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  4. Waaree Energies Limited opens for subscription today. Should you invest?

Waaree Energies Limited opens for subscription today. Should you invest?

Waaree Energies Limited opens for subscription today. Should you invest?
Stock Market3 min read
The IPO of Waaree Energies Limited (WEL), India's biggest manufacturer and exporter of solar PV (photovoltaic) modules, opens for subscription today and is set to close on October 23, 2024. The IPO worth Rs 4,321.44 crore is a combination of a fresh issue worth Rs 3,600 crore and OFS (offer for sale) worth Rs 721.44 crore.

Retail investors, who are being offered about 35% of the total issue pie, can bid for a minimum of 1 lot, which includes 9 shares, taking the minimum investment amount to Rs 13,527. With the listing set for Monday, October 28, 2024, the company has set a price band of Rs 1,427 to Rs 1,503 per share.

However, prior to the stock's debut on the bourses, the company's GMP (grey market premium) has been scaling fresh highs. As of today, Waaree Energies GMP was Rs 1,475, taking the potential listing price to Rs 2,978. This means that the expected gain per share from the stock's listing is a whopping 98.14%.

The company's GMP has been on a steady rise, inching up from Rs 1,280 on October 15, 2024, to Rs 1,475 today. However, today's GMP was a tad bit down from the Rs 1,510 levels it was trading at yesterday.

About the company

The company, which operates 4 manufacturing facilities in Gujarat, India, commenced operations in 2007. As of FY24, it commands a 21% share in India's domestic solar module manufacturing space and a healthy 44% share in its exports from the country. In just 3 years, the company has exponentially increased its manufacturing capacity, from 2 GW in FY21 to 13.3 GW in FY24.

Waaree will be utilizing the proceeds from the issue to set up a 11.4 GW integrated manufacturing facility. Out of this, a 5.4 GW solar cell manufacturing facility will be operational in Chikhli next year. Another 6 GW establishment in Odisha, which is expected to be functional by FY27, will produce ingots, wafers, and solar cells. The company has recently also been awarded orders worth Rs 19 billion under the government's PLI (Production-Linked Incentive Scheme).

The company's bottom line, i.e., financials, have also been going from strength to strength over the past few years. Waaree's revenue from operations stood at Rs 1,13,976.09 million as of FY24, up from Rs 28,542.65 million in FY22. Its PAT (profit after tax) also took a massive jump, from Rs 796.5 million in FY22 to Rs 12,743.67 million in FY24.

The company also reported PAT margins of 2.70% in FY22, 7.29% in FY23, 10.96% in FY24, and 11.47% in the first quarter of FY25. During these years, WEL's basic EPS (earnings per share), a measure of the company's profitability, also inched up 3.84 in FY22 to 48.05 in FY24.

However, the company is not without its share of risks. The most prominent of them is its heavy reliance on its top 10 customers and export revenue. As of FY24, they contributed 56.77% and 57.64% to the total revenue, respectively.

Subscribe for the long-term

Experts are largely recommending subscribing to this IPO for the long term. Per InCred Equities' IPO note, "In 1QFY25, the company’s revenue was at Rs 34 billion (+2% YoY), while EBITDA and PAT stood at Rs 5.5 billion (+18% YoY) and ~Rs 4 billion (+19% YoY), respectively. Based on FY25F annualized financials, the IPO’s higher band implies an EV/EBITDA of~18x 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."

Bajaj Broking also shares these views, albeit it notes that the issue appears to be fully priced rather than being on discount. "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. We recommend subscribing to this IPO for the long term," it continued.

Per Anand Rathi Research, the company's offer is reasonably priced with a PE of 26x (per FY25 earnings) and a market cap of Rs 4,31,786 million.

"We believe that, with solar energy emerging as a key global theme in the transition to renewable energy, WEL is well placed to capitalize on the growing opportunity given its leading market share, strong financials, and continued focus on innovation and sustainability with capacity expansion through backward integration. We recommend "subscribing” to this IPO issue," it explained.

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