Waaree Energies earnings: A reality check as listing euphoria fades

The half-year ended (H1FY25) earnings of recently listed Waaree Energies Ltd, the largest solar module manufacturer in India, came as a rude shock to investors. The stock fell 13% since results were announced on 18 November.

Its maiden result, post listing, showed that in H1FY25, consolidated revenue grew a mere 2% year-on-year to ₹6,983 crore, hurt by lower export volumes. In the earnings call, the management said export realization fell from 28-30 cents per watt-peak (Wp) a year ago to 24 cents in H1FY25, while the same in the domestic market fell from 21 cents to 17 cents. Considering that price realization fell by about 20% and sales still grew 2% year-on-year in this span, sales volume growth must have been about 22%.

In the case of Waaree, sales in value terms may not be a critical metric because the selling price of solar modules or finished goods fluctuates in tandem with the procurement price of solar cells, a key raw material. Therefore, sales volume and gross margin are better indicators of earnings performance.

Gross margin saw a sharp year-on-year improvement of 390 basis points to 25.3% as raw material cost or the cost of solar cells eased. However, gross margin gains got significantly diluted at Ebitda level as Ebitda margin expansion was restricted to 110 bps to 15.4%, adversely impacted by the rise in staff costs and selling overheads. The management anticipates a bump-up of about 200-300 bps in Ebitda margin once their backward integration plan of solar cell manufacturing fructifies. Their 5.4 GW solar cell manufacturing unit is likely to be fully operational by the end of FY25.

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The orderbook stood at 20 GW at the end of H1FY25 with fresh order inflow of 5GW. The company already has a strong overseas order book, mainly from the US, that stood at 72% and the rest coming from the domestic market. It also plans to set up 1.6GW of solar module manufacturing in the US by FY25. Despite the change in the US government with Donald Trump coming to power, the management is confident of business prospects.

The company believes that even if the tariff on Chinese imports is raised, it will not have an impact as the solar cell requirement for US operations will either be met from the US or from India. Also, since Waaree has collected advances from customers at the time of order placement, chances of order cancellation are low even after the transfer of power in the US government.

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Subsiding euphoria

True, investors who got allotments saw mouth-watering listing gains. Waaree Energies shares listed on the NSE on 28 October, hitting an intraday high of ₹2,624, a premium of 75% to the issue price of ₹1,503. But from its 52-week high of ₹3,743 on 6 November, the stock is down around 27% as the listing-led euphoria has started to subside.

Waaree has ambitious plans of increasing current solar module capacity from 13.3 GW to 21 GW by FY27, along with a backward integration plan of 11 GW of solar cell manufacturing. But, the current market capitalization of ₹80,000 crore for annualized profit of ₹1,600 crore for FY25 translates into P/E of 50x.

The valuation multiple appears to be stretched at least for the time being especially in view of the rapidly evolving threat from technological obsolescence. The management is aware of this and, therefore, follows an aggressive depreciation and amortization policy to write off equipment and other costs over just three years.

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