Business Profile of the Waaree Energies Limited

Established in 2007, Waaree Energies is the largest manufacturer of solar PV modules in India, with an aggregate installed capacity of 12 GW. The company aims to provide quality, cost-effective sustainable energy solutions and reduce carbon footprints. The company operates five manufacturing facilities in India, each located in Gujarat, India. These facilities have various ISO certifications and the company also holds certificates of conformity from Eurotech Assessment and Certification Services Limited and RoHS compliance.

The company's solar PV modules are insured by external parties, and they have received a tier-1 PV module maker rating from Bloomberg New Energy Finance between Fiscal 2018 and Fiscal 2024. They are also included under the ALMM list identified by the government, enabling them to participate in various government schemes aimed at developing the solar industry in India.

The company serves a total of 1,067 customers in India and 12 customers outside India as of June 30, 2024. They have also focused on increasing export sales, with an increase in export sales from ₹ 6,578.22 million in FY22 to ₹ 46,165.39 million in FY23 and 57.64% in FY24. The company plans to follow an expansion strategy of regular capacity additions and continuous upgrading of manufacturing technology and processes.

Waaree Energies Limited IPO Objective

As per the draft red hearing prospects, the IPO issue consists only of offer for sale.

• The OFS consists of up to 4,800,000 equity shares aggregating up to Rs. Rs. 721.44 crores. Nothing from those proceeds of OFS will be allotted to company.
• Waaree Energies IPO offer only has fresh issue of Rs. 36, 000 million. As per DRHP document, the company aims to utilize IPO proceedings primarily towards establishing.

(Rs. Million)

IPO Details of Waaree Energies Limited:

Issue Price & Size: Waaree Energies Limited IPO

The price bands of Waaree Energies Limited have been announced between Rs. 1427 to Rs. 1503. The company has both fresh issue of Rs. 3600 crores as well as offer for sale of Rs. 721.44 crores.

Launch Date of Waaree Energies Limited IPO

The IPO opening date of Waaree Energies has been officially announced for October 21, 2024 till October 23, 2024.

Waaree Energies Limited Financial Statements

Waaree Energies Limited Promoters & Shareholding

As of date, there are four promoters of the company, inclusion corporate and individual promoter. The promoter in aggregate collectively holds 40.55% of the paid-up share capital of company.

Should You Subscribe to Waaree Energies Limited IPO or Not

While investing or subscribing to any IPO, consider the investment rationales related to the company. Hence, here you can find out the strength of the company that will be its growth factors. And also check the risk factors that can affect the growth and operational efficiency of the company.

Competitive Strengths of Waaree Energies Limited:

Largest solar PV module manufacturer in India

Waaree energies is the biggest solar PV module maker in India with installed capacity of 12 GW as of June 2024. It ranked second among Indian domestic solar PV module producers in FY24 for operating income. Complementing 1.3 GW of Indosolar Facility, the company has substantially boosted its capacity from 4 GW in Fiscal 2022 to 12 GW.

Expanding its solar rooftop installed capacity—which is projected at around 12.5 GW as of May 2024—has proved effective for the company.

To solve the demand-supply imbalance and seize fresh market possibilities, the company is also concentrating on raising its installed capacity. Recently given an outlay of Rs. 19,232.40 million under the PLI Scheme initiative by the government, they are currently building a completely integrated 6 GW facility for the manufacturing of ingots, wafer, solar cells, and solar PV modules. The facility would be situated in Odisha and qualified for several incentives implemented by the Odisha government.

With a 1.6 GW solar PV module production facility located in Houston, Texas, USA, the company is also increasing its overseas manufacturing presence. By leveraging their standing in the industry, the company has been able to capitalize on favorable market trends and undertake significant capacity growth measures.

Diversified customers base

The company has created partnerships with a large consumer base globally and within India.  The company has also created a big global customer base, selling its products to customers in the United States, Canada, Italy, Hong Kong, Turkey, and Vietnam.  The company is also developing a 1.6 GW solar PV module manufacturing facility in Houston, Texas, to serve consumers in the United States and abroad.

Potential entrance barriers for rivals include the company's excellent products, globally known manufacturing facilities, ISO certifications, and NABL approved laboratory. The company is also included within the ALMM designated by the government, enabling it to participate in the bidding process for government contracts.  The company has a considerable order book of solar PV modules, offering revenue stability and diversity, decreasing risk associated with loss of major customers, assuring business continuity and sustained growth.

Consistent financial performance

The company has demonstrated consistent financial performance through efficiency improvements, improved productivity, and cost rationalization. It has maintained a healthy balance sheet and low debt position, with current and non-current borrowings at varying amounts. The company's total income increased due to increased sales, and revenue from operations grew at a CAGR of 99.83%. Over the years, company's net worth has also grown. Profit before tax increased from Rs. 7,962.65 million in FY22 to Rs. 12,743.77 million in FY24, and restated profit for the period increased from Rs. 796.50 million in FY22 to Rs. 5,002.77 million in FY23 and further to Rs. 12,743.77 million in FY24.

Future plans

• The company plans to implement a strategic backward integration strategy to enhance operations and increase profitability by integrating each stage of the production process.
• They are aiming to increase capacity at their Chikhli Facility and set up a fully integrated 6 GW facility for ingots, wafer, solar cells, and solar PV modules.
• They are also expanding their manufacturing operations in the overseas market, aiming to take advantage of various government led initiative for setting up manufacturing facility.
• The company aims to reduce unit costs and achieve economies of scale by commissioning additional capacities.
• The company plans to scale its retail network to increase market penetration in the rooftop and MSME customer business verticals.
• The company is focusing to establish and expand its footing in states with high growth potential for rooftop solar projects, such as Delhi, Gujarat, Maharashtra.

