Stock to buy: Nuvama initiates coverage on Waaree Energies shares, sees 25% upside. Here’s why

Domestic brokerage Nuvama Institutional Equities has initiated coverage on recently-listed Waaree Energies with a 'buy' recommendation as it sees a strong runway for the company, led by its long-term strategy of becoming a new energy player, increasing capacity and strategic integration.

The brokerage has a target price of ₹2,805 apiece on the stock, signalling a 25% upside from the last closing price of ₹2250.55.

Waaree pivoting for exponential growth

Waaree is prudently executing a long-term strategy of not just focusing on solar energy but on becoming a horizontally and vertically integrated New Energy play. The company has forayed into the production of green hydrogen, electrolysers, advanced li-ion cells, inverters, and BESS. With this, it is pivoting itself for exponential growth across the nascent, but multi-decadal renewable energy and green hydrogen opportunity, said the brokerage, adding it shall enable the company to achieve the targeted 20% sustainable EBITDA margin.

Nuvama likened Indian New Energy’s current early life-cycle stage to the Y2K-like technology (IT) opportunity of the 1990s. "We feel India’s solar sector is on the cusp of a mammoth J-curve breakout, which shall usher in an even larger green hydrogen prospect, and eventually pave the way for India to emerge as a global behemoth in green ammonia (G NH3)," said the brokerage.

Backward integration to fuel 54% CAGR in EBITDA

Furthermore, Nuvama estimates EBITDA shall compound annually at 54% over FY24–27E driven by Waaree’s module/cell/wafer capacity expansion to 21GW/11GW/6GW by FY27E; backward integration for superior realisations; and solar module capacity utilisation ramp-up from 44% in FY24 to 52% utilisation on expanded module capacity by FY27E.

"We reckon Waaree’s EBITDA margin shall surge to 23% by FY27E driven by government support through ALMM, DCR mandates. We expect margins to peak at 24% by FY28E as competition rises," the brokerage said.

Much like the IT sector’s valuation trend during Y2K, Waaree’s high 24x FY25E EV/EBITDA factors in explosive growth with a subsequent earnings catch-up. Based on our projections of a 54% EBITDA CAGR, strong cash flow, a robust balance sheet and a RoE of 30%-plus, we reckon EV/EBITDA will correct to a reasonable 11x FY27E, it added.

Key risks

Nuvama said new industries raise imponderable risks like eventual import tariff cuts, technological upgrades and potential modules overcapacity. The brokerage's base case long-term CAGR of 17% over FY24–45E yields a target price of ₹2,805 per share. However, a much higher 20% CAGR inflates the target to ₹3,844/share.

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.