Waaree Energies, is the largest manufacturer of solar PV modules in India, in terms of installed capacity. It manufactures solar PV modules using multicrystalline cell technology, monocrystalline cell technology and emerging technologies such as Tunnel Oxide Passivated Contact (“TopCon”) which helps reduce energy loss and enhances overall efficiency.

The company manufactures and sells its PV modules under the “Waaree” brand. Its portfolio of solar energy products consists of the following PV modules: (i) multicrystalline modules; (ii) monocrystalline modules; and (iii) TopCon modules, comprising flexible modules, which includes bifacial modules (Mono PERC) (framed and unframed), and building integrated photo voltaic (BIPV) modules. It also manufactures semi-flexible solar panels for sale to global customers through its in-house research and development in product application.

Revenue for the company comes from (i) Direct Sales to Utilities and Enterprises; (ii) Export Sales, which includes solar PV module sales to international customers as well as international EPC revenue; (iii) Retail Sales (comprising franchisee sales), which includes solar PV module sales through its extensive franchisee network focused on rooftop and MSME customer business vertical as well as franchisee EPC revenue; and (iv) Other Revenue from Operations, which includes EPC services for domestic utilities and enterprise customers, O&M services, trading in ancillary products, export incentives, generation of electricity from renewable resources and scrap sale.

Extensive pan India retail network comprising 369 franchisees across India as end of June 2024 to target the local rooftop and MSME business verticals. Derive a substantial portion of its retail sales come from Gujarat and are in the process of expanding its retail network to target new customers. The state of Gujarat and top five states account for about 37.12% and 84.64% of total retail sales in FY24.

Leveraging its expertise in manufacturing high quality solar modules and substantial experience in the solar industry, provide EPC solutions as a contractor. EPC solutions include setting up of ground mount, rooftop and floating solar projects across its network in association with other Indian and international partners. It have over 10 years of experience as an EPC contractor with a track record of 1.82 GW of projects commissioned, including over 178 rooftop projects commissioned and 2.19 GW of projects under execution, as of June 30, 2024. Some of its commercial and industrial ground mount solutions have been provided for various Indian and global customers. Similarly, it have also provided solar PV systems, that allow panels to be installed on unused areas such as over water, converting unutilized areas in profitable generators of renewable energy, to reputable government companies. It has provided rooftop solar solutions for residential, commercial and industrial and institutional projects across India. Further, it is also involved in the O&M space by undertaking maintenance and repair of solar power plants.

It has successfully developed a large customer base globally and its products are sold globally, including to customers in the United States, Canada, Italy, Turkey, Hong Kong and Vietnam. However the exports are majorly to USA, which accounted for 99.60% of total exports in FY24.

In FY24 revenue from operations, about 57.6% comes from exports, 31.4% from direct sales to utilities/enterprises, 10.2% from retail sales and 0.8% from others. The total numbers of customers served by it as of Jun 30, 2023 in India were 1067 customers and 12 customers outside India.

Currently it operates five manufacturing facilities in India at Surat, Tumb, Nandigram and Chikhli all in the state of Gujarat with an aggregate installed capacity to manufacture 12 GW of solar module as end of Jun 30, 2024. Subsequent to June 30, 2024, it has commissioned 1.3 GW of Indosolar Facility at Noida in Uttar Pradesh taking the overall current capacity to 13.3 GW.

Considering USA being its largest export market, the company is in the process of establishing a 1.6 GW solar PV module manufacturing facility in Houston, Texas in USA, which is expected to be operational by end of Fiscal 2025. It also plan to add another 1.4 GW of PV module capacity subject to market conditions taking the total USA installed capacity to 3 GW by fiscal 2026 and another 5 GW of solar capacity by fiscal 2027. Waaree Solar Americas Inc. has entered into a five year binding framework agreement with a customer for supply of 3.75 GW of solar PV modules which commences from the commissioning of the facility, currently proposed to be operational during Fiscal 2025.

In order to reduce its dependence on imported solar cells and third-party solar cell suppliers in India, the company is implementing a comprehensive strategic backward integration programme in phases. In phase I of backward integration project it is embarked on setting up a 5.4 GW solar cell manufacturing capacity at its Chikhli Facility which is expected to be operational by Fiscal 2025.

Further it is in the process of enhancing its backward integration capabilities (under phase II), by setting-up a fully integrated 6 GW facility for the manufacture of ingots, wafer, solar cells and PV modules in Odisha at a capital outlay of Rs 9049.96 crore of which the company has already spent Rs 146.67 crore till Aug 31, 2024 and balance to be funded through internal accruals (Rs 610.29 crore), proceeds from IPO (Rs 2775 crore) and project loan (Rs 5518 crore). The plant is expected to commence commercial operations in the Fiscal 2027.