Risk Factors of Waaree Energies Limited:

Client concentration

The company generates a significant portion of its revenue from key customers. As can be seen from data n table mentioned below, companies top 5 clients contributed to nearly half of their revenue from operation as of June 30.

If due to any disruptions, the company fails to meet contractual obligations and provide with the assignments in a timely manner, the client may be entitled to terminate the contract, or invoke corporate guarantee provided by the company.

The table below shows the revenue from top 10 customers, top five customers, and their largest customer as a percentage of our revenue from operations for the year/period indicated.

Risk arising from exports

The company generates a significant portion of its revenue from exports, as can be seen from data in table below. The company exports its products to various overseas markets, with USA contributing to majority of its share.

In any country for a business to flourish, it either has to be under the category of essential business or in line with government long term objective.  In domestic market, the government is pushing companies to shift a part of their energy consumption to green sources of energy. When it comes to exporting to market like US, where the election are due in coming month. the presidential candidates are divided toward bringing green sources of energy in main stream. So unexpected changes in regulatory environment, costs associated with doing business, changes in solar industry practices, compounded by currency and financial issues makes doing business in foreign maker challenging.

Any failure to maintain existing sales or expansion in international markets will adversely impact the company's overall fundamental and company’s financials.

Dependent on government subsidies

The company has been awarded a project of Rs. 19,232.40 million under the Production Linked Incentive Scheme (Tranche II) under the National Programme on High Efficiency Solar PV Modules (PLI Scheme) by the GoI to improve backward integration capabilities. The project is expected to be completed by FY27. If the project fails to meet the target capacity or minimum module performance, it may not receive the incentive under the PLI Scheme until it overcomes the deficiency.

The project is eligible for various government incentives, including capital investment, stamp duty exemption, employment subsidy, power tariff reimbursement, electric duty exemption, state GST exemption, and land subsidy. However, these incentives are tentative and subject to actual investment amounts, energy requirements, and employment nature.

Ability to grow our Retail Sales

The growth of retail sales, particularly in commercial, industrial, and residential business verticals, depends on relationship with franchisees and their ability to expand retail network.

Retail network consists of 373, 253, 335, and 369 franchisees across India. Their franchisees are typically for three years and renewed periodically, dealing exclusively with our products and not permitted to sell any other products similar to within the designated territory. They operate as end-to-end product and service providers for rooftop and MSME business verticals, dealing only with products authorized by us and selling under our brand name.

Risk in overseas expansion

Waaree Solar Americas Inc. is expanding its manufacturing activities by developing a 3 GW facility in the overseas market i.e. USA.  The anticipated expansion faces hurdles such as regulatory permissions, supply chain delays, and unforeseen occurrences.  The cost of the expansion is projected to be over USD 70 million and will be funded through internal accruals and financing agreements with lenders.  The facility is expected to be operational by the end of FY25.  Waaree has engaged into a five-year contractual deal with a customer for the supply of 3.75 GW of solar modules.  The company also wants to extend its solar module manufacturing capacity to 5 GW in the future.

Reliance on imports

The company imports a substantial amount of materials for its solar cell production, notably from China.  Any restrictions imposed by the government on these imports may significantly effect the company's business, results of operations, and prospects.  The top three import jurisdictions include China, Taiwan, Vietnam, China, Thailand, and Malaysia.  The government announced a safeguard tariff in July 2018 on solar cell imports, which has been replaced by a higher basic customs duty of 25% on solar cells starting April 1, 2022.  This has impacted the company's cost of materials.  The corporation may also face additional duties on the equipment needed for its anticipated expansion, upgradation, and backward integration plans.  Such restrictions on such imported material may adversely influence the company's results of operations and business prospects.

Risk arising from competitive bidding

In volatile times like these, bidding for a solar project becomes a challenging task as the company risks various factors from execution of project, delay in approval, cost overrun due to price increase of raw material. As of June 30, 2024, the company has 46 active power purchase agreements with state power generation companies. These agreements require the company to operate the project for 25 years from the commercial operation date, and sell all available capacity to the purchaser first.

Any litigation in regards to bidding process could adversely affect the company's business fundamentals and financial outlook. As can be from data in table below, the company has a strike rate of 50% during 3-mon ended June 30, 2023 but hasn’t been able to replicate the performance as of 3-mon ended June 30, 2023.

Facility concentration and disruptions

The Red Herring Prospectus reveals that four out of five manufacturing facilities in Gujarat, India, are currently operating. Unscheduled or prolonged disruptions of manufacturing operations, including power failure, strikes, natural disasters, industrial accidents, or significant social, political, or economic disturbances, could reduce the ability to manufacture products and adversely affect sales and revenues. The occurrence of such incidents could also result in the destruction of certain assets and adversely affect the results of operations.

Waaree Energies Limited Grey Market premium

Grey market premium is the premium quoted over the IPO issue price. GMP shows that investors are ready to pay above the upper band of the IPO issue price. GMP is determined in the grey market as per the demand and supply of the shares in the primary market. A grey market is that unofficial ecosystem of unlisted companies' stocks that start trading even before the launch of the IPO to the date of its listing.

Also Read: What is Grey Market Premium in IPO: How is GMP Calculated & Reliable

However, GMP is not a reliable factor, as it keeps fluctuating as per the demand and supply of shares in the primary market. There are numerous factors that affect the stock market in India and individual stock prices of different companies that are already listed and trading in the secondary market. However, for an IPO-bounded company, you can consider the GMP as the speculative listing price of the share

According to various online sources, the Grey Market Premium or GMP of the Waaree Energies Limited is trading around Rs XX in the grey market. It means shares are trading at the upper band issue price of Rs XX with a premium in the grey market and may list around the same price.