Waaree Energies IPO analysis

Waaree Energies IPO will open for subscription on October 21, 2024 and close on October 23, 2024. We break down the solar panel manufacturer's strengths, weaknesses, and growth prospects to help investors make an informed decision.

Waaree Energies IPO in a nutshell

• Quality : Its three-year average ROE and ROCE were nearly 34 and 30 per cent, respectively, during FY22-24.
  
• Growth : Its revenue and net profit grew nearly 100 and 300 per cent per annum, respectively, during FY22-24.
  
• Valuation : Post the IPO, the stock will be valued at a P/E and P/B ratio of around 32 and 5 times, respectively.
  
• Overview: According to the National Institute of Solar Energy, India's current solar power generation capacity is 89 GW (gigawatt), with the potential to reach 750 GW. India aims to expand its solar module manufacturing capacity to 70 GW by 2030. As the country's largest PV module manufacturer, Waaree Energies stands to benefit from this growth. However, intensifying competition from organised players may challenge its market position.

About Waaree Energies

Waaree Energies is India's largest solar PV module manufacturer, with an installed capacity of 12 GW as of June 30, 2024. The company operates five manufacturing facilities across India, spanning around 143 acres, with an average capacity utilisation of 45 per cent in FY24. It occupies over 21 per cent of India's photovoltaic module market share based on total enlisted capacity. Waaree's current order book of solar PV modules stands at 16.6 GW, including domestic, export, and franchisee orders, plus 3.75 GW for their US subsidiary.

Strengths of Waaree Energies

• Backward integration : Waaree is enhancing its capabilities by commencing in-house solar cell production at its Chikhli facility, which is expected to be operational by FY25. It is also setting up a fully integrated 6 GW facility for ingots, wafers, solar cells, and solar PV modules, which is expected to be operational by FY27.
  
• Robust financials : As the largest player in solar PV manufacturing, Waaree boasts impressive EBIT (earnings before interest and taxes) margins of 8 per cent. This success is partly attributed to their focus on exports, which increased from 23 per cent of revenue in FY22 to around 58 per cent in FY24.

Weaknesses of Waaree Energies

• Pricing pressure: Chinese oversupply of solar components including PV modules and cells is forcing domestic manufacturers, including Waaree to sharply lower prices. The solar module prices dropped 25 per cent in FY24. The trend is expected to sustain, threatening the company's profitability.
  
• Dependence on government policies : Waaree Energies heavily relies on government policies and incentives, which keep changing. This creates uncertainty in production planning and can hinder scaling efficiency.
  
• Import dependency: A significant portion of Waaree's materials, particularly solar cells, are imported from China. The cost of imported materials accounted for 98 per cent of the company's total purchase cost, of which 54 per cent was from China alone. Such heavy reliance exposes the company to risks from trade restrictions or geopolitical tensions.

Risk report

Company and business

• Are earnings before tax of Waaree Energies more than Rs 50 crore in the last 12 months?
  Yes. The company reported a profit before tax of Rs 1,466 crore in the 12 months ending June 2024.
  
• Will Waaree Energies be able to scale up its business?
  Yes. The increasing demand for renewable energy and strong government support for renewables, particularly solar power, will enable the company to expand its business.
  
• Does Waaree Energies have recognisable brands with client stickiness?
  Yes, Waaree Energies has a recognisable brand. It occupies over 21 per cent of India's photovoltaic module market share based on total enlisted capacity.
  
• Does the company have a credible moat?
  No. It operates in a very competitive industry with many other large players.

Management

• Do any of the company's founders still hold at least a 5 per cent stake? Or do promoters hold more than a 25 per cent stake in the company?
  Yes. After the IPO, the promoters' stake will be nearly 64 per cent.
  
• Do the top three managers have more than 15 years of combined leadership at Waaree Energies?
  Yes. Hitesh Joshi, chairman of the board and managing director of the company, has been associated with the company since October 1999.
  
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. There is no information to suggest otherwise.
  
• Is the company's accounting policy stable?
  Yes. There is no information to suggest otherwise.
  
• Is Waaree Energies free of promoter pledging of its shares?
  Yes. No shares have been pledged.

Financials

• Did the company generate a current and three-year average return on equity of over 15 per cent and a return on capital employed of over 18 per cent?
  Yes. Its three-year average ROE and ROCE were nearly 34 and 30 per cent. In FY24, its ROE and ROCE were almost 42 and 38 per cent, respectively.
  
• Was the company's operating cash flow positive during the last three years?
  Yes. The company reported positive cash flow during FY22-24.
  
• Is the company's net debt-to-equity ratio less than one?
  Yes. The company's debt-to-equity ratio was 0.1 in FY24.
  
• Is Waaree Energies free from reliance on huge working capital for day-to-day affairs?
  Yes. Despite operating in a capital-intensive industry, Waaree maintains comfortable working capital levels, with average net working capital days of 55 during FY22-24.
  
• Can the company run its business without relying on external funding in the next three years?
  Yes. Waaree has enough cash in its balance sheet. Coupled with the funds raised from the IPO, the company should not need to rely on external funding.
  
• Is Waaree Energies free from meaningful contingent liabilities?
  Yes. Its contingent liabilities as a percentage of total equity were around 4 per cent as of FY24.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. After listing, the stock will offer an operating earnings yield of nearly 3.4 per cent on its enterprise value.
  
• Is the stock's price-to-earnings (P/E) less than its peers' median level?
  Yes. Post-IPO, the stock will be valued at a P/E ratio of around 32 times compared to its peers' median level of over 222 times.
  
• Is the stock's price-to-book (P/B) value less than its peers' average level?
  Yes. Post-IPO, the stock will be valued at a P/B ratio of over 5 times compared to its peers' average level of nearly 28 times.

Disclaimer: This is not a stock recommendation. Investors should do their due diligence before investing.

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