Is Waaree Renewables a bargain after the fall?

Waaree Renewables, long regarded as a symbol of India’s solar success, has seen a sharp re-rating over the past year. Its price-to-earnings multiple has dropped from around 260 times in April 2024 to 45 times currently, as the stock declined by more than 53 per cent. With this steep correction and a promising growth outlook, the obvious question emerges: is Waaree Renewables now an attractive opportunity?

Strong start, brighter prospects

Waaree Renewables operates in the solar EPC (engineering, procurement and construction) space. For businesses or institutions looking to build and manage solar farms without handling the technical and logistical complexities themselves, firms like Waaree step in to design, construct, and maintain these assets end to end.

As one of the earliest movers in this segment, Waaree has secured around 10 per cent market share as of FY25. Its financial performance has been impressive, with revenue and profit after tax more than quadrupling since FY23. Given the asset-light nature of its business—minimal fixed assets and low capital intensity—the company has delivered a return on equity of around 60 per cent, even touching 90 per cent in the past.

The growth story remains compelling. India’s renewable roadmap targets 280 GW of solar capacity by 2030 and 500 GW by 2035, compared to the current 110 GW. This implies nearly a fivefold expansion in a decade. On the surface, Waaree appears perfectly positioned. But is that the whole picture?

Trouble in paradise

Waaree’s biggest challenge lies not in its execution, but in the nature of the business itself. The solar EPC segment, though high-growth and capital-efficient, is not protected by significant entry barriers. As a result, it is highly vulnerable to competition, especially when strong returns are visible.

Industries offering high returns or strong growth inevitably attract new entrants. Consider the Birla group’s entry into paints (known for high return on capital) or cables (a high-growth segment). In solar EPC too, new players are entering, which can reduce both margins and market share for incumbents like Waaree.

What about scale advantages? Larger players such as Tata Power, Adani Green, and Sterling & Wilson typically execute EPC in-house. Even if Waaree builds an excellent track record, a competitor willing to undercut on margins could easily win business. Waaree’s EBITDA margins currently stand at around 20 per cent, well above the 7 to 10 per cent margins seen at larger rivals. These superior margins are unlikely to last indefinitely.

Valuation check: a numbers exercise

Let us assume that Waaree manages to retain its 10 per cent market share—an optimistic assumption, given the intensifying competition. Based on the company’s guidance of Rs 1 crore per megawatt (MW), we projected the company’s revenue potential over the next decade, assuming a 17 per cent annual growth in solar capacity. The table below outlines the year-wise additions and estimated revenue for Waaree:

By FY35, this implies a forward P/E of about 15 times based on today’s stock price and the projected profit after tax. In other words, even if the share price does not move, the company’s earnings growth would bring the valuation down to 15 times in ten years.

This compression is not just a function of time—it reflects a natural plateauing of industry growth. Once India crosses 500 GW in capacity, further growth will likely align with the slower pace of electricity demand expansion. Thus, a decline in growth expectations and valuations is likely.

Now, consider the investor’s return expectations. To earn an annualised return of 15 per cent, with P/E compressing from 45 to 15, the company’s EPS would need to grow by 28 per cent annually. Even if P/E only contracts to 25 times, EPS must still grow by around 22 per cent.

However, if Waaree gets a 11 per cent net margin on projected revenue (based on its target EBITDA margin of 15 per cent), its FY35 PAT would be around Rs 807 crore. That implies a PAT growth of 14 per cent annually. This basically means only if its P/E does not contract over ten years, shareholders can get a return of 15 per cent. In short, even with optimistic assumptions, the growth in earnings falls short of what is needed to generate strong shareholder returns at current valuations.

New growth drivers: O&M, rooftop solar, and BESS

To mitigate this, Waaree is expanding into other verticals such as rooftop solar, battery energy storage systems (BESS), and operations & maintenance (O&M). But can these really move the needle?

Take O&M. In FY24, Waaree earned Rs 10 crore from managing 500 MW—just Rs 2 lakh per MW. Even if it captures 10 per cent of the O&M market on 400 GW of new capacity (i.e. 40 GW), this would generate Rs 1,000 crore in revenue and perhaps Rs 250–300 crore in gross profit. It is meaningful, but not transformational.

Rooftop Solar and BESS are more attractive from a margin perspective, but they come with other challenges: technological flux, falling realisations, and the need for a strong distribution network. These are advantages that consumer-facing powerhouses like Tata or L&T are better equipped to exploit.

Should investors consider Waaree?

Waaree Renewables is fundamentally a sound company. It has a strong market position, an excellent financial track record, and is operating in a high-growth sector. But even after a 70 per cent correction, the stock remains expensive when assessed against realistic growth and competitive dynamics.

To justify its current valuation, Waaree will need to deliver on several fronts—preserve its market share, defend its margins, execute flawlessly, and succeed in scaling new high-margin verticals. That is a tall ask.

Waaree Renewables deserves a place on your watchlist. But unless its valuation cools further or the company establishes stronger competitive advantages, investors may be better off observing from the sidelines.

This article was originally published on June 14, 2025.