Synopsis: A brokerage has turned more cautious on a leading solar company, citing industry challenges and execution risks, even as it believes the company’s long-term expansion strategy could support future growth.
The shares of this company majorly engaged in manufacturing solar PV modules advanced TOPCon modules such as bifacial monocrystalline, flexible module, passivated emitter, rear cell and many more were in focus after the brokerage cut its target by 30 percent.
With the market capitalization of Rs. 81,121 Crores, the shares of Waaree Energies Ltd were trading at around Rs. 2820 per share which is 21 percent discount from its 52 week high of Rs. 3865 per share and is trading at a P/E of 20.7 whereas industry P/E stands at 31.2
UBS Cuts Target Price, But Still Sees Upside
UBS lowered its target price on Waaree Energies by 30 percent to Rs. 3,100 from Rs. 4,400. Despite the sharp reduction, the revised target still implies around 10 percent upside from the stock’s last traded price of Rs. 2825 per share . The brokerage also reduced its valuation multiple to 21x 12-month forward P/E from 28x, saying the stock deserves a higher discount to peers amid expectations of lower margins and a more challenging industry environment.
Solar Industry Faces a More Competitive Phase
According to UBS, the solar industry is entering a phase of consolidation as companies continue to add manufacturing capacity aggressively. While this strengthens India’s domestic manufacturing ecosystem, it is also expected to increase competition and weigh on profitability across the sector in the near to medium term. These industry-wide concerns were among the key reasons behind the brokerage’s more cautious stance on the stock.
Expansion Plans Strengthen Long-Term Position
UBS noted that Waaree’s planned Rs. 30,000 crore capital expenditure, up from Rs. 13,000 crore announced last year, is expected to expand its manufacturing capacity to 15.4 GW of cell capacity and 10 GW of ingot-wafer capacity by FY28. This would account for nearly 20 percent of India’s domestic manufacturing capacity. The brokerage believes the investment will strengthen Waaree’s leadership position through greater backward integration and improve its long-term competitive advantage.
Execution and New Business Risks Remain
While acknowledging the long-term benefits of the expansion, UBS cautioned that executing such a large investment programme carries risks. It also said visibility on returns from newer businesses such as Battery Energy Storage Systems (BESS) remains limited, making it difficult to assess their contribution to future earnings. Along with the possibility of lower industry margins, these risks led the brokerage to adopt a more conservative valuation.
Analyst Sentiment Still Favors the Stock
According to Bloomberg data, 19 analysts currently track Waaree Energies. Of these, 14 have a ‘Buy’ rating, one recommends ‘Hold’, and four have a ‘Sell’ recommendation. The stock ended 1.5 percent lower at Rs. 2,878.80 on Monday and has declined around 6 percent over the past month.
Conclusion:
UBS remains constructive on Waaree Energies’ long-term growth story but believes the road ahead could be more challenging than previously expected. While the company’s aggressive capacity expansion and backward integration may strengthen its market position by FY28, the brokerage expects industry-wide competition, lower margins, execution risks and uncertain returns from the BESS business to weigh on near- to medium-term performance, leading to a more conservative valuation.
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