Until a year ago, anything related to renewables, solar, and green energy sounded more like a fad than anything else to investors. It’s hard to blame them given the scars left by Suzlon, Inox Wind, REC, PFC, and others. However, things have changed in the last year. Whether it’s cyclical, a change in perception, or a true fundamental shift in the sector, only time will tell. But for now, this is an emerging sunshine sector – once again.
Waaree Energies, the largest manufacturer of solar PV modules in India, is coming up with an IPO. If we look at the numbers (which we will discuss) and believe this decade belongs to Green Energy, then Waaree Energies is poised to play a key role in this sector. Amidst all this, it has created enough buzz in the primary market. Let’s see what’s in store from the Waaree group.
Waaree Energies was founded in 1989, initially as a trading company of pressure, temperature, and velocity-measuring instruments. In 2007, the company pivoted to manufacturing solar modules, establishing a 30 MW capacity facility in Surat. By 2011, they had completely exited the instruments business to focus solely on solar modules. Since then, Waaree Energies has emerged as the world’s largest manufacturer of solar panels outside of China.
In the upcoming IPO, the company is looking to raise around 3000-4000 Cr (issue size not fixed yet), of which 3000 Cr will be a fresh issue, and the promoters will offload 32 Lac shares (worth around ~450 Cr according to the current unlisted price of 1400/- per share). Post the issue, the promoters will continue to hold more than 65% (the final holding % will be known once the IPO pricing is released).
Solar Power surge: Mere fad or future mainstay?
India’s total installed capacity is currently at 426 GW. By 2028, India is looking to bump that up to 618 GW. A big chunk of this increase – about 170 GW – will come from clean, renewable energy like solar and wind. This is on the back of government push in the form of reforms & additional investments flowing into this sector.
*Source: Solar Power Market In India report by CRISIL
- India has launched a Production Linked Incentive Scheme to boost solar PV module manufacturing. The first tranche, approved in April 2021 with ₹4,500 Cr, led to 8,737 MW of solar capacity awards. The second tranche, approved in September 2022 with ₹19,500 Cr, aims to establish an additional 39,600 MW of solar manufacturing.
- The Green Hydrogen Mission is kicking off with ₹ 19,744 Cr to create clean hydrogen energy and new tech.
- The AatmaNirbhar Bharat initiative is boosting this with ₹ 24,000 Cr for solar manufacturing and new customs duties to support homemade solar products.
- India is setting up a solar city in each state and building 57 solar parks with a total power of 39.28 GW. There is also a big push for floating solar projects.
- India’s big goal is to cut its carbon emissions by 1 billion tonnes by 2030. We aim to make our economy 45% greener this decade and hit net-zero emissions by 2070
Okay, so we have clear backing from the government as a tailwind for the sector. But is the company capable enough to make the most of it? Let’s find out.
Waaree Energies: India’s largest solar module manufacturer and exporter
Waaree Energies is the largest manufacturer of solar PV modules in India, with the largest aggregate installed capacity of 12 GW in Gujarat, as of December, 2023. The company commands a market share of 12% in solar PV modules.
*Source: Solar Power Market In India report by CRISIL
Waaree is also the largest exporter of solar PV modules in India, holding approximately 50% of the market share in exports, followed by Adani and Vikram Solar. Waaree generates approximately 70% of its revenue from exports.
*Source: Solar Power Market In India report by CRISIL
Waaree’s big expansion plans: 3x capacity increase in next 5 years
They are planning aggressive expansion over the next three to five years. The strategy is to invest ₹ 2500 Cr from the IPO proceeds into a 9000 Cr mega project. The company is setting up a manufacturing facility in Odisha for solar cells and modules with a 6 GW capacity, marking a 50% increase over their current 12 GW. Following this expansion, Waaree Energies is set to remain India’s largest solar PV module manufacturer, ahead of giants like Adani and Tata. The remaining ₹ 6500 Cr will be financed through a combination of debt and internal accruals.
In 2022, Waaree invested ₹ 8500 Cr to set up a solar cell manufacturing facility with a targeted capacity of 5.4 GW, expected to commence operations by March 2024. Additionally, the company is exploring the establishment of a 3 GW solar cell manufacturing facility in the United States, although no timeline has been specified for this expansion.
Post all the proposed expansion plans, Waaree’s capacity is going to increase by more than 3x from the current 12 GW to 38 GW over the next 5 years.
*Source: Waaree Energies DRHP
Stupendous growth & healthy balance sheet
The company managed to scale primarily through internal accruals and equity, avoiding excessive leverage of its balance sheet. It underwent its first major equity dilution in June 2023, raising 1000 Cr from private placements at ₹ 550/- per share, at a pre-money valuation of 4500 Cr. The current IPO aims to raise ~3000 Cr fresh issue at an estimated valuation of ~36,000 Cr.
