotel which may go out of business during this period, that’s a problem for you as well because irrespective of whatever the contract you have, the company will refuse to pay. It’s a force majeure condition. They will say, we are out of business then how do we pay you?

So, we worked on a credit system which was taking into account a lot of these factors. Not only the credit rating of the customer because the credit rating is only one reflection of a particular instrument and how that company is performing on that particular test instrument. We wanted to look in a holistic manner, right from the things like who is the auditor of the company, what is the shareholding? So we wanted to go behind the company, look at the corporate governance. Its something like, which a research analyst will do to look at what, what basically drives this company. So that was an important point for us because without that we could not have kept our receivers’ position and our default rate to a very, very low position of like less than 1%.


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