Domestic brokerage Kotak Institutional Equities has initiated coverage on two stocks from renewable energy sector namely- Waaree Energies and Premier Energies- as both made its Dalal Street debut in 2024. Interestingly, the brokerage has initiated coverage with 'sell' ratings for both the counters.
Despite its negative rating, Kotak believes that India’s solar sector is primed for growth with an 18 per cent CAGR in utility scale solar capacity additions until FY30 but it sees rising competition as the structural risk for the companies, leading to its current rating on these stocks.
To recall, shares of Premier Energies Ltd were listed on Dalal Street in September 2024 as the company raised a total of Rs 2,830.40 crore via IPO selling its shares for Rs 450 apiece. The stock settled at Rs 1,303.35 on Tuesday, up 190 per cent from its issue price. Similarly, Waaree Energies raised a total of Rs 4,321.44 crore by selling its shares for Rs 1,503 in October 2024. The stock is up 80 per cent from its IPO price.
Indian solar companies are well-positioned for strong growth in domestic and US markets, aided by trade and non-trade barriers, said Kotak. "Over the medium term, we believe that integrated Indian manufacturers and companies with local US manufacturing presence would continue to enjoy a competitive advantage over peers, resulting in superior profitability."
India’s total capacity addition is expected to reach 641GW in FY30, with 66 per cent of the incremental addition coming from solar, it said. "We expect solar capacity to reach 214GW by FY30 driven by utility level additions; PM Surya Ghar Muft Bijli Yojana; PM-KUSUM Scheme; and captive industrial addition," it said. "Any pickup in the National Green Hydrogen Mission could provide a further upside to our demand estimates."
Brokerage also sees the government policy as a key growth enabler as it has implemented multiple trade and non-trade barriers. On the other hand, the US has imposed a 50 per cent tariff on Chinese solar imports and implemented the Uyghur Forced Labor Prevention Act in June 2022 (UFLP Act). These measures shall be key for the Indian solar manufacturing sector’s exponential growth.
Indian manufacturers have primarily concentrated on module assembly, noted Kotak's IC note. "Many companies are entering solar cell manufacturing due to the implementation of ALMM List II from FY2027. Completely backward integrated Indian manufacturers and companies with local US manufacturing presence would continue to have an advantage over peers over the medium term," it said.
Both Premier Energies and Waaree Energies saw a bumper bidding from the investors and delivered multibagger listing pops for the investors on their respective stock market debut.
On the contrary to all the positives, Kotak believes that sustenance of unit economics at current levels is unlikely, given the increasing competitive intensity. We expect heightened competitive intensity to start impacting margins from 2028. "We initiate coverage on Waaree Energies and Premier Energies with 'sell' ratings," it said.
Kotak has a DCF-based fair value target of Rs 2,550 on Waaree Energy, which implies 13.1 times March 2027 EPS estimate. Its target suggests a mild correction in the counter from its low at Rs 2,620 on Thursday. The stock has already corrected about 30 per cent from its 52-week high at Rs 3,740.75 hit on November 6, 2024.
It has a DCF-based fair value target of Rs770 on Premier Energies, implying a 21.8 times March 2027 EPS estimate. Its target indicates a 40 per cent correction in the stock. Kotak's target indicates stock hitting new 52-week lows. The stock hit a low of Rs 1,215.05 on Thursday, falling more than 3 per cent.
On the other hand, an analyst is positive on these stocks and suggests to buy them on correction. Palak Devadiga, Research Analyst at StoxBox said that Waaree Energies and Premier Energies are key players in India’s solar equipment manufacturing sector.
"Waaree Energies, the country’s largest solar PV module manufacturer, boasts a production capacity of 12 GW and a robust order book of 20 GW. The company is expanding steadily, with plans to establish an 11.4 GW integrated solar manufacturing facility by FY26-27. Between 2021 and 2024, Premier Energies reported a CAGR of 62.7 per cent in revenue, and Waaree Energies reported a growth of 80.4 per cent during the same period. We thus recommend that the investors continue to add these stocks on dips, given their promising growth outlook," she said.