Waaree Renewables – old Sangam Advisors – can it keep on renewing?

Few of my takeaways from Q1 FY25 of Waaree Renewable Technologies

Waaree Renewable Technologies is riding high on India’s renewable energy wave, with a robust order book of 2,191 MW and successful execution of 217 MW in Q1 FY25. The company’s revenue soared by 83.31% year-on-year to INR 236.35 crores, reflecting strong momentum in the sector. With the government’s ambitious target of 500 GW grid-connected renewable capacity by 2030, Waaree seems well-positioned to capitalize on this growth trajectory.

𝐒𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐜 𝐁𝐥𝐮𝐞𝐩𝐫𝐢𝐧𝐭:

The company is diversifying beyond solar EPC into areas like battery energy storage systems (BESS), pump storage, and hybrid projects. This strategic pivot aims to capture a larger slice of the evolving renewable energy pie. Waaree’s exclusive partnership with 5B Maverick for pre-fabricated solar solutions could be a game-changer, potentially accelerating project deployment timelines.

𝐌𝐚𝐫𝐤𝐞𝐭 𝐃𝐲𝐧𝐚𝐦𝐢𝐜𝐬:

India’s renewable energy sector is witnessing a shift from pure-play solar to integrated solutions. The emergence of green hydrogen and the push for round-the-clock (RTC) power are reshaping the landscape. Waaree’s foray into these segments aligns well with these emerging trends.

𝐈𝐧𝐝𝐮𝐬𝐭𝐫𝐲 𝐓𝐚𝐢𝐥𝐰𝐢𝐧𝐝𝐬:

Government support remains strong, with increased budget allocations and ambitious targets. The introduction of Approved List of Models and Manufacturers (ALMM) for solar modules provides a boost to domestic players. Rising corporate interest in captive renewable energy projects and the nascent green hydrogen sector offer additional growth avenues.

𝐈𝐧𝐝𝐮𝐬𝐭𝐫𝐲 𝐇𝐞𝐚𝐝𝐰𝐢𝐧𝐝𝐬:

Module price volatility remains a concern, though Waaree claims to mitigate this through back-to-back contracts. Land acquisition delays and monsoon-related disruptions can impact project timelines. The sector’s heavy reliance on government policies and targets poses a potential risk if there’s a shift in priorities.

𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫/𝐀𝐧𝐚𝐥𝐲𝐬𝐭 𝐐𝐮𝐞𝐬𝐭𝐢𝐨𝐧𝐬:

Questions were raised about the sustainability of high EBITDA margins (17% in Q1 FY25). Management maintained that 15% is a sustainable level, attributing fluctuations to project-specific factors. The company’s ability to maintain these margins in a competitive landscape will be crucial to watch.

𝐂𝐨𝐦𝐩𝐞𝐭𝐢𝐭𝐢𝐯𝐞 𝐋𝐚𝐧𝐝𝐬𝐜𝐚𝐩𝐞:

Waaree claims to differentiate itself through better margins compared to peers (who reportedly operate at 9-9.5% margins). The management attributes this to their long-standing vendor relationships and selective project approach. However, as the sector grows more competitive, maintaining this edge could become challenging.

𝐅𝐮𝐭𝐮𝐫𝐞 𝐏𝐫𝐨𝐣𝐞𝐜𝐭𝐢𝐨𝐧𝐬:

The management hinted at executing around 1.8 GW of projects in the next 9-12 months. The company’s bid pipeline stands at an impressive 15.5 GW, indicating strong future growth potential.

𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐃𝐞𝐩𝐥𝐨𝐲𝐦𝐞𝐧𝐭:

Waaree operates an asset-light model, requiring minimal capex for growth. The focus seems to be on reinvesting cash flows to fuel growth rather than significant capital expenditures or shareholder returns.

𝐎𝐩𝐩𝐨𝐫𝐭𝐮𝐧𝐢𝐭𝐢𝐞𝐬 & 𝐑𝐢𝐬𝐤𝐬:

Opportunities lie in the expanding BESS market (estimated at INR 14 lakh crores by 2030) and emerging sectors like green hydrogen. Risks include potential policy shifts, intensifying competition, and execution challenges in new technology areas.

𝐑𝐞𝐠𝐮𝐥𝐚𝐭𝐨𝐫𝐲 𝐂𝐥𝐢𝐦𝐚𝐭𝐞:

The regulatory landscape appears supportive, with policies like ALMM benefiting domestic players. However, the sector’s heavy dependence on government initiatives makes it vulnerable to policy changes.

𝐂𝐨𝐧𝐬𝐮𝐦𝐞𝐫 𝐏𝐮𝐥𝐬𝐞:

There’s growing interest from both government entities (NTPC, SECI, SJVN) and private players in outsourcing EPC work, benefiting companies like Waaree. The trend towards integrated renewable solutions is driving demand for comprehensive service providers.

Disclaimer: This is a general analysis and does not constitute financial advice.