Waaree Energies Limited analyst Q&A

Thank you very much, ma'am. We will now begin with the question-and-answer session. The first question is from the line of Varun G from Value Quest.

Thank you, Amit Ji, for such an articulate and very well laid -out scenario for us. Welcome to the maiden con-call. Really, congratulations to Hitesh Bhai and the entire Waaree team for reaching so far. I think Waaree has always made all stakeholders proud. I have two basic questions. One, there is a common misconception that modules are a commodity. So, I thought this would be good to understand what is the value addition that we do, how technical is the product given we supply to some global utilities, how do customers look at our product versus somebody who is probably new in the business or there are so many new entrants. So, I was trying to understand, is this really a commodity or is it, you know, something that only a few of us can manufacture. And second is, there is again a perception that the industry is only driven by profits that are protected through tariffs. And here again, I would love your clarification on, one, the need for tariffs or how do we see this playing out. And why industry -- capital is not just maybe based on tariffs and there are several other adjacent opportunities already mentioned. Thank you so much. And I'll come back in the queue for more questions.

Great, Varun, well, thank you very much. Extremely good question on commodity and should we call module as a commodity. My answer to that is a resounding no. It is not a commodity. Two extremely important factors we need to remember when we talk about solar modules. The technology involved in manufacturing is extremely evolved. The cell, you know, which is one of the most important and I would say difficult to manufacture from a technology perspective is where a lot of the efficiency drivers lie. And that's the technology has been evolving in the cycle of every three years. You k now, so Mono Perc to TOPCon, you know, we could be staring at H JT and then tandem cells, which will just take the efficiency to a next orbit. So every three years you will see a new evolution. And any module manufacturer who wants to be relevant into the future will need to -- in their plan, have a full technology roadmap in them. In fact, we at Waaree, we actually depreciate all of our manufacturing equipment in three years' time to accommodate for all these large technology waves that keep happening. And that's why you have to keep yourself fresh. And so technology is an extremely important reason why modules are not a commodity. The second reason that we should – and whilst on technology, I would also like to emphasize that with technology comes quality and certification. And to be accepted in India and also in markets like United States. You need specific certification, which comes with years of experience, which comes with quality, which is demonstrated. And not just demonstrated once but demonstrated over a period of time. That will define the bankability of your solar panel. On the tariffs, it's extremely important to note that everything that we do from a business and a model perspective is agnostic to tariffs. So, all of our business plans are built to stand on their own. So even if the tariffs tomorrow are removed, they should stand on their own feet, whether it's in India or whether it's in the United States. Of course, what happens is when you have tariff and non -tariff barriers, it creates an ecosystem of growth and creates Atma Nir bharta from an India perspective , and I think from that sense, it is extremely important. And it incubates the whole, you know, the whole industry, I would say. Going back to the commodity a nd modules, I would like to add one more point, where there are other types of modules, solar modules. I talked about it, it's building integrated photovoltaics, flexible panels, all of these require a technology at a totally different level. And these are just beginning, I would say. So, Varun, thank you very much for the question.

Hi Sir, thank you for taking my question and congrats on the great set of numbers. Sir first, if you could share some updates on the progress on both the 5.4 gigawatt cell facility and the 6 gigawatt integrated facility. You definitely mentioned December. Could we get some updates on the 6 gigawatt facility? Are you on track for maintaining those timelines? And related to this, how much is the total spend for both of these plants now? Secondly, you all mentioned that you all are investing about INR600 crores for RE infra and bidding. Can you help us understand what's the long-term strategy for the company over here? And let's say more on a medium-term basis, what is the targeted capacity that you want to hit for RE infra or, let's say, bidding pipeline? Also, what would be the typical capex needed for this in the coming years? I would assume that, you know, given that we are a large module manufacturing capacity, we'd have significant advantages versus other players who are procuring these modules from ou tside. Could you help us understand this piece of the business a bit better? And I'll come back in the queue for further questions. Thank you.

Great. Hemang, thank you very much for the questions. I did talk briefly about the 5.4 gigawatt cell facility that is coming up in Chikhli. There's good news there. As we speak, you know, the pilot runs for cells is already up. Parts and pieces of the equipment are being tested. I would believe that we should be in a position to declare commercial operations to be up and running somewhere in the second half of December. That's for 5.4 gigawatt cell plant. For the six gigawatts of ingots and wafers manufacturing, I would say, again, I talked about it in the presentation. Number one, our design contracts have already been given. They have already been awarded. So the design is in its advanced stages. On ground, on the land, cutting and filling of the land is going on as we speak , the boundary walls have already come up. And so things are moving fairly fast. There are some long lead items which need to be ordered now, and those are being negotiated also. So it's moving in the right direction. I would say we will start commercial operations somewhere in the FY27 time frame for the 6 gigawatt facility. As far as the INR600 crores investment is concerned, it is essentially for land and for connectivity. We are looking at how do we provide one-stop solution for our customers from the perspective of maybe EPC contracts, maybe overal l offerings for renewable power projects. So this is, therefore, an initial tranche that we are given. As this business starts getting more and more fructified, we will be in a position to come and tell you about the details.

