Websol energy system ltd

Will try to publish some information from few learned people

Question – How will websol compete against biggies?
Answer – (Reliance, Adani, Tata Power) doing major capex to set up manufacturing capacities – in isolation the capacities in discussions give impression that Websol may struggle to compete – but that is not correct picture when one looks at overall landscape – and it doesn’t impact my investment thesis for Websol, which is to play its capex cycle.

Firstly India is seeing massive demand for Solar to reach govt targets of total installed capacity of 280 GW by 2030 (around 60 GW is installed) and which in all likelihood may further increase (China’s current solar capacity is 350GW & plans to do 600 GW by 2030).

India’s current manufacturing capacity is around 4 GW for Solar PV cell (major portion is on old tech & probably not much worthy – like Websol ripped off its old 250 MW capacity & setting up new cell & module lines for 1.8GW) while demand is 27 GW plus (220 GW in 8 years) if 2030 target is to be achieved. With capacity utilization factor of let’s say 85% – we will need more than 32 GW manufacturing capacity. Besides Indian companies like Websol exports as well being in SEZ – with the increased scale in India, our companies will get cost competitiveness globally & also the world is looking at China+1 supply chain – all this will increase Solar export from India. Total usable capacity could be in 35-40 GW figure.

Now coming to biggies, they are in diff phases of capex – TP has less than 1 GW capacity now & has announced further 4GW in Chennai to compete in next 2 years, Reliance is talking of having total 10 GW capacity by 2024 end (& then a further 10 GW by 2026) & Adani is building overall 10 GW capacity in next 2-3 years. So in next 2-3 years we may reach 25 GW and by 2026 around 35-40 GW – if there are no delays in capex execution.

At the same time, we should understand that all these companies would not assume full risk of increasing capacity beyond what they assess are usable capacities (there are various consideration which goes into this – including how much they can consume within their own EPC business; how much they can sell in India to other players where some of them are competitors – would they buy from them – no; and how much they can export) – so they will keep a tab on overall supply dynamics and tweak their plans as necessary.

With Websol, first phase of 600 MW should come soon in next few months, and then second phase may be by June 2023 – we should have more clarity on timelines in AGM & successive concalls for full 1.8 GW timelines – but even with some delays, I expect this Capex to be over within 2023 given mgmt’s messaging in Annual Reports and PRs.

So timing is the key and a major differentiator here – we get there in the line in good time while demand is still high & we will manage to have long term contracts in place with existing & new clients. I have a feeling that if this 1.8 GW capex going well & in time, they may announce more given the demand – but let’s see. Like I mentioned earlier, I don’t have ultra-long term view on Websol post CAPEX cycle is complete – will look to book profits once we are close to getting most benefit of CAPEX – perhaps few quarters after 1.8 GW is fully operational – if more CAPEX announced then will wait more (considering progress of capex for other players as well). Will continue to monitor the progress & decide.

Websol could also be a takeover candidate once it has 1.8 GW operational capacity – one of the biggies would be after this large capacity to get it to reach its capex target earlier.

Websol being a pure play in cell & module manufacturing provides the best opportunity to take benefit of this ongoing solar cell & module demand play – other biggies have big business in various segments, all when one buy shares of these biggies, you buy all businesses (Tata Power I have heard will do IPO for its renewables and its in pipeline for few quarters, but for now anyone buying Tata Power is also buying their conventional thermal power plants business etc. etc ). Of course, the risks (capex financing, capex execution, etc) are also there being a small cap company trying to execute large capex and everyone needs to do own due diligence to take individual investment calls.

In my view, the alpha that a small player like Websol can generate in relatively short time in this large solar demand play, big corporates won’t be able to as they come with baggage of all the business verticals they have – some of them has sky high valuations too like Adani.