The Waaree Energies IPO is seeing brisk interest amongst investors ahead of its listing on October 28. Not only has the issue been subscribed 79.44 times, the GMP has risen to a whopping 100% plus. The question therefore is what’s that x-factor that’s keeping investor interest intact in this counter?
Siddhartha Khemka, Senior. Group VP – Head of Research (Retail) at Motilal Oswal Financial Services points out that Valuations is a key deciding factor. “Good business with good valuation is what attracts investors and this is what has happened in the case of Waaree. Additionally, given Waaree Energies’ business model, there is a scarcity premium too as there aren’t many companies offering the solar panels that Waaree supplies. Renewable energy space is attracting investor interest and whatever handful of companies are there in this space have showcased good order book position coupled with comfortable valuation,” he added.
Here is a quick look at the key aspects of the Waaree Energies IPO. The 4 positive elements and the 4 concern areas
Waaree Energies IPO: What’s Hot?
1. Growing interest in renewable energy: With climate change concerns increasing, renewable energy, as a sector, is gaining traction. Increasingly we see Governments globally veering towards the green options. Consumers too are becoming more environmentally conscious and looking at ways to cut down their carbon footprint.According to ICRA study, renewable energy sources, including biomass, waste to power and waste to energy, have a combined installed capacity of 150.27 GW as of July 2024. The installed renewable energy capacity is expected to increase to about 170 GW by March 2025 and India ranks 4th globally in wind and solar power capacity.
2. Relatively niche play with limited competition: The renewable sector in India is growing by leaps and bounds but there are still relatively less players in the sector. According to IBEF, The renewable energy sector has seen investments worth over Rs 5.2 lakh crore ($70 billion) since 2014. As of now the total number of companies engaged in renewable energy business is a mere 4500 compared to over 1,20,000 globally, highlighting the ample room for growth.
3. Government support in form of PLI: The Government has been pushing forth a series of incentives and schemes to support development of infrastructure and ecosystem for renewable power. The timeline for “Development of Solar Parks and Ultra Mega Solar Power Projects” has been extended till March 31, 2026.
Additionally, in a bid to boost installation of solar power in rural areas, the “Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (PM-KUSUM)” scheme has been extended till March 2026.
That apart, Waaree Energies is also a beneficiary of the Government PLI scheme for the manufacturing sector. An outlay of 1923.24 crore under the Scheme Guidelines for Implementation of the Production Linked Incentive Scheme (Tranche II) under National Programme on High Efficiency Solar PV Modules.
4. Valuation comfort: In terms of financial performance, the company has delivered consistent improvement in top and bottomline FY23 onwards. Incred recommends a “subscribe” as they believe, “Based on FY25F annualized financials, the IPO’s higher band implies an EV/EBITDA of18x, and a P/E of ~27x, which is at a discount to its peers, in our view. We recommend subscription to the IPO, given the strong financials, strong industry tailwinds with long-term opportunities in the solar industry, robust order backlog and further expansion plans.”
“Its average EPS is at Rs. 31.94 (basic), and an average RoNW of 26.95%. The issue is priced at a P/BV of 8.84 based on its NAV of Rs. 169.94 as of June 30, 2024, and at a P/BV of 5.35 based on its post-IPO NAV of Rs. 281.16 per share (at the upper cap),” explained Bajaj Broking. According to them, “If we attribute FY25 annualized super earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 26.91, and based on FY24 earnings, the P/E stands at 44.36. The issue relatively appears fully priced.”
Waaree Energies IPO: What’s the concern?
However there are some points of concern with regards to Waaree Energies too –
1. Dependence on top 10 clients: The top 10 clients of the company account for 42% of the company’s business with the top 5 accounting for almost 34%. This means that the bulk of the revenue is dependent on a select list of clients. This means, even if any one of such key customers makes a cut or reduces order size, it could have a material impact on the business and financial condition.
2. Govt schemes valid for limited time: Many of Waaree Energies’ projects are dependent on a series of Government schemes. This essentially means if any of these project timelines get delayed, they run the risk of additional cost and not getting the exact amount of financial relief as planned.
3. Impact of global uncertainties on exports: USA, Yemen, Philippines, Italy and Japan are the top 5 export markets for Waaree Energies in 2024. Not only is the company at risk of complying to respective legal and regulatory environment; complex local tax regimes, payments by international customers, security issues but also the impact of global turmoil as is being seen in West Asia at the moment.