Got it. And thanks for that. And just to get a sense of what is the overall spend for the 5.4 and 6 gigawatt facility as of now.

We'll take the next question from the line of Prateek Kumar from Jefferies.

Good morning, Sir, my first question is on the cell capacity again. So you said December onwards you expected to start commissioning of the project. So I remember you talking about 1.4 gigawatt commissioning initially, then remaining 4 gigawatt was to commission in March. So now everything is accelerated to December in terms of commissioning. And related question is, is there like specific testing, like if you want to sell these cells in US, is there any specific timelines for testing which the buyer may want to do and then only end up buying the product or there's no real timeline. You can imm ediately start selling the product. That's the first question.

Great, Prateek, you remember it correctly. 1.4 gigawatts is what we are trying to switch on first, which is what I would say we'll get into commercial production somewhere in December. Our goal continues to be that by March of 2025, we will have the entire 5.4 gigawatts. So, 1.4 gigawatts of Mono PERC and 4 gigawatts of TOPCon cell capacity should be up and running and in various stages of maturation. So the first few lines, which will be switched on anytime now, would have stabilized by then. And maybe the later lines will need to stabilize. On the question of what kind of testing is required, there are specified standards and all the specified tests as per the standard, we already have the capability with us. So all the customer inspections, all the customer related requirements, we will be in a position to fulfil them within our factory itself for its quality, for its efficiency and so on and so forth. And that way we will be able to use our own cells in our own modules within India as well as in the United States.

Yes. So my question was like, would that be available for sale? I mean, what is the kind of ramp up you are expecting in FY '26, let's say, for the cell manufacturing?

So for this fiscal I would say we would be in the region of around 100 megawatts being conservative. That would be the kind of directional number that you would be looking at. By, of course, next financial year, I would say in the first couple of months, w e would have a reasonably fully ramped up facility. And so one could expect for the first year of operation anywhere between 60% of capacity utilization factor.

My second question is on your EBITDA growth ex other income, which is like sort of bit slower side in this quarter and revenues also. So is this material change in US mix which has happened, which was like probably higher profitable, and which has impacted EBITDA growth this quarter?

Yes. So you're absolutely right. I mean, last year in the mix, the exports were much larger than domestic production. And that has almost completely flipped in this year. And of course, pricing has also changed. So those are the two reasons why you would s ee an overall reduction. Frankly, even on the revenue side and as well as on the EBITDA side. I'll have Sonal comment on the exact numbers.

I just want to point out a couple of things here. So while you see the revenue is about 1%, if you look at the expense line also, it is contained and it's stagnant. And in between, if you see, we have managed the COGS margin pretty well and that has expanded by almost 5%. So while the prices of module also come down, inputs also come down. So, we have to look at the margin and that's what we have managed in this quarter. And we'll continue to focus on it in the coming quarters.

Can you give the US mix or export mix in this year and last year and maybe in the quarter one?

So, again, directionally, last year we were around 60% and this year we are around 27% from a strategic perspective.

We'll take the next question from the line of Deepak Krishnan from Kotak Institutional Equities. Please go ahead.

Yes. I just wanted to sort of understand, I think we are at a pretty advanced stage for the 1.4 gigawatt in the US. But the further capacity expansions, how are we looking at it? What could be the potential challenges or positives that we are looking at from an IRA perspective? Do we still require IRA to go ahead with that or we will be in a wait and watch mode? And once there is only policy uncertainty, that's when we'll sort of go and expand over there.

Deepak, great question on the United States. United States, we are extremely committed to United States. It's a big market. It is a growing market. And we will approach this market with a certain amount of aggression, which we already have in the past. And so, therefore, you know, are we going to reduce the gas or I would say maybe gas is the wrong euphemism to be used here. But are we going to reduce the acceleration there? The answer to that is absolutely no. Having said that, the additional 3.4-gigawatt capacity and potentially 5 gigawatt cell capacity, we will definitely look at how the policy landscape evolves. Given the change of dispensation there, it's important for us to know in which direction it is moving. And no sooner that clarity comes up, we will continue on our expansion spree. The most important factor we need to remember here is that solar energy is the cheapest form of energy. And so that will ensure that United States and the various states which form the United States will actually aggressively move forward towards that. Our factory actually is in Texas, which, as you know, is a Republican state. But if you look at which is the state which has actually added the largest amount of solar capacity last year, the answer is Texas at 6.5 gigawatts. So our hopes are pinned on a fairly large US market as we move forward.

