Alpex Solar, a small domestic module manufacturer with annual production capacity of 848 MW, successfully completed an INR 750 million IPO in February 2024. The IPO was oversubscribed by 300 times due to strong investor demand. The stock listed at 1.9x issue price and has since soared to 4.3x issue price trading at a fantastic P/E ratio of 323. Several other manufacturers are lining up with IPO plans to take advantage of market interest. Waaree Energies is planning to raise INR 30 billion (USD 360 million) for its 6 GW ingot, wafer, cell and module manufacturing facility. Premier has filed preliminary papers for an INR 15 billion (USD 180 billion) IPO to build a 4 GW TOPCon cell and module manufacturing plant in Hyderabad. Vikram is in the process of raising INR 7 billion (USD 84 million) capital in a pre-IPO round to be followed up by an INR 15 billion (USD 180 million) IPO to set up a 2 GW cell and module manufacturing plant. Saatvik is also planning a public market offering shortly.
Bullish growth forecasts backed by strong government protection against imports (BCD, ALMM) and incentives (PLI, reduced corporate tax rate) for local manufacturing are fuelling an unprecedented market frenzy for module manufacturing companies. Rapidly rising exports helped by US moves to block Chinese imports, likely to be followed by the EU, have provided an additional kicker to the business.
Ahead of the proposed IPOs, the stocks are being heavily sought after in the unlisted market. Waaree Energies shares are trading at around INR 2,000, up nearly 10x in less than 2 years, at a historic P/E ratio of 93x. Similarly, Vikram shares are trading at an estimated 100x P/E ratio. Most companies are reporting eye-watering growth in revenues and order books. As an example, Waaree Energies revenues and PAT have grown at a CAGR of 89% and 206% respectively over last three years. As of November 2023, the company’s order book stood at an enormous 20.2 GW.
Figure: Key financial parameters for module manufacturers, INR million
Source: CRISIL research
Note: FY 2024 data is unavailable for Vikram and Saatvik. Numbers have been annualised for Premier and Waaree Energies based on their 9 month and 3 month results respectively.
While there are multiple reasons to be optimistic about growth prospects, we believe that the market is getting overly frothy. As seen in the chart, profit margins are low in a capital-intensive business with high risk of technology obsolescence. Most companies are highly levered as they fund new capital expenditure with up to 75% debt. Heavy reliance on China for imports of upstream components and even the most basic know-how poses a geopolitical risk. Government policy, a key driver of the optimistic outlook, can waver as evidenced by multiple changes in import duty and ALMM regimes in the past. It is also likely that once the US builds up a reasonable indigenous base over next 2-3 years, it may impose curbs on imports from India shutting down a lucrative part of the business. Moreover, domestic competition is expected to intensify in the next 1-2 years with overcapacity projected from 2026 onwards. Majors like Adani, Reliance and Tata with integrated capacities at scale have better odds of long-term success against their smaller counterparts.
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