Post expansion of both Phase I & Phase II of backward integration and module capacity expansion, the capacity of the company to manufacture solar PV modules (including US facility) will be 20.9 GW, solar cells will be 11.4 GW and ingot-wafer capacity will be 6 GW. All solar cells manufactured by it are intended to be utilized for captive consumption towards the manufacture of solar PV modules.

Manufacturing facilities of the company include NABL accredited laboratory, and automated production lines. Its automated production lines follow strict process control guidelines and international industry standards and practices. Its Chikhli Facility is certified with ISO 45001:2018, ISO 9001:2015 and ISO 14001:2015 for manufacture, marketing, and supply of solar photovoltaic modules as well as IEC System for mutual recognition of test certificates for electrical equipment CB scheme received from UL Solutions, USA, certificate of compliance for UL standard for safety for PV module safety, BIS standard IS 14286 : 2010 / IEC 61215:2005, IS/IEC 61730 (Part 1) : 2004 & IS / IEC 61730 (Part 2) for its crystalline silicon terrestrial PV modules (si wafer based) manufactured at the Chikhli Facility.

Solar PV modules manufactured at its Surat Facility, Tumb Facility, Nandigram Facility and Chikhli Facility has been provided a certificate of conformity by Eurotech Assessment and Certification Services to meet the European Council & Standards according to the European Union Council Directive 2014/35/EU. In addition, its solar PV modules have been also awarded a certificate of RoHS compliance in accordance with RoHS directive 2011/65/EU Annex II, recasting 2022/95/EC which restrict use of hazardous substance in electrical and electronic equipment.

Pending order book of solar PV modules as end of Jun 30, 2024 was 16.6 GW which included domestic orders, export orders, and franchisee orders and 3.75 GW of orders for its USA based subsidiary Waaree Solar Americas Inc.

The DCR is a policy implemented by the Indian government mandates a specific percentage of components including cells and modules used in solar power projects, particularly those funded by the government, to be sourced from domestic manufacturers.

In addition, the company plans to expand its operations in the green energy space. It intends to undertake backward integration – polysilicon to module manufacturing, and manufacturing of green-hydrogen-electrolyser. Currently the company is in the planning phase to set up a Gigawatt scale electrolyser manufacturing facility based on most suitable technology (preferably Alkaline technology) to facilitate green energy transition. Based on or experience, its electrolysers may be used in a variety of industrial sectors ranging from refineries, fertilizers, chemicals (including green ammonia producers), steel, electronics among others. Currently, the company is in discussions with several foreign electrolyser manufacturers for a technology tie-up for local manufacturing and is likely to firm up the arrangement in Fiscal 2025.

The Issue

The IPO comprises offer for sale (OFS) of 4800000 equity shares and fresh issue of equity shares, aggregating to Rs 3600 crore. Of the OFS, sales by the promoter shareholders constitute 4350000 equity shares [all by Waaree Sustainable Finance] and balance by Investor selling shareholders [450000 equity share by Chandurkar Investments]. On post issue expanded equity Chandurkar Investments will hold 0% stake.

Object of the Issue

Of the net proceeds from the fresh issue, about Rs 2775 crore will be used to part finance the cost of establishing the 6GW of Ingot Wafer, Solar Cell and Solar PV Module manufacturing facility in Odisha by way of an investment in Sangam Solar One Private Limited, a wholly owned subsidiary of the company and balance towards general corporate purposes.

Strength

Largest manufacturer of solar PV modules in India with an aggregate installed capacity of 13.3 GW.

Established presence in solar power industry with over 16 years of successful track record and diversified base of global and Indian customers.

Large order book of 16.6 GW as end of Jun 30, 2024.

Advanced manufacturing facility with global accreditations

The Greenfield Odisha plant for ingots, wafer, solar cells and PV modules have been provided with an outlay of Rs 1923.24 crore under the PLI Scheme awarded by the GoI.

The Government had proposed to achieve 100 GW of solar energy by Fiscal 2022, of which 40 GW was proposed to be added under rooftop-based solar systems, which was extended to Fiscal 2026.

Emphasis on adoption and use of domestically produced solar products. Especially various GOI schemes such as PM-KUSUM Scheme, the CPSU solar power project scheme and the recent Grid Connected Solar Rooftop Programme emphasis on utilization of DCR (domestic content requirement) solar modules and the last one in-fact exclusively requires the utilization of DCR solar modules. Government projects are permitted to procure solar modules of certain quality and specification only from a limited number of select suppliers identified in the ALMM identified by the MNRE.

