Why Bernstein thinks Waaree, Premier Energies will 'Underperform' ahead?

Bernstein on Premier Energies, Waaree Energies: Foreign brokerage firm Bernstein has initiated coverage on Waaree Energies and Premier Energies, assigning an 'Underperform' rating to both stocks. The brokerage has set a target price of Rs 1,902 for Waaree Energies and Rs 693 for Premier Energies. The target prices reflect a downside of 21 per cent and 26 per cent, respectively. 

 

The move comes as India, the world’s third-largest solar market, looks to ramp up its solar manufacturing industry with plans to invest $20 billion annually. However, Bernstein’s analysts are cautious about the sector’s future prospects.

 

While the Indian solar photovoltaic (PV) manufacturing space is an intriguing one, Bernstein sees potential risks. The analysts pointed out that retail prices for Indian-made solar products are 2-3 times higher than global levels, and that the industry has low barriers to entry. Furthermore, major competitors are already on the horizon, which could dampen returns. 

 

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Bernstein's analysts, Nikhil Nigania and Aman Jain, suggest that the industry is nearing a cyclical peak, making now a time to sell rather than buy.

 

On the earnings front, the analysts forecast a moderation in earnings growth for both Waaree Energies and Premier Energies after FY27, once their new capacities come online and the market faces an oversupply. Bernstein estimates a 21 per cent downside for Waaree Energies and 26 per cent for Premier Energies, using an 11-12x FY27 EV/Ebitda multiple. This gives the company's valuations of around $6 billion and $4 billion, respectively.

 

Bernstein also outlined a number of risks to their thesis. These include the possibility of slower-than-expected domestic cell capacity commissioning or a hard stop on imports from Southeast Asia due to US trade policies.

 

Cyclical nature of the solar business

 

The analysts highlighted the cyclical nature of the solar industry, noting that the industry’s short commissioning timeline and low capital expenditure could lead to over-supply. 

 

Global manufacturing capacity currently exceeds 1,200 GW, while the demand is only around 600 GW. Bernstein pointed to the fact that many of the biggest solar module manufacturers from 15 years ago are now bankrupt or have exited the industry, offering a lesson from China’s solar industry. Historically, good return on equity (ROE) in solar doesn’t last beyond two years, and the analysts recommend trimming positions once ROEs exceed the teens.

 

The only exceptions to this cyclicality have been Longi and Tongwei, which managed to weather the storm due to their expertise in wafer and polysilicon production. However, even these companies suffered losses in 2024. Bernstein suggested that India is headed down a similar path, where positive developments in the sector might be a signal to sell.

 

Domestic market facing oversupply

 

In India, according to Bernstein, the supply of solar modules is expected to exceed demand majorly in the coming years. While the country has a projected demand for around 40 GW of solar modules in FY26, domestic manufacturing capacity is already well over 70 GW, with considerable additional capacity in the pipeline. 

 

The solar cell market is also seeing rapid growth, with manufacturing capacity expected to rise from 21 GW in March 2025 to more than 60 GW by FY27. 

 

The oversupply, analysts believe, could pose challenges to profitability for smaller players like Waaree Energies and Premier Energies, despite government support and import restrictions.

 

Exports as a short-term opportunity

 

Indian solar exports have seen major growth, jumping from $0.1 billion in FY22 to $2 billion in FY24, largely driven by the US pivoting away from Chinese imports, Bernstein said.

 

However, analysts believe that the large price gap between the US and global markets—about 25 cents versus 9 cents—will be hard to sustain. 

 

Moreover, the US is rapidly expanding its own solar manufacturing capacity, with 52 GW already in place and another 19 GW under construction, against an expected demand of 54 GW in 2025.

 

Bernstein also noted that the future of Indian solar exports is likely to be dominated by the largest players, such as Reliance and Adani Enterprises, who have the financial resources to compete at scale. 

 

While Waaree shows potential to compete, the analysts believe the company will struggle against these bigger, better-funded competitors. As a result, Bernstein expects Waaree’s and Premier’s returns to normalise to the mid-teens, down from the over 40 per cent they’ve seen in the past.

 

The risks of long-term warranties

 

Another concern for Bernstein is the long-term warranties offered by these companies. Both Waaree Energies and Premier Energies offer 30-year performance warranties on their solar modules, a commitment that is hard to evaluate since their products have never been in the market for 30 years. 

 

The analysts believe this could pose additional risks, as both companies are heavily dependent on import regulations in India and the US for their continued success.

 

That said, Bernstein’s cautious stance on Waaree Energies and Premier Energies reflects broader concerns about the cyclical nature of the solar industry, the potential oversupply of solar products in India, and the increasing competition from larger, better-capitalised players.