• Sales growth in Q1FY25 was lower as the company prioritized high EBITDA margin projects. We believe the rest of FY25 will have a higher growth rate with margins greater than that of FY24.
• The slowing order book presents a concern; however, we anticipate growth to resume once the U.S. capacity is operational. Additionally, the domestic business—spanning both utilities and franchisees—has shorter execution cycles, which we will be able to monitor more closely post-listing.
Healthy Profitability –
Buoyed by margins, return ratios were strong in FY24. Before FY23, the ROE ranged from 2% to 38%. The trend of healthy return ratios is anticipated to persist, driven by sustained robust margins and higher asset turnover resulting from improved capacity utilization.
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?
Government incentives have been instrumental in driving solar energy adoption by enhancing the financial viability of solar projects. In the U.S., the Modified Accelerated Cost Recovery System (MACRS) allows solar investors to depreciate solar assets over five years, providing substantial tax benefits. Combined with the Investment Tax Credit (ITC), which can offset installation costs, businesses can recoup nearly 50% of their solar investment over a five-year period.
In India, the adoption of accelerated depreciation, currently set at 40%, is expected to have a similar impact. This policy reduces taxable income and shortens the payback period, making solar investments more appealing for businesses.
We believe that the profits earned by solar module manufacturers will enable them to invest in backward integration, contributing to India’s clean energy security. The incentives and higher profitability will create incentives to backward integrate and create a manufacturing base in long run is the expectation of GOI policies.
Several independent power producers (IPPs), such as Tata Power, Adani Green, and ReNew Power, have already backward integrated into the manufacturing of modules, cells, and wafers, strengthening their supply chains and reducing dependency on external sources. Conversely, some IPPs like JSW Energy have opted to withdraw from module manufacturing, because of lower expected IRRs.
Across the entire value chain of solar (Manufacturing EPC and O&M), how will the profit pool be divided and what will be the competitive intensity in each step of the chain?
Which segment/part of the Solar value chain has the highest potential?
Where do the value lies today - in which part of Value chain - in Solar space where the new allocation should be made?
Value in Solar chain is a function of demand and supply, so global and domestic ratio of supply / demand decides the direction. From India perspective having integrated operations, scale and execution capability would be the most attractive areas.
What’s the level of impact of solar glass dumping on manufacturers in India like Borosil Renewables? It seems that even after the 10% import duty, the cost of imported solar glass from China is still lower. What’s the outlook here? Is the only solution anti-dumping duty or can we make Solar glass at lower cost?
Raw material and power cost are two biggest items for Solar glass , after 10% duty and 4-5% premium which domestic companies enjoy Borosil expects 20% EBITDA margin which is decent in our opinion . While foreign operations of Borosil struggle due to higher energy and labour costs.
-Given the import duty hikes and prohibition of China specific restrictions imposed by some of the largest solar cell/module end-user countries such as US, where would the largest Chinese manufacturers e.g. Tongwei, Trina etc could dump/direct their current inventories?
-Per my current understanding solar cell manufacturing cost in India would be 4x that of China. How likely would this cost come down or be comparable to that of China in coming 18-24 months? Do we have an expected scalability projection and/or govt policy support to make that possible?
-Do you see an significant detrimental impact of solar manufacturing and profitability in India?
China has been dumping their inventories in Europe and also China has started putting capacities in Middle east so Middle east might be used as base for exporting Chinese companies products like South east Asia was used earlier
Chinese output is destined to Europe as of now and given that china has a competitive advantage and early lead in the whole supply chain including critical equipment and RM, it is very likely that China will use that lead and dominance to globalise its manufacturing base and sully from multiple location to different parts of the world.
Setting up base in MENA is one such derisking move by Chinese player. They are also setting up base in North America.
If both the Chinese and Indian OEM procure wafer at some prices then the Cell costs are competitive. Hence the need to constantly backward integrate to get supply chain assurance, cost parity and scalability needed to serve global clients.
The scale-up plans of Indian OEM with government policy support are as follows
Smaller players like Alpex and Insolation who are not based near ports are also going for decent sized module expansions (2.5-4 GW). Will their location hamper their capacity utilizations and margins because of difficulties in sourcing of RM and extra freight costs?
Solar is a business of scale and backward integration. These two will be needed in the long run for companies to prevail.
Given the current, demand supply scenario is favourable even small module players are able to deliver high margins. However, going forward as Significant capacities come up in module and cell, we believe only large integrated players will be able to make margins on a sustainable basis and deliver viable outcomes
This is only possible with smart metering in place where meters can track consumption on time scale. Current Infrastructure in India doesn’t permit this. However with advanced smart metering technologies becoming viable, time of day pricing will be possible
How does the efficiency of Solar cell/modules change over a period of time (5 years-10-years etc after installation) and also do the players like Waaree/Premier Energies have any backended liabilites attached to the operational efficiency of the components supplied by them?
There are standard degradation curve related to technology used in all PV. There are performance warranties given to Consumers based on the above.
Insurance is available and replacements are given which are invariably cheaper due to the falling cost curve making replacement not that onerous on the OEM
Solar manufacturing is just like any industrial manufacturing activity driven by
falling cost curves
demand supply imbalances
Tariff and non-tarriff barriers
What distinguishes the industry is the falling Levelised cost of energy promoting the transition leading to an accelerated adoption curve and hence scalability to players who can execute at scale. It gets valued like any other manufacturing company with caveat of faster equipment write offs and necessary capex needed to constantly upgrade technology
Given the importance of energy in economic activity, there is a high degree of trade barriers and policies that dictate outcomes and profitability. This policy risk becomes key monitorable from investors’ perspective
Regards to Indian solar players, key risk are
Access to RM and Equipment
term of trade and advances from ROCE perspective is key risk
Competitive intensity, and Execution are key like any other business
Deep dive requires constant monitoring and reassessment of key data points and hypotheses. As they say, business is not a still picture but an evolving movie.
