Waaree Renewables Share Surge: Does Growth Justify Valuations?

Waaree Renewables Technologies Ltd.'s stock has risen 4.3 times from Jan. 1 to April 8. The share price has increased from Rs 438.83 to Rs 1,883.25 per share during the period. It has also hit 5% upper circuit 14 times in the past month.

But, while the renewable equipment company's financials and order book have grown significantly in the last three years, do the growth prospects justify its high valuations?

In FY19, Waaree Renewables' market capitalisation stood at Rs 19.9 crore. This has seen a whopping growth of 973 times to Rs 19,444.15 crore currently.

When compared to the Rs 1,611.79-crore market cap at the end of FY23, it has grown 12 times.

Until FY21, Waaree Renewables was a loss-making company. So, from FY22, the price-to-earning ratio has been in higher double digits.

Its net profit stood at Rs 8.6 crore in FY22, during which the company's price-to-earnings ratio—which indicates how much investors are willing to pay for each rupee of the company's profit—stood at 68.75. The current price-to-earnings ratio in the trailing 12 months period stands at 357.68, according to Bloomberg.

The current price-to-earnings ratio of 353.6 also stands 3.7 times higher than the three-year historical average of 96.48.

The renewables company's current enterprise value-to-Ebitda ratio stands at 193.96, as compared with 36.33 in FY21, marking a growth of 5.3 times.

Ebitda growth of the company in the same period is of 137 times, with Ebitda standing at Rs 131.89 crore in nine months of FY24, as compared with Rs 96 lakh in FY21.

Waaree Renewables Technologies saw a significant decline in revenue growth during the Covid-19 year, which also led to an Ebitda loss. FY21 revenue grew 4.2 times, however, the company still posted a loss.

FY22 marked an almost 26 times growth in revenue, which along with net profit, rose constantly after. The growth also reflects the surge that the solar industry witnessed after the government allocated Rs 19,500 crore for a PLI scheme, to boost manufacturing of high-efficiency solar modules in the Union budget 2023.

The company's margin have also expanded to 21.9% in nine months of FY24, as against 8.3% in FY22.

As of Feb. 20, Waaree Renewables Technologies' unexecuted order book stands at 2.141 gigawatts, which is almost three times the 749 megawatts worth of orders the company had in hand as of Dec. 31, 2023.

The company also received a Letter of Intent for execution of engineering, procurement and construction work, along with land development of a Solar PV project on March 1. The order was received from the North Eastern Electric Power Corp., for an aggregate order size of 300 MW AC, worth Rs 1,401 crore. The project is scheduled to be completed in FY26, in various tranches.

Waaree Renewables Technologies also indicates that the company's bidding pipeline as of Q3 FY24 stood at 9 gigawatts. The 30-40% historical conversion rate highlighted by the company's management itself, translates to 2.7-3.6 gigawatt worth of potential orders that the company was discussing with customers.

In nine months of FY24, Waaree Renewables has executed orders worth 473 megawatts. Based on the company's target to execute 900-950 megawatt of orders in FY24, it is set to execute orders worth more than 427 megawatts in Q4 FY24.

According to management, projects along the range of 50-100 megawatts get executed very quickly. Projects that are for more than 100 megawatts of energy, however, normally take longer than three to four quarters for execution. Orders more than 300-400 megawatts can stretch up to 18 months or six quarters for complete execution.

Waaree Renewables Technologies follows the percentage-of-completion method of accounting, which allows the company to recognise revenue proportionate to the work they have completed on a long-term contract.

In simpler terms, if Waaree Renewables Technologies has completed 30% of a 100-megawatt order in a quarter, it will recognise the revenue applicable for the 30 megawatts executed.

According to the company's Q3 FY24 concall, management stated that the company generates Rs 1.1 crore-Rs 1.2 crore per megawatt executed. The management also said that it expects to execute around 375-420 megawatts of orders in Q4 in order to reach its FY24 execution target.

Even assuming the most conservative numbers—375 megawatt execution at a Rs 1.1 crore per megawatt revenue rate—the company has the potential to report over Rs 412.5 crore of revenue in Q4 FY24.