Why Waaree Energies Share Price is Falling

Welcome to today's edition of stocks made easy.

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In case you missed it:

• Pros and Cons of Investing in Adani Group Stocks
• 5 Stocks Declaring Bonus Shares and Stock Splits in December 2024
• 5 Stocks that Could Benefit from Maharashtra State Election Results
• Top 5 Stocks That Could Turnaround in 2025

Without further ado, let's move on to today's trending stock - Waaree Energies.

Waaree Energies: Pure Play to India's Solar Ambition

Waaree Energies - India's largest solar PV modules manufacturer - boasts the largest aggregate installed capacity of 12 gigawatts (GW) as of 30 June 2024.

The company offers a diverse range of solar PV modules, including multicrystalline, monocrystalline, and advanced TopCon modules.

Its product portfolio also includes flexible modules, bifacial modules, and building-integrated photovoltaic (BIPV) modules.

The company shocked investors in recent weeks with disappointing Q2 earnings.

The result? The stock had its worst day since listing, sending shockwaves through the entire solar sector.

So, what happened?

Let's unpack everything and take a look at why Waaree shares are falling and what lies ahead for the rest of the industry.

Why Waaree Energies Share is Falling

#1 Weak Q2 Earnings

Last week, shares of Waaree Energies came under pressure after the company reported muted earnings for the quarter ended September 2024.

For the quarter under review, the company's consolidated revenue came in flat YoY at Rs 35.7 billion (bn), against Rs 35.4 bn reported in the same quarter a year ago.

The performance was dampened due to higher expenses and lower realisations.

Earnings before interest, tax, depreciation, and amortization (EBITDA) was up 1.5% at Rs 5.3 bn, while EBITDA margins came at 14.7%.

Profit for the quarter was up 15% YoY at Rs 3.6 bn.

In the first half of FY25, Waaree Energies produced 3.3 GW of solar modules compared to 4.8 GW in the entire FY24.

The company's order book stood at 20 GW as of September 2024.

The solar PV module manufacturer said that it will invest Rs 6 bn for development of infrastructure for developing renewable power projects.

During the quarter, Waaree's export share dropped to 27% compared to 60% in the same period last year.

Which brings us to the second reason...

#2 Trump Effect!

The other reason why Waaree shares are under pressure is because of rising fears of lower renewable exports to US under the Trump administration.

The re-election of Donald Trump as US President has sent ripples through the global markets, positioning India to face both unique opportunities and challenges.

For India's renewable energy sector - particularly its solar module exports to the US, the future could grow uncertain if the Trump administration moves to limit demand for eco-friendly imports.

In his victory speech, Trump declared he would halt renewable projects on "day one" of his office, signalling a swift policy shift that could dampen demand for solar modules from India, potentially affecting companies that depend on US markets for growth.

With its strong market presence spanning 388 locations across India and 68 international markets, including the US, Waaree's US exports form a key part of its revenue stream.

As a vertically integrated company, Waaree has continued to strengthen its position in the global solar market.

It recently acquired Indo Solar to expand its manufacturing capabilities, and in fiscal 2024, it recorded the second-highest operating income among India's domestic solar PV module manufacturers.

Additionally, Waaree's order book stood at 16.6 GW as of June 2024, with 3.75 GW of that earmarked for its US subsidiary, Waaree Solar Americas Inc.

Under a Trump presidency, Waaree could potentially experience a slowdown in demand for its solar products.

As a major exporter to the US, Waaree is particularly vulnerable to any protectionist policies or a rollback of the Inflation Reduction Act, which currently provides critical tax incentives for solar energy.

This shift in US policy could affect Waaree's financial performance, especially if it results in reduced orders for Waaree Solar Americas Inc.

#3 Profit Booking

The other probable reason behind Waaree's sharp downtrend could be profit booking by investors.

When Waaree was listed, within the next one week, the stock price saw a sharp jump of over 150%.

Waaree Energies made its stock market debut on 28 October 2024 at Rs 2,500 against its issue price of Rs 1,500. Since then, it also hit a fresh peak of Rs 3,741 in November 2024.

Some investors might have changed their stance and booked profits from the counter.

What Next?

Despite fears of slowdown in the US, Waaree Energies is strategically positioning itself to expand its global presence, targeting markets in the European Union and the Middle East.

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.

This facility has the potential to scale up to 3 GW by FY26 and 5 GW by FY27, depending on market conditions.

In India, Waaree Energies aims to bolster its leadership in the utility and enterprise module sales market.

To further strengthen its production capabilities, Waaree Energies is developing a fully integrated 6 GW facility that will produce ingots, wafers, solar cells, and PV modules, slated to begin operations in FY27.

The company's expansion into the American manufacturing landscape positions it strategically to tap into the US Inflation Reduction Act's clean energy funding. The company is also exploring partnerships with local suppliers for solar cells in the US market.

Additionally, Waaree Energies is considering establishing a future 5 GW solar cell manufacturing facility in the US to capitalise on available credits, ensuring its resilience against potential tariffs and reinforcing its foothold in a key market.

With an impressive revenue growth rate of 80.4% between 2021 and 2024, Waaree has effectively harnessed government incentives and established a solid international market presence to reinforce its leadership position.

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

Financial Snapshot of Waaree Energies

Rs m, consolidated	FY20	FY21	FY22	FY23	FY24
Net Sales	19,958	19,530	28,543	67,509	113,976
Growth (%)	25%	-2%	46%	137%	69%
Operating Profit	1,178	1,257	2,025	9,441	18,096
OPM (%)	6%	6%	7%	14%	16%
Net Profit	417	466	756	4,828	12,372
Net Margin (%)	2%	2%	3%	7%	11%
ROE (%)	14.1	14.0	20.4	44.9	43.6
ROCE (%)	23.0	17.2	21.1	43.4	49.1
Dividend (Rs)	0.0	0.0	0.0	0.0	0.0
Debt to Equity (x)	0.4	1.0	0.9	0.5	0.2

Data Source: Equitymaster

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.

Nevertheless, investors should also take note of the intensive competition in the industry.

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

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

For more, check out our latest research on Waaree Energies here.

How Waaree Energies Share Price has Performed Recently

In the past 5 days, Waaree Energies share price has fallen 11%.

Waaree Energies has a 52-week high of Rs 3,741 touched on 6 November 2024 and a 52-week low of Rs 2,294 touched on 28 October 2024.

Since listing, the stock is up 8%.

Here's a table comparing Waaree with its peers -

Comparative Analysis

Company	Waaree Energies	Apar Ind.	CG Power	Premier Energies	Suzlon Energy
ROE (%)	43.6	27.1	36.4	52.5	26.5
ROCE (%)	49.1	45.1	48.9	25.5	23.4
Latest EPS (Rs)	43.1	211.7	9.4	5.1	0.7
TTM PE (x)	60.3	45.2	78.1	212.8	91.4
TTM Price to book (x)	8.1	9.4	32.1	21.4	19.5
Dividend yield (%)	0.0	0.5	0.2	0.0	0.0
Industry PE	87.2
Industry PB	15.7

Data Source: Equitymaster

For a detailed analysis, check out Waaree Energies' financial factsheet.

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...