- Waaree increased the capacity by 40x over the last 15 years, with a 5x increase in the last 3 years
- Revenue grew 3.5x in 3 years, amounting to 6750 Cr as of FY23
- Profits surged 10x during the same period, reaching ~500 Cr
- As of June 2023, the company maintains a net debt-free balance sheet
- Strong returns ratios of ROE at 26% and ROCE at 31%
As of Nov 2023, the company’s order book for solar PV modules stands at 20.16 GW, which is almost 1.6 times the current installed capacity.
Waaree’s Edge: A Global Comparison
While India doesn’t have direct Solar PV equivalents, looking at global players gives us a useful comparison. Initially, we can get a sense that the global Solar PV industry continues to grow steadily, even considering the effects of Covid. In terms of valuation, most of these Solar PV companies are trading at around 1 times their Market Cap to Sales.
Waaree Energies distinguishes itself with the highest EBITDA margins, around 14%, which are expected to remain consistent. Another important point to consider is the debt situation. Waaree maintains a net debt-free position, in contrast to many of its heavily indebted global peers.
Having said that, not everything is rosy for the sector. Solar renewable energy companies have to deal with one major risk.
Risk: Solar panels are getting cheaper, resulting in lower price realization
Solar module prices have significantly dropped by 73%, from $1.78 per Wp in 2010 to $0.15 per Wp by September 2023. Note: ‘Wp’ stands for Watt peak, indicating the maximum power a solar module can produce under ideal conditions. This decline is primarily due to an oversupply and technological advancements. However, while cheaper modules can boost demand by making solar energy more affordable, they also squeeze manufacturers’ profits and intensify competition. This trend is expected to continue in the foreseeable future.
*Source: Solar Power Market In India report by CRISIL
Falling module prices present a double-edged sword for solar PV manufacturers. They can lead to tighter profit margins and economic pressures. However, from a broader perspective, more affordable modules could expand the solar market, potentially benefiting the industry in the long run by making renewable energy more accessible and promoting its adoption. The management is confident of maintaining both growth & current margin profile. Here is what the management of Waaree Energies has to say about the falling module prices:
Stretched valuations factor in future growth: Skip the IPO, revisit later.
Waaree Energies is trading in the unlisted market, with its current price around ₹1400/- per share, translating to a market cap of roughly ₹36000 Cr. The company clocked ₹6751 Cr in revenue and ₹500 Cr in PAT for FY23. As per management’s guidance, it’s expected to generate ₹13000 Cr in revenue and around ₹950 Cr in PAT by FY24E. Based on these FY24E projections, it’s currently trading with a market cap of around ₹36,000 Cr, a PE of about 38 times, and a price to sales of around 2.8 times.
Also, the company has one listed subsidiary, Waaree Renewables Technologies, 75% owned by Waaree Energies with a market cap of ₹5800 Cr. Please note that the other listed entity, Waaree Technologies, is owned by the promoter, not by Waaree Energies or Waaree Renewables Technologies.
Even after considering all aspects, such as market leadership, planned capital expenditures, and expected growth over the next five years, along with strong margin profiles and a healthy balance sheet, the current valuation still appears to be stretched.
The price had jumped 3x in the last six months in the unlisted space. The problem is that current valuations build very little room for error. Neither in the future potential of the sector itself nor for any execution hiccups that can impact growth even in the short-term.
Long-term investors do not need to jump on the IPO. Wait for the company to execute for 2-3 quarters before deciding to wade in. However, we will have a clearer picture once the IPO pricing is finalized.
In Summary
What do we like?
- There are strong tailwinds for renewable energy (both solar & wind), be it in the form of government push, incentives, or private capex.
- Waaree Energies has achieved size & scale to make the most of the positive changes in the renewables sector. They continue to command a market leadership position in both domestic & export markets.
- 3x capacity expansion & 1.6x order book gives us growth visibility for the next 3-5 years.
- Prudent capital allocation, balancing between growth & a healthy balance sheet.
What we don’t like?
- Solar module prices are falling continuously. This impacts price realizations & volumes. More importantly, this is likely a long-term phenomenon and is here to stay.
- Valuations (unlisted) seem stretched at 38 times FY24E.
We will update the post once the IPO pricing is finalized.
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Important: The unlisted pricing was referenced only for comparison purposes. We do not endorse or promote the unlisted or Pre-IPO market in any capacity. Additionally, it’s crucial to understand that the unlisted and pre-IPO markets are unregulated and inherently carry a risk associated with the counterparty.
Disclaimer: This article is for information only and should not be considered a recommendation to buy or sell any stocks.
