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As Mumbai-based Waaree Energies Ltd, India’s largest solar photovoltaic (PV) module manufacturer, prepares to launch its initial public offering (IPO) next week, it becomes the latest player in the sector to tap into the equity market to fund capacity expansion and backward integration amid concerns around overcapacity in China and tightening of trade rules.
India’s $8-billion solar module market has grown to nearly 60 GW in domestic module assembly capacity and 8 GW in cell production capacity. Still, most module assemblers continue to rely on imported cells from China, which currently has over 80 per cent of the global market share in the solar module supply chain.
In addition to the government’s Rs 24,000 crore Production Linked Incentive (PLI) scheme for integrated module manufacturing, the sector is now turning to public equity investors to expand capacity and secure supply chains for both domestic and export markets, as countries globally face mounting pressure to counter the threat of module dumping by Chinese manufacturers.
Waaree’s Rs 4,300-crore IPO launch on Monday follows Hyderabad-based Premier Energies Ltd’s public issue of Rs 2,830 crore in August. Last month, Gurugram-based Vikram Solar Ltd also filed its draft red herring prospectus (DRHP) with the market regulator for a Rs 1,500 crore offering.
Other players like Gautam Solar Pvt Ltd and Goldi Solar Pvt Ltd have also announced plans for IPOs, while other major module manufacturers operate as subsidiaries of listed companies, namely Adani Enterprises Ltd and Tata Power Ltd.
With 13 GW of assembly capacity, Waaree is India’s biggest solar module producer and raked in over Rs 11,000 crore in revenue in FY24. In comparison, two Adani subsidiaries involved in this sector made a little over Rs 8,000 crore together, while Premier Energies and Vikram Solar made around Rs 3,100 crore and Rs 2,500 crore each. Tata Power’s module manufacturer TP Solar Ltd made only Rs 230 crore.
Over the years, revenues and margins for all companies in the sector have increased considerably. Waaree’s EBITDA margins in FY24 stood at 15.6 per cent in FY24, compared to 6.9 per cent in FY22, when revenue was just Rs 2,800 crore.
Waaree’s growth has been driven by strong exports, primarily to the US. In FY24, 58 per cent of its sales were from exports compared to 23 per cent in FY22. Waaree and Adani together account for a large majority of module exports from India. Significantly, 1.6 GW of its 3 GW facility in Texas is set to become operational by the end of FY25, further boosting its presence in the U.S. market.
Exports to the US have seen an uptick due to the Uyghur Forced Labor Prevention Act (ULFPA) signed into law by US president Joe Biden in December 2021. The ULFPA blocks import of goods, including modules and cells, produced in China’s Xinjiang region where forced labour is widespread.
“The US’s ULFPA, as enforced in June 2022, had increased demand for modules from countries other than China, positioning India as a critical supplier. The US market has become an alternative revenue option for domestic manufacturers, offering a premium over the domestic market, with module prices ranging upwards of $0.25 per watt,” Sehul Bhatt, a senior analyst at Crisil said.
However, some Indian module exporters, including Waaree, have also seen shipments rejected at US customs over ULFPA violations as they use solar PV cells imported from China. As a long term solution, players are investing in backward integration that includes developing capacities for the entire value chain from wafers to cells to modules.
Waaree, for instance, plans to use Rs 2,775 crore from its IPO to finance a 6 GW wafer-to-module facility in Odisha. Premier Energies also plans to use its IPO proceeds to partly finance a 4 GW cell-to-module facility in Hyderabad.
A significant amount of integrated solar module capacity is set to come online this financial year, including Waaree’s 5.4 GW cell facility. Major players like Adani, Tata, and U.S.-based First Solar have already begun cell production, with several now expanding into ancillary goods such as glass and backsheets.
The PLI scheme has been crucial in driving this backward integration, though most beneficiaries are yet to claim incentives on sales because of delays in operationalisation. Delays were partly due to restricted access to Chinese technicians caused by visa issues, which have only recently been resolved.
Backward integration will help Indian module manufacturers not only reduce reliance on Chinese imports and navigate trade barriers, but also enhance domestic competitiveness and boost profit margins.
With the reinstated Approved List of Models and Manufacturers (ALMM) order, which bars the use of imported modules in solar projects, and the ongoing Directorate General of Trade Remedies (DGTR) investigation into Chinese dumping, domestic manufacturers are poised to see significant growth in their order books.
While Waaree’s capacity utilisation has averaged 43 per cent over the last three financial years, Amit Paithankar, its chief executive officer, said that with capacity expansion, production will get more optimised.
“Every time you have to cater to the needs of a different customer, you end up spending time changing the (production) line to cater to that. And that inhibits you from reaching the full potential of the line. The more changes you have, the worse your capacity utilisation factor gets. So, how does size and scale help in this whole game? The bigger you are, the more easily you can categorise your production and allot a particular set of lines to a specific type of configuration. Then, you start getting much better in terms of productivity and output. The capacity utilisation factor will keep getting better as we move forward. 45 per cent is definitely not the norm, there is a huge headroom,” Paithankar told The Indian Express.
Waaree’s IPO is set to launch on October 21 and closes on October 23, with a total issue size of over 2.8 crore shares. The price band is set from Rs 1,427 to Rs 1,503 per equity share.
