UBS downgrades Waaree to 'Neutral', cuts target by 30%: 3 reasons why

The downgrade stems from growing near- and medium-term challenges in the solar industry, with the sector entering a consolidation phase, UBS said.

Shares of Waaree Energies Ltd. recovered marginally on Wednesday following a decline on Tuesday after global brokerage firm UBS downgraded the stock to 'Neutral' from 'Buy' and reduced its price target.

 

UBS lowered its price target by 30% to ₹3,100 from ₹4,400 earlier, citing near- and medium-term challenges amid ongoing sector consolidation. The stock is currently trading at ₹

 

The brokerage reduced its valuation multiple to 21 times 12-month forward price-to-earnings (P/E) from 28 times on the heels of a higher discount to the industry/sector peer average and lower margins.

 

Waaree Energies' stock has gained 0.27 per cent over the past one week, however, it has declined 7.21 per cent in the last one month, against a 3.04 per cent gain in the benchmark. On a year-to-date basis, the stock is down 4.21 per cent. Over the past one year, Waaree Energies has fallen 12.12 per cent, underperforming the benchmark index Nifty 50, which has declined 4.51 per cent during the same period.  Check - TOP GAINERS NSE | TOP LOSERS NSE 

Key reasons behind UBS's downgrade 

Sectoral risk

The brokerage noted that Waaree’s ₹30,000 crore capex plan, higher than last year's ₹13,000 crore, is expected to scale its capacity to 15.4GW modules and 10GW cell/ingot–wafer by FY28. "While this strategy should help Waaree sustain its sector leadership witha  higher level of integration, we think the risk to sectoral profitability from significant new capacity, as well as execution of its ambitious capex plan and limited clarity on potential returns in nascent segments such as BESS, are variables that need further clarity."

Balance-sheet discipline

UBS also highlighted that Waaree requires disciplined balance-sheet management and timely capex execution, which is critical given its ambitious capex plans. The brokerage noted that investors will also likely focus on the profitability and scalability of BESS manufacturing in a market that is currently largely dependent on imports.

Industry headwinds

UBS also cited persistent industry headwinds and weaker profitability in both the Domestic Content Requirement (DCR) and non-DCR segments. While it remains positive on the company's long-term expansion strategy, it has lowered its FY27 and FY28 EBITDA estimates by 11 per cent and 5 per cent, respectively. The impact on profit after tax (PAT) is expected to be relatively limited, as lower finance and other below-the-line costs partly offset the earnings downgrade.

 

The brokerage believes larger, backward-integrated players are better placed to benefit from opportunities in the DCR market, but weakening margins in the non-DCR business could continue to weigh on Waaree's earnings. It prefers Premier Energies over Waaree, citing Premier's stronger execution track record and a more measured expansion strategy. However, it noted that better-than-expected execution, stronger export demand, improved margins, or a recovery in industry dynamics could act as key upside triggers for Waaree.

 

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