Buy Waaree Energies Ltd for the Target Rs 3,800 by Emkay Global Financial Services Ltd
Waaree reported consolidated adjusted EBITDA/APAT of Rs10.9/5.9bn in 1Q, a 28%/38% miss, on the back of 4% revenue miss and ~4% qoq contraction in GPM/EBITDAM. The quarter was hurt by weaker non-DCR demand following ALMM-II extension, resulting in higher spot sales at lower realizations; lower exports due to slower US customs clearances; partial OEM sourcing in the US, limiting IRA benefits; and higher raw material costs. However, the management reiterated its FY27 EBITDA guidance of Rs70-77bn, expecting profitability to improve as these headwinds reverse from 2Q onward. Cell production is currently ~400MWpm and is expected to increase to ~1.2GW in 2Q, ~1.5GW in 3Q, and further in 4Q as the new 10GW facility scales up. Cell integration would increase from current 20-25% to 65% by Dec-26, supporting margin expansion. Module/cell utilization stood at 50%/59% in 1Q, with cell output up 14% qoq. Retail remains a strong growth segment, with FY27 revenue guidance of Rs90- 100bn. We lower FY27/28E EBITDA by ~5% each, factoring in lower margins. We, however, reduce our target EV/EBITDA multiple to a more conservative ~12.5x (from 14x, rolling over to Jun-28E) due to geopolitical volatility. Thus, we cut TP by ~11% to Rs3,800 from Rs4,260; retain BUY.
Results highlights
Waaree’s 1QFY27 consolidated adjusted revenue rose 71% yoy, but declined 11% qoq to Rs75.8bn, driven by a ~41% yoy increase/23% qoq decrease in module production (19% miss). Cell production, however, rose 14% qoq to 800MW, with cell-to-module ratio improving to 0.25x from 0.17x qoq. Adjusted solar PV sales rose 82% yoy but declined 11% qoq to Rs70.5bn, while EBIT fell 41% qoq to Rs6.5bn, with margin contracting to 9.3% from 14.0% in 4QFY26. We have adjusted Rs3.5bn of US tariff refund from solar PV sales. Solar PV EPC revenue/EBIT fell 16%/37% qoq. Opex increased 67% yoy to Rs10.3bn (down 9% qoq). Other income was largely flat yoy at Rs1.7bn (down 5% qoq; 15% miss), while ETR was slightly higher at 26%. Orderbook stood at Rs615bn.
Management KTAs
FY28 cell/module production is expected at 10GW/16–18GW, improving integration and margins. Cell-integrated module lines generate higher margins (35-41%). US capacity ramp-up (additional 1.6GW) should lift local production and IRA benefit, with utilization to improve to 75-80%. US manufacturing EBITDA is higher, at $7-8c/W (incl $5.5-6c/W IRA benefit), vs $4-5c/W on export. India is now only $2-3c/W costlier than China, with the gap to narrow with backward integration. BESS remains focused on FEOC-compliant global markets, where realizations are higher ($75/kWh vs Chinese at $50-55/kWh).
Valuation
We value Waaree on an SOTP basis, assigning 12.5x Jun-28E EV/EBITDA to the core business and 2.5x Phase-1 BESS equity capex (30% of Rs20.7bn), while adjusting for minority interest (20x target PER). We lower our target EV/EBITDA to 12.5x (from 14x) amid macro volatility. Key risks: competition, technology, policy, and commodity.
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