Waaree Energies (Waaree) made a power-packed listing today with the shares making a more-than-decent debut at ₹2,550, a 69.7 per cent premium over its IPO issue price of ₹1,503. While it has given up some of the gains in further trading, at the time of publishing this article it was trading at ₹2,375 which still represents a solid 58 per cent increase over the IPO price.
The demand for the issue was strong, with the offer getting subscribed around 76 times. The applications received against it were around 97.3 lakh in number – the highest-ever number of applications received against a public issue in India.
bl.portfolio in the IPO analysis on Waaree published on October 22, 2024 had recommended long-term investors with a high risk appetite to subscribe to the issue. The recommendation was on the back of the company being a leading player in the industry, and its growth prospects once new capacities come on stream.
Now post the bumper listing, it is prime time to analyse whether the odds still favour the fortunate investors who received an allotment, and to consider if new investors should enter this stock at this juncture.
At the current price, the stock is trading at a PE of 51 times its trailing 12-month earnings and 42.5 times its annualised FY25 earnings. This when compared to the IPO valuation of 32.3 times (TTM PE) and 27 times (FY25 PE annualised), is a sharp run-up.
How the risks and rewards stack up
The valuations have jumped up around 60 per cent. Recently listed Premier Energies, a comparable listed peer, is currently trading at a TTM PE of around 109 times (IPO valuation was at around 51 times). However, stacking up the valuations of both companies against each other, to term current valuations of Waaree as cheap can be a bit misleading. Yes, its cheap on a relative basis. But on an absolute valuation basis, it appears to have more than adequately factored the long term growth prospects.
Also, while Premier Energies is in the middle of a ramp-up of new manufacturing lines, Waaree Energies, at this point, seems to be near the top-end of the utilization curve with its existing manufacturing lines, as witnessed from its tepid Y-o-Y revenue growth of 2.4 per cent in Q1FY25.
Currently the largest solar PV module manufacturer in India and largest solar PV module exporter to USA from India, Waaree Energies has the largest solar PV module manufacturing capacity in India as on date and is bigger than the next three competitors in line, in terms of installed capacity. Waaree witnessed solid growth between FY22-24 with revenue CAGR at 99 per cent. Further growth will follow only after new capacity comes online.
In the next three years, the company proposes to be backward integrated into solar cells, wafers and ingots, and forward integrated into power production and green hydrogen.
With a slew of capex planned which would take the solar module/ cells/ wafers and ingots capacity up to 20.9 GW/ 11.4 GW/ 6 GW, by the end of FY27, the company is positioned to establish a strong footing. The solar module capacity will increase by 75 per cent over current levels once this capex plan is executed.
Nevertheless, at a PE of 51 times, for what is a cyclical business with dependency on government incentives to boost profitability, the risk-reward is not favourable now.
Hence, investors who got allotment could consider booking profits and locking in on the gains.