Importers of PV such as the United States are implementing several policies throughout time to reduce their reliance on China for PV products by introducing tariff barriers such as anti-dumping duties. US PV module manufacturing capacity will provide the company easier access to its existing customers in the United States and to further take advantage of the (United States) Inflation Reduction Act which has allocated approximately USD 400 billion for clean energy.

Weakness

Top 10/5/largest customers (excluding sales to Promoter Group companies) accounted for 56.77%/40.13%/8.91% in FY24 and 58.41%48.56%/18.33% in Q1FY25.

Continue to upgrade technology in line with or ahead of the industry to meet customer expectations.

Significant dependent on projects awarded by government entities and public sector undertakings under competitive bidding routes.

Change in EXIM policies of countries to which the company exports. Any unfavorable policy change in may adversely affect its business.

Dependent on third party suppliers of materials and components for manufacturing its products especially imports. Restrictions or import duties levied on raw materials used by the company or non availability or disruptions in supply will adversely affect its manufacturing operations. Cost of materials imported from China accounts for 54.08% in FY24 of total cost of materials imported.

Intense competition in domestic market from other Indian solar cell and module manufacturers as well as solar cell and module manufacturers from China and Southeast Asia.

Availability of wafers (used in manufacture of solar cells) at fair price is crucial and any volatility in price of wafers impacts the profitability of the company.

Decline in the price of solar PV module prices may have an adverse impact on the business. Global solar module and cell prices have seen fluctuations primarily due to dynamics in polysilicon pricing, overproduction and excess supply across the value chain globally. Any reduction in the customs duty by the country will further reduce the price of PV modules in the country.

Exchange rate fluctuations may adversely affect results of operations.

Aggregate capacity utilization for fiscal and quarter ended of Mar 2024 and Jun 2024 respectively stood at 43.37% and 45.01%.

Four out of five of its operational manufacturing facilities are located in Gujarat, India which exposes its operations to potential risks arising from local and regional factors.

Waaree Technologies, a group company had failed to meet certain legal requirements of SEBI and the stock exchanges in the past.

Waaree Renewable Technologies (WRTL), one of the subsidiaries of the company, whose equity shares are listed on the BSE, had failed to comply with certain corporate governance requirements, namely, non-compliance with the requirements pertaining to composition of the board of directors of WRTL and a penalty of Rs 0.012 crore was levied which is yet to be paid. Further, Indosolar, one of the subsidiaries, had failed to comply with certain requirements of the Stock Exchanges and the SEBI Listing Regulations.

Have in the past entered into a number of related party transactions and may continue to enter into related party transactions in the future on an arm’s length basis.

Loss of accreditation for its manufacturing facilities and operations could damage the reputation, business, and results of operations and cash flows of the company.

Valuation

Consolidated re-stated revenue stood higher by 69% to Rs 11397.61 crore in FY 2024 , driven by increase in sale of solar power products primarily powered by higher export sales, sale of services and EPC project sales. With the OPM expanding by 140 bps to 13.8%, OP was up by 89% to Rs 1574.42 crore. After accounting for higher other income, higher interest and depreciation, the PAT before EO was up 100% to Rs 1392.86 crore. Eventually, Pat after MI was up by 155% to Rs 1274.38 crore gained by Rs 361.92 crore swing in EO income to Rs 341.34 crore.

For the TTM period ended Jun 2024, the revenue was Rs 11478 crore and the net profit after MI was Rs 1337 crore.

On expanded equity (at the upper price band) the EPS for FY2024 and TTM period ended June 2024 was Rs 35.6 and Rs 37.8 respectively. The P/E at the upper price band works out to 39.8 times of its TTM EPS ended Jun 2024. The company quotes at a P/BV of 5.3 times. On TTM sales ended Jun 2024, the company quotes at an EV/sales of 3.5 times.

Premier Energies, an integrated solar PV manufacturers with 4.13 GW of solar module and 2 GW of solar cell capacity quotes at a PE of 124.4 times and price/BV of 25 times. Websol Energy Systems, a small player with an installed capacity of 0.55 GW of solar modules and 0.60 GW solar cell capacity has reported a loss of Rs 47.34 crore at PBT level and a loss of Rs 120.96 crore at PAT level in FY24 on a sales of Rs 25.86 crore. On TTM sales ended Jun 2024, Premier Energies and Websol Energy Systems quotes at an EV/sales of 12 times and 30.7 times respectively.