Waaree Energies coming with IPO to raise Rs 4513 crore

Waaree Energies

• Waaree Energies is coming out with a 100% book building; initial public offering (IPO) of 3,00,27,750 shares of Rs 10 each in a price band of Rs 1427 - Rs 1503 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on October 21, 2024 and will close on October 23, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 142.70 times of its face value on the lower side and 150.30 times on the higher side.
• Book running lead managers to the issue are Axis Capital, IIFL Securities, Jefferies India, Nomura Financial Advisory and Securities (India), SBI Capital Markets, Intensive Fiscal Services and ITI Capital.
• Compliance Officer for the issue is Rajesh Ghanshyam Gaur.

Profile of the company

Waaree Energies is the largest manufacturer of solar PV modules in India with the largest aggregate installed capacity of 12 GW, as of June 30, 2024. For Fiscal 2024, the company had the second best operating income among all the domestic solar PV module manufacturers in India. The company commenced operations in 2007 focusing on solar PV module manufacturing with an aim to provide quality, cost-effective sustainable energy solutions across markets, and aid in reducing carbon foot-print paving the way for sustainable energy thereby improving quality of life. Over the years, the company has significantly expanded its aggregate installed capacity from 4 GW in Fiscal 2022 to 12 GW, as of June 30, 2024, as evidenced by its ability to quickly complete its expansion plans efficiently. Subsequent to June 30, 2024, it has commissioned 1.3 GW of solar module manufacturing facility at Noida, Uttar Pradesh through its subsidiary, Indosolar Limited (IndoSolar Facility).

The company’s solar PV modules are currently manufactured using multicrystalline cell technology, monocrystalline cell technology and emerging technologies such as Tunnel Oxide Passivated Contact (TopCon) which helps reduce energy loss and enhances overall efficiency. Its portfolio of solar energy products consists of the following PV modules: (i) multicrystalline modules; (ii) monocrystalline modules; and (iii) TopCon modules, comprising flexible modules, which includes bifacial modules (Mono PERC) (framed and unframed), and building integrated photo voltaic (BIPV) modules. The company operated five manufacturing facilities in India spread over an area of 143.01 acres. It operates one factory each located at Surat, Tumb, Nandigram, Chikhli in Gujarat, and the IndoSolar Facility, in Noida, Uttar Pradesh.

The company’s solar PV modules warranties are insured by external parties, which requires it to maintain high standards for insurance approval. It has received a tier-1 PV module maker rating from the Bloomberg New Energy Finance between Fiscal 2018 and Fiscal 2024. Certain of its laboratories are accredited by the National Accreditation Board for Testing and Calibration Laboratories (NABL) which tests its solar PV modules for quality check. Further, it ensures that its manufacturing facilities are regularly audited by quality audit firms. It is also included under the ALMM list identified by the GoI, which enables it to participate in various government schemes aimed at developing the solar industry in India. It also manufactures semi-flexible solar panels for sale to global customers through its in-house research and development in product application.

Proceed is being used for:

• Part finance the cost of establishing the 6GW of Ingot Wafer, Solar Cell and Solar PV Module manufacturing facility in Odisha, India by way of an investment in its wholly owned subsidiary, Sangam Solar One Private Limited
• General corporate purposes

Industry overview

Over the past decade, there has been a significant geographical transformation in solar PV manufacturing capacity and production. China reinforced its dominant position as a manufacturer of wafers, cells, and modules by increasing its share of global polysilicon production capacity nearly three times. China’s role in supply chain becomes more critical as it holds more than 75% of cells and module lines, leading to high dependence from a global supply chain perspective. Having integrated solar PV manufacturing plants that produce wafers, cells, and modules all under one roof have certain advantages such as improved efficiency and cost reduction. With reduced transportation costs and economies of scale, these plants can optimize their production flow and have better quality control. Integrated solar PV manufacturing plants also provide greater flexibility and supply chain security. The manufacturer can respond to changes in demand efficiently, dependence on external suppliers gets reduced and with access to advanced technologies, it can certainly gain competitive advantages in terms of quality as well as price.

The global solar PV manufacturing capacity is projected to approach nearly 1,000 GW by 2024 a capacity sufficient to cater to the expected annual demand of nearly approximately 650 GW by the year 2030 as projected by International Energy Agency (“IEA”). In 2022, global solar PV manufacturing capacity increased by over 70% to reach almost 450 GW, with China accounting for over 95% of new facilities throughout the supply chain. Governments in the US, Europe and India have already begun to prioritise solar PV supply chain diversification, implementing policies such as India’s PLI scheme and the US IRA to provide direct financial incentives for domestic manufacturers to increase their competitiveness with Chinese counterparts. These country specific measures are expected to boost manufacturing capacities across the countries and would result in meeting the global demand by 2030. Over the past decade, China has emerged as the top destination for solar PV manufacture as a result of favourable government policies, continuous innovation and accelerated investments in the segment, surpassing Europe, Japan and the United States. Global PV shipments during 2022 crossed 300 GW, of which the top 10 players, including LONGi Solar, Trina Solar, Jinko Solar, accounted for a share of approximately 80% in shipments.