Sure. Maybe just a follow up to that. So if I look at the quarter, obviously you indicated one is 27% is exports. That's indirectly impacted our realizations also as domestic has picked up. But for the full year, how are we targeting in terms of export and domestic mix? And for the 13.3 gigawatt capacity we have, what is the rough production numbers that you're sort of targeting for FY '25?

So from the mix, this particular year is going to be a bit of a year which is veered more towards domestic. So the pattern may not change substantially, maybe a little more of exports from where we stand. But the pattern may not dramatically change.

Sure. And maybe just wanted to understand the INR600 crores investment you are doing. Would that be into renewable IPPs or what are we sort of investing the INR600-odd crores for? Would we get into IPP business, or these are just adjacencies to sort of help us expand our presence in module as well as sort of DPCR?

It is all of the above. It would mean potentially looking at land and connectivity for our own self at the same time for IPP type of a business.

The next question is from the line of Subramaniam Yadav from SBI Life Insurance. Subramaniam Yadav: As you mentioned, the mix has changed this year to around 27%. Is it because of internal competition from the Southeast Asian country where it is expected that some duty will be levied there? And hence the inventory built up might have happened from their side. Or is it our cost is a bit higher than their cell cost or module cost? If you can put some colour on this and going ahead, how do you see the next six months export for us?

Mr. Subramaniam, thank you very much for the question, a very pertinent question. The reduction is definitely not because of competition. It is actually just a point in time. If you see, even today, our order book actually there is a preponderance of exports in our order book mix at this point in time. So it's definitely not because of any structural reasons of pricing. It is just a cycle that you go through. You see that in the next year, things will be different, and it will keep evolving as we move forward. Subramaniam Yadav: Okay. Can you just give us some figures on the pricing of the module? How much it has come down with next year and this year?

Last year for the US, realizations were in the region of $0.28-$0.30. And this year they are kind of approaching towards somewhere around $0.24 or so. And for India, from around $0.21 or so, they are approaching to around $0.17-odd, ballpark numbers.

The next question is from the line of Aashish Upganlawar from InvesQ PMS.

Sir, the quoted capacity that you mentioned around 12 gigawatts and the numbers that we spoke about, I think 3.3 gigawatts for the first half. So this would be maybe 50% on the utilization, roughly maybe. So can you explain to me why the demand you say is very, very strong? So why this situation?

So utilization is not because of the fact that the lines are idle. It's actually because of various factors. I mean, in fact, our factories are running 24 by 7. So it is not -- the utilization factor is not less because of lack of customers or lack of demand. It is because the way you manage your factory. It is because the type of demand, the changeovers that are required, that kind of leads us to the utilization factor of as you rightly calculated somewhere around 50%-60%. And so that at any given point, the 12 gigawatts that you quoted is a nameplate capacity. And typically, you don't get to that point. If everything remains constant and you can run the factories 24 by 7 without any changes, without any holidays, you can ge t to maybe 70% -80% of that capacity. At this point in time, what happens is that some of the lines are for a given particular customer. Some customers want Mono PERC, some customers want TOPCon, and that will require changes of lines. And each time a line changes, there are a certain number o f days which are lost in production. And that is what leads to this utilization rate. Our constant endeavour is to actually keep getting better and better at that. So if you see from last year onwards to this year, it's been a very substantial jump in our utilization. And you will keep seeing that the capacity utilization will keep getting better and better beca use of better planning.

Okay. Secondly, this 20 gigawatts of order book that we said, so how much is US in that? And I mean is it in line with the cell capacities that we are putting in? Because the cell capacities seem to be much lower if US is a bigger portion of that.

So we are at 72% of the order book is United States at this point in time. The cell capacity is not going to be so much of a limitation. The entire cell capacity that we have is going to be for internal purposes, both for India and for the United States. We will still not be producing enough cells for our own internal consumption. For the United States, we will be taking cells from sources which are allowed in the United States, which is going to be non-China. And those supply chains are also secure. And so that is not going to be a limitation to serve our United States customers.

Okay. Lastly, this cell capacity in India is coming up. So would it be fair to, I mean, whatever you think is fair to assume in terms of full utility, like you said, with modules you produce and use only maybe 70% at best. So what it would be for the cell whenever it is mature and what kind of profitability one can expect keeping in mind the current rates from the cell production then?

So, again, great sort of question, Mr. Aashish. From the perspective of capacity utilization, they are in a sort of similar region. So we would expect somewhere around 60% to 80% as the lines keep getting stabilized. And at the full maturation somewhere in the region of around 80% or thereabouts is where one can expect. As far as the profitability is concerned, as you can imagine, if you would have had one -to-one, we would have had a massive profit flip. But at this point in time, on a blended basis, we expect about a 200 to 300 basis points improvement in the overall profitability because of cells.

