Question

• As a financial incentive, accelerated depreciation encourages the adoption of solar power by making renewable energy projects more economically feasible, thus contributing to India’s renewable energy targets. To understand this in India’s respect, how has the availability of accelerated depreciation benefits influenced the growth of solar in other countries over the past decade, and how will it play out in India?

Question

Waaree Energies Ltd

Is the declining trend not a cause for concern:

• Export sales have declined 45% YoY from 2,414 cr in Q1FY24 to 1,340 cr Q1FY25!!

• YoY top-line growth has declined from 137% in FY23 to 69% in FY24, and further to just 2.5% in Q1 FY25!

• Order book has dropped from a peak of around 20 GW in FY24 to approx 17 GW in Q1 FY25.

• RoCE has decreased from approx 32% in FY23 to 9.45% in Q1 FY25.

Answer

Waaree Energy

• Waaree Energies is undertaking backward integration into cell and wafer manufacturing. The company’s 5.4 GW cell line is projected to commence operations by the end of Q4 FY25, with an initial 1.4 GW capacity expected to be operational by the end of Q3 FY25.

• Additionally, Waaree is expanding into complementary sectors, including electrolyzers for green hydrogen and battery storage, to diversify its business beyond solar modules. Monitoring management’s execution in these new ventures will be essential.

Current Capacity & proposed expansion-

• The current operational capacity stands at 13.3 GW, distributed across five distinct plants and 20 production lines spread across 136 acres of land. The company has strategic plans to augment this capacity to 21 GW by incorporating additional capabilities through the establishment of two new plants located in Odisha, and Texas.

• The maximum capacity utilization can be 85%, as the production lines have to change specifications for different orders.

||Upcoming Cell Production Lines: |

• A 1.4 GW Mono PERC cell line is scheduled to begin production in November 2024, with an anticipated stabilization period of 20-25 days to achieve an efficiency of 23.5%. The company has deployed 40 Chinese engineers on-site to oversee the commissioning and stabilization process.

• According to management, one of the competitors took 6-9 months to stabilize their cell line, as the machinery was originally designed for Chinese conditions and required reconfiguration to suit Indian conditions. This reconfiguration process was further complicated by the challenges posed by the COVID-19 pandemic.

• 4 GW TOPCon cell line is anticipated to begin production by the end of FY25. The capacity also features LECO technology which enhances cell efficiency by 0.3%.

Question

Waaree Energies

• The solar energy production value chain involves several technologically intensive processes, including sourcing polycrystalline silicon as a raw material and producing silicon wafers and ingots from it. Currently, only Adani Group produces these wafers and ingots in India for internal use. Waaree has no solar cell manufacturing capabilities as on date(?). It plans to set up a 6GW capacity ingot-wafers, solar cells and modules manufacturing facility at Odisha and has earmarked ₹2,500 crore from the IPO proceeds for this purpose. It takes a company around 2-3 years to set up and operate technologically complex cell manufacturing facilities and uncertainties related to the efficiency and reliability in-house production. In this context, Premier Energies, which has set up a new 2GW solar cell and module manufacturing plant, is already way ahead of Waaree Energies??. Your comments, please.

• Is it a fair argument when one says Waree’s only competitive advantage right now is its demand security because of its strong export capabilities and substantial government policy support and US’s protectionist trade policies against China. Despite such strong financial performance, industry experts think Waaree Energies does not have a strong enough moat to evince investor interest like Premier Energies because it does not yet have an operational solar cell manufacturing facility. And that they would need extensive funding to develop new moats in the long run. Your comments, please?