More than 85-90% of Indian solar module manufacturers have shifted to Mono-PERC and Mono-PERC is expected to dominate the technology for the next 2-3 years. Most of the Indian manufacturers have set up or planning to set up new facilities with an option of upgradation to newer technologies. Some of the Companies have existing manufacturing facilities which can be upgraded to TOPCon technology. TOPCon technology is slowly getting prominence in Indian solar manufacturing Industries. Meanwhile, India aims to build its presence across all stages of PV manufacturing over the next two to three years. In November 2020, the GoI introduced the PLI scheme for manufacturing high-efficiency solar PV modules with a financial outlay of Rs 45 billion. It later enhanced the outlay by Rs 195 billion under the Union Budget for Fiscal 2023. Going forward, India is expected to add around 175-180 GW of solar capacity over Fiscals 2025 to 2030. Considering the average module price of USD 0.22/Wp, this capacity addition provides a total opportunity of approximately $38 to 40 billion over Fiscals 2025-2030.

Pros and strengths

Largest solar PV module manufacturer in India: The company is the largest manufacturer of solar PV modules in India with the largest aggregate installed capacity of 12 GW, as of June 30, 2024. For Fiscal 2024, it had the second best operating income among all the domestic solar PV module manufacturers in India. Over the years, the company has significantly expanded its aggregate installed capacity from 4 GW in Fiscal 2022 to 12 GW, as of June 30, 2024, as evidenced by its ability to quickly complete its expansion plans efficiently. Subsequent to June 30, 2024, it has commissioned 1.3 GW of Indosolar Facility. Its extensive experience in the solar PV module manufacturing business, deep market penetration together with significant and regular capacity expansion of its solar PV module manufacturing as well as backward integration into manufacturing of solar cells, position it well to capture the growing demand for solar energy products domestically and internationally.

Diversified base of global and Indian customers: The company’s leadership position enables it to offer competitive pricing for its products, which in turn facilitates access to a large and diversified customer base and revenue generation from such customers. It has over the years established relationships with a diversified set of customers globally and within India. Its revenue from operations increased at a CAGR of 99.83% from Rs 28,542.65 million in Fiscal 2022 to Rs 113,976.09 million in Fiscal 2024 and was Rs 33,282.92 million and Rs 34,089.01 million, respectively, for the three months ended June 30, 2023 and June 30, 2024.

Extensive Pan-India retail network: The company has a Pan-India retail network consisting of franchisees. As of March 31, 2022, 2023 and 2024 and as of June 30, 2023 and June 30, 2024, its retail network consisted of 373, 253, 335, 284 and 369 franchisees across India, respectively. It has made significant investment in terms of training, resources and support provided to its franchisees over the years and developed relationships with these franchisees. Its extensive franchisee network across India increases visibility and reach of its products through direct customer interaction and distribution by such franchisees. This deep penetration across metros, large cities, towns as well as rural areas developed over several years present significant entry barriers for other players in penetrating its target business verticals.

Advanced manufacturing facilities with global accreditations: The company’s manufacturing facilities include NABL accredited laboratory, and automated production lines. Its automated production lines follow strict process control guidelines and international industry standards and practices. Its manufacturing facilities at Tumb and Surat are certified with ISO 9001:2015 for manufacture, marketing, and supply of solar photovoltaic modules. Its manufacturing facility at Tumb is certified with ISO 45001:2018 for manufacture, marketing, supply and installation of solar photovoltaic modules. Its Tumb Facility is also certified with ISO 14001:2015 for manufacture, marketing, supply and installation of solar photovoltaic modules. Its Chikhli Facility is certified with ISO 45001:2018, ISO 9001:2015 and ISO 14001:2015 for manufacture, marketing, and supply of solar photovoltaic modules.

Risks and concerns

Maximum revenue comes from top 10 customers: The company generates a significant portion of its revenue from, and are therefore dependent on, certain key customers for a substantial portion of its business. The company has garnered 56.77%, 65.90% and 42.78% of total revenue from top 10 customers in FY24, FY23 and FY22 respectively. Under the terms of its agreements with certain of its key customers, its customers have the option to terminate such contract with cause or without cause at relatively short notice with a payment of termination fees. If it fails to meet its contractual obligations in a timely manner, or at all, its customers may be entitled to liquidated damages, may terminate the contract with no further liability or obligation to the company, or invoke corporate guarantee provided by it. Certain contracts may also be terminated in case of a change in control or sale of assets occurs without written consent of its customers. In the event such risks eventuate, its business, financial condition, results of operations and cash flows could be materially adversely affected.

