Pros and Cons of Investing in Waaree Energies

In the quest for sustainable energy solutions, the solar energy sector has clearly emerged as the clear leader. Most countries in the world have some kind of government backed solar program.

India is at the forefront of this boom. Blessed with abundant sunlight and a growing appetite for renewable energy, India is making significant strides in this field. India's solar power capacity has grown exponentially in recent years, surpassing 60 GW by 2023.

As solar energy becomes a crucial part of India's energy mix, companies operating in this domain are experiencing significant growth. The growth is backed by various government policies, including the Production Linked Incentive (PLI) scheme and various other subsidies for solar power projects.

The Solar Park Scheme, aimed at creating large solar power projects, is also accelerating the development of the sector.

At the heart of this growth are the solar panel manufacturing companies. As the global demand for clean energy surges, the quality and reliability of solar panels has become a crucial factor in the success of this transition.

For investors eyeing opportunities in the solar space, Waaree Energies, a formidable solar panel manufacturer has recently made its stock market debut.

In this editorial, we will cover the pros and cons of investing in the stock of Waaree Energies Ltd which has made a successful debut on the stock market.

Pros

#1 Largest Solar Module Manufacturer

As India's largest solar module manufacturer, Waaree Energies operates at an impressive 12 GW production capacity, supported by four manufacturing facilities.

Founded in 1989, the company offers a comprehensive range of solar solutions, including modules, inverters, batteries, and solar rooftops.

Waaree Energies manufactures solar PV modules using multi-crystalline cell technology, monocrystalline cell technology, and new technologies such as Tunnel Oxide Passivated Contact.

The company also manufactures semi-flexible solar panels for global customers. The company's sales and revenue channels include direct sales to enterprises.

Its vast presence, spanning 388 locations across India and 68 international markets, underscores its market dominance. As a vertically integrated company, it has recently expanded its manufacturing capabilities by acquiring Indo Solar.

International operations include sales to international customers and Engineering, Procurement, and Construction (EPC) revenue from foreign clients.

The company also undertakes retail sales through its extensive franchisee network focused on rooftop and MSME customer businesses as well as franchisee EPC revenue. Additionally, the company also provides EPC services for domestic utilities and enterprise customers.

#2 Strong Financials

In FY24, the company recorded the second-highest operating income among India's domestic solar PV module manufacturers, highlighting its solid financial performance.

For the June 2024 quarter, Waaree Energies reported revenue of Rs 34.9 bn, with a net profit of Rs 4 bn. The company's net worth at the end of the quarter was Rs 44.7 bn.

In FY24, Waaree Energies' revenue surged over 69% to Rs 116.3 bn, up from Rs 68.6 bn in FY23. The net profit increased about 154%, to Rs 12.7 bn compared to Rs 5 bn in FY23.

The company's revenue growth was 58.7% on a compounded annual growth rate (CAGR) basis from FY22 to FY24. This can be credited to a growing customer base and continuous growing demand. The net profit of the company increased from Rs 0.8 bn in FY22 to Rs 12.7 bn in FY24, at a CAGR of 151%.

The company maintains approximately Rs 3.6 bn in debt, with an average borrowing cost of 10% from the Indian Renewable Energy Development Agency (IREDA) and 6% for buyer credits.

Its cash and cash equivalents is Rs 36 bn at the end of FY24 while the cash flow from operating activities in FY24 was at Rs 23 bn, an increase of 47.7% YoY.

The return on equity for the company improved to 31.5% in FY24, up from 27.8% in FY24. The return on capital employed for the company was 45.2% in FY24, up from 39% in FY23.

#3 Good Growth Prospects

Waaree Energies is strategically positioning itself to expand its global presence, targeting markets in the European Union and the Middle East, building on its current operations in the United States.

As part of this growth strategy, the company is establishing a significant 3-gigawatt solar module manufacturing facility in the US, with an expectation that 1.6 gigawatts of this capacity will be operational by March 2025.

According to Chief Executive Officer Amit Paithankar, the plant is designed to accommodate up to 5 gigawatts depending on market conditions, with raw materials sourced from India.

To capitalise on the increasing global demand for renewable energy, Waaree Energies is enhancing its integrated module manufacturing capacity in India. The company has already established an office in Dubai to facilitate its expansion into international markets.

Currently, Waaree Energies boasts a solar module manufacturing capacity of 13.3 gigawatts, which it aims to increase to 21 gigawatts by 2027.

Cons

#1 Very Competitive Industry

As of September 2024, the company commands a significant market share of 21.1% in terms of total enlisted capacity, according to the ALMM list.

Waaree Energies faces competition from leading unlisted companies such as Tata Power Solar Systems, Vikram Solar, and Adani Mundra Solar. These companies are prominent players in the renewable energy sector.

Waaree Energies manufactures both mono-crystalline and multi-crystalline solar modules, distinguishing itself from its competitors.

Although there are no other listed companies in India that engage in a similar portfolio of business, two listed firms Websol Energy and Premier Energies focus exclusively on the production of multi-crystalline solar modules.

Then there is competition from Chinese imports.

Also, this is the competitive intensity as it stands today. The competition will only increase going forward. Thus, the company will have to navigate this while maintaining its leadership position.

#2 Risks to Growth

Waaree Energies has ambitious expansion plans as detailed above. However, these plans come with some risks that investors should consider.

First, the company's heavy reliance on export sales exposes it to the uncertainties of international markets, particularly in the United States. This risk will only increase as the company is focusing on the US for future growth.

The company also sources some raw materials from China, which means that potential import restrictions or tariffs could adversely affect expansion plans.

Growth in the commercial, industrial, and residential segments depends significantly on maintaining robust relationships with franchisees. Any challenges in this area or disruptions in the supply chain or problems with third-party suppliers could impede expansion.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...