Waaree IPO Shines Bright as Solar Power Booms Amid Global Green Push

Waaree Energies, a big name in the solar power industry, is launching an IPO at a key moment for the solar sector. Governments worldwide are pushing to reduce carbon emissions and shift towards renewable energy, creating opportunities for companies like Waaree. With India’s ambitious renewable energy goals, the company has found itself in a strong position.

Waaree focuses on solar energy and has played a key role in India’s move towards clean energy. It stands out with an impressive 12-gigawatt (GW) installed capacity, making it one of the country’s leading solar power companies.

Strong Financials

Waaree has seen its order book grow by six times, reaching 19.9 GW in the past three years. The company plans to use the IPO money to build a large factory capable of producing 6GW of key solar components like ingots, wafers, cells, and modules. This move will allow Waaree to control its supply chain and improve profits.

According to Shiwani Kumari, a senior analyst at Monarch Networth Capital, this vertical integration will help Waaree increase its operational efficiency and boost margins. As the company expands, its large scale will lead to further cost advantages.

Waaree’s focus on exporting has also paid off, with the company enjoying strong profits. In the financial year 2023-24, its revenue nearly quadrupled to ₹11,633 crore, and it had a solid return on capital of 26%. Waaree’s careful financial management has allowed it to expand without relying on heavy debt. The company’s debt-to-equity ratio was just 0.08 times in 2023-24, which is much lower than its competitors.

Risks and Expansion Plans

Amit Paithankar, Waaree’s CEO, said that while the company might take on some debt for big projects, it will be cautious in managing its financial health. Experts like Ajay Garg, CEO at SMC Global Securities Ltd, believe that Waaree can maintain its financial edge by balancing debt with economies of scale. However, Sonam Srivastava, founder of Wright Research, warns that too much debt could bring risks and challenges for the company’s operations.

Client Concentration Risk

One of Waaree’s challenges is that a large part of its revenue comes from just a few clients. In 2023, 57% of its revenue came from its top ten customers, while the top five accounted for 40%. Waaree’s CEO acknowledges this risk but stresses that their key clients tend to be loyal. The company plans to diversify its customer base as it expands its capacity to 21GW, with a particular focus on exploring markets in Europe.

Waaree’s revenue from direct sales has also dropped, from 56% in 2021-22 to 31.4% in 2023-24. However, this fluctuation is common in the industry, and Paithankar mentioned that sales often change month-to-month depending on customer needs. Waaree benefited from the U.S. ban on Chinese solar modules, increasing its export sales significantly.

Dependence on Chinese Imports

Another major risk Waaree faces is its dependence on Chinese imports, which accounted for more than 80% of its total procurement in early 2024. This reliance exposes Waaree to risks like supply chain disruptions and price fluctuations. Experts believe the company needs to diversify its supply sources to reduce these risks.

Additionally, 57% of Waaree’s export revenue comes from the U.S., leaving it vulnerable to changes in the American economy or trade policies. While a U.S. recession could pose challenges, Waaree has a strong order book that provides some protection.

Bright Future Ahead

India’s renewable energy capacity is expected to nearly double by 2027, with solar power leading this growth. Both India and the U.S. are set to become global leaders in solar energy. Waaree is well-positioned to benefit from this expansion, with plans to balance domestic and export sales in the future.

As Waaree prepares for its IPO, investors will be watching closely to see how the company navigates the challenges and opportunities in the booming solar energy market.