Waaree Energies IPO: Should You Apply? Read DRChoksey's Analysis

Deven Choksey Report

Waaree Energies Ltd. will open its initial public offering for subscription on October 21 and conclude on October 23. India’s largest solar PV module manufacturer has fixed a price band of Rs 1,427 to Rs 1,503 per share.

The Rs 4,321 crore Ipo is a combination of a fresh issue of equity shares aggregating to Rs 3,600 crore and an offer for sale of 48 lakh equity shares worth Rs 721.44 crore, at the upper end of the price band, by a promoter and existing shareholders.

Object of the issue

1. Finance the establishment of a 6GW Ingot Wafer, Solar Cell and Solar PV Module manufacturing facility in Odisha.

2. General corporate purposes.

Strengths:

1. Largest solar PV module manufacturer in India

2. Diversified base of global and Indian customers with a substantial order book.

3. Advanced manufacturing facilities with global accredations.

4. Extensive pan-India retail network.

5. Consistent track record of financial performance.

Outlook and Valuation:

Waaree Energies, India’s largest solar PV module manufacturer with an installed capacity of 12 GW, is well-positioned to benefit from the growing demand in renewable energy, both domestically and globally.

The company’s backward integration strategy, ranging from solar cells to ingots and wafers, along with its exploration into green hydrogen, enhances its operational efficiency and cost control.

Waaree’s strong global presence, marked by a new 1.6 GW manufacturing facility in the U.S., further solidifies its leadership position. Financially, the company has delivered impressive growth, with revenue increasing at a CAGR of 80%, Ebitda growing by 154% and PAT growing by CAGR of 203% over the past three years, reflecting improved margins and operational effectiveness.

Its return on equity of 30% in FY24, coupled with a solid balance sheet and low debt levels, underscores its financial strength. At a P/E ratio of 33.9x, Waaree offers an attractive investment opportunity in India’s booming renewable energy market.

Based on these factors, we recommend a “Subscribe” rating for the upcoming IPO.

Risks:

A significant portion of Waaree’s business is dependent on certain key customers, the top 10 customers contribute 57% of the total revenue. The loss of any of these customers or a reduction in revenue from them could have a material adverse impact on the company’s business.

Waaree relies on key suppliers for raw materials like silicon wafers and other components. Disruptions in the supply chain, whether due to market shortages or supplier issues, could affect production.

A substantial portion of Waaree's revenue comes from export sales, particularly to the United States contributing 58% of the exports of the company during FY24. The company’s operations are subject to the risks and uncertainties of international markets.

Waaree relies on a global supply chain for critical components, with a portion of its raw material supply being imported from China. (54% in FY24) Any restrictions, increased import duties on these materials, or tariffs imposed could adversely affect its business prospects, financial performance, and cash flows. Additionally, disruptions in the supply chain due to geopolitical issues or supplier problems can hinder production.

The solar energy sector is evolving rapidly, with constant technological advancements. Failure to adapt to new technologies in adopting advanced processes may cause Waaree to lose its competitive edge.

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