Revenue from operations is significantly dependent on exports: The company exports its products to various international markets. Its largest export jurisdiction for Fiscal 2022, 2023 and 2024 and three months ended June 30, 2023 and June 30, 2024 was the United States of America. Further, the international markets in which it sells its products are diverse, with varying levels of economic and infrastructure development, adoption of renewable energy sources, distinct legal and regulatory systems, and do not operate seamlessly across borders as a single or common market. As part of its exports into the United States, it is also subject to various requirements including adherence to the provisions of the Uyghur Forced Labour Prevention Act pursuant to which exporters are required to furnish evidence that the goods they export were produced without the use of forced labour failing which such goods may be prevented from entering into the United States. It cannot assure that goods shipped by it to the United States will not be subject to similar scrutiny. It may have limited or no experience in marketing and managing exports of its products to new international markets, which may require considerable management attention and resources for managing its growing business in such markets. Any failure to maintain its existing sales or expansion in international markets will have an adverse impact on its results of operations and financial condition.

Imports a portion of raw material supply from China: A significant part of its materials used in the production of its modules, particularly solar cells, is imported from China and other South East Asian jurisdictions. The Cost of Imported Materials from China was 54.08%, 34.46% and 80.23% in FY24, FY23 and FY22 respectively. Any restrictions, either from the Indian Government or any state or provincial government or governmental authority, or from restrictions imposed by any other applicable authorised bilateral or multilateral organisations, on such imports from China and other jurisdictions in which its principal suppliers are located, may adversely affect its business, results of operations and prospects. The government had introduced the safeguard duty in July 2018 on import of solar cells which was applicable until July 2021, which has been replaced with significantly higher basic customs duty of 25% on solar cells with effect from April 1, 2022. The imposition of such high basic customs duty on imported solar cells has impacted its cost of materials. Such restrictions on or import duties relating to solar cells and other materials used in module manufacturing or on any equipment required to be imported for its proposed capacity expansion and technology upgradation plans may adversely impact its results of operations and business prospects.

Four out of five operational manufacturing facilities are located in Gujarat: The company’s four out of five of its manufacturing facilities are located in the state of Gujarat. Due to the geographic concentration of its manufacturing operations, its operations are susceptible to disruptions caused by local and regional factors, including agitations, accidents, system failures, economic and weather conditions, natural disasters, demographic factors, and other unforeseen events and circumstances. The company’s manufacturing facilities may be affected, and there may be significant delays in shipments of its products, which could materially and adversely affect its business, financial condition and results of operations and cash flows. While there have been no material instances of disruption in any of its manufacturing facilities in the last three Fiscals and three months ended June 30, 2024, except due to the impact of COVID-19, where due to nationwide lockdowns, it ceased manufacturing operations for several weeks in April and May 2020, it cannot assure that such instances will not happen in the future which could materially and adversely affect its business, financial condition and results of operations.

Outlook

Waaree Energies is an Indian manufacturer of solar PV modules with an aggregate installed capacity of 12 GW. The company operates four manufacturing facilities in India, covering a total area of 136.30 acres. These facilities are located in Surat, Tumb, Nandigram, and Chikhli in Gujarat. The company has diversified base of Indian and global customers with a large order book also it has advanced manufacturing facility with global accreditations. On the concern side, the company’s business is dependent on certain key customers and the loss of any of these customers or loss of revenue from sales to any key customers could have a material adverse effect on its business, financial condition, results of operations and cash flows. Moreover, the company imports a portion of its raw material supply from China. Restrictions on or import duties relating to materials and equipment imported for its manufacturing operations as well as restrictions on or import duties levied on its products in its export markets may adversely affect its business prospects, financial performance and cash flows.

The company is coming out with a maiden IPO of 3,00,27,750 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 1427 -1503 per equity share. The aggregate size of the offer is around Rs 4284.96 crore to Rs 4513.17 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations increased from Rs 67,508.73 million for Fiscal 2023 to Rs 113,976.09 million in FY24, primarily due to an increase in sale of solar power products, sale of services and sale - engineering, procurement and construction project. Moreover, the company recorded a restated profit for the year of Rs 12,743.77 million in Fiscal 2024 compared to Rs 5,002.77 million in Fiscal 2023.

The company is one of the major players in the solar energy industry in India focused on solar PV module manufacturing, with an aggregate installed capacity of 12 GW, as of June 30, 2024. Subsequent to June 30, 2024, it has commissioned 1.3 GW at its Indosolar Facility. It is also in the process of setting-up a fully integrated 6 GW facility for the manufacture of ingots, wafer, solar cells and PV modules which is expected to commence commercial operations in Fiscal 2027. It will continue to focus on further integrating its operations and benefit from economies of scale, and improve operating margins. Going forward, the company’s backward integration strategy will further enhance its operations and increase profitability by integrating each stage of the production process to achieve cost savings and improve profit margins. By increasing its backward integration measures, it will be in a position to control the quality and availability of materials which in turn will reduce reliance on external suppliers and enhance its ability to negotiate more favourable pricing from customers.