The next question is from the line of Mohit Kumar from ICICI Securities.

So my question is on the duties. How do you think about the impending duties which have been talked about in the United States, the anti -dumping duty and countervailing duties? When do you think that some clarity will come in, in your opinion?

So, as you know, there is change in dispensation in the United States. We have been closely observing the situation and trying to seek clarity. I would say, from my perspective, it will be in somewhere in January is when we potentially get the clarity on this. Just given the changes that are happening in the political landscape of the United States.

My related question is that, of course, the anti -dumping duty and CVD will be imposed in the Southeast Asia. So how does it impact in any way our sourcing of cells?

So a large portion of what we are actually exporting to the United States is actually directly from India. And we are going to come up with our own manufacturing facility in the United States, as you know, 1.4 gigawatts. So both of that taken together, the impact on us is going to be limited.

The next question is from the line of Chirag Khasgiwala from Neo Asset Management. Please go ahead.

So as you said that, you know, this year the contribution from exports is more close to 25% - 30% and this full year it could remain at a similar level. But going forward, the contribution will remain at a low level to exports. And also if you want to start producing in the US itself, then how will the margins change as you will be procuring cells from the US and then making modules? So could the margins be on the lower side going forward?

Chiragji, great question. So from our perspective, the mix of the sales is going to continue to keep evolving. Just looking at the way in which our order book stacks up clearly shows the direction in which potentially next year is going to pan out. Now, like you rightly said, some of it we might actually serve from our own factories in the United States. In what manner are we going to do that ; for the United States, Most of the cell requirement, most, if not all, will be served from India. And so therefore, that is going to be a substantial margin contributor as we move forward. The way in which we will actually do the configuration of orders to be served in United S tates for United States, United States from India and India from India will all be configured in such a way that we maximize our profit potential.

And if you look at your order inflows, so it has been around 20 gigawatt of order book as on FY '24 and even in the first half the order book is 20 gigawatts. So what has been the order inflows in this first half?

So it's actually been fairly robust, about 6 gigawatts or so is what I would say, 5 to 6 gigawatts is what we have got in the first half.

Could it be safe to assume that second half could be better in terms of growth? Because if you look at your listed peers, they are reporting much higher revenue growth who are purely operating in Indian market, while you're also this year concentrating mor e on India. Then will the revenue growth be better or how should we look at it?

Chirag, great question. So the revenues are a function of -- if you look at our business, the revenues are a function of our manufacturing capacity and realization. And when you put all of these things together, if your manufacturing capacity increases dra matically and your realization remains flat or increases, your revenues will grow. For us, this is a year of making sure that we have a very strong EBITDA, very strong -- making sure that the manufacturing footprint is complete. And then, therefore, get the benefits of completion of all the manufacturing capacity. So that's the way in wh ich realization will go up from our perspective is as the cell capacity comes up. Also, the DCR potential that our own cells gives us will also give a push to the profitability.

The next question is from the line of Suyash Kela from Singularity.

Sir, I had a question on the improved margins because of cells. You said maybe 2 to 3 percentage points. From our understanding, looking at the peers, it looks to be much higher if you are running an integrated facility. Maybe if you can just expand a litt le bit on that and assume the end market is DCR. Secondly, if you can talk about the retail business in the rooftop solar segment, from a macro perspective, the growth in the numbers is looking very exciting. So how are we looking at that segment two to three years out from in terms of the revenue and profitability of the segment?

Right. Again, great question, Suyashji, if I've got your name correctly. From a margin perspective, yes, you're right, a fully integrated chain. So if I have 13.3 gigawatts of manufacturing of modules and 13.3 gigawatts of cells, these numbers that I quote might potentially even jump to a double, double than what I'm saying. However, on a blended basis, so when I said 200 to 300 basis points, it's on a blended basis. And that's where you are getting in that region. But, yes, as the level of integration increases, the potential of profits actually go up and they're almost double. At this point in time, of course, there is a sense of conservatism in the numbers that I quote, as we always are. And we would like to beat those numbers as we move forward.

The next question is from the line of Prateek Kumar from Jeffries.

Yes, thanks for the follow up. I just had one question regarding the order book. So just wanted to understand the order book of 20 gigawatts in context of current environment in US. So all these orders are like sort of more like MOUs or like all these companies have like sort of given you some advance or I mean, and they can be like sort of cancelled because there is some change in local regulations, etc. So what is the stage of these order books exactly for this 20 gigawatt, like 70% percent is US?

Super. So, Prateekji, a fantastic question. The way in which we look at orders and consider them as orders in Waaree is if we get advances. So almost the entire 20 gigawatts of order book is backed by advances. That's number one. Number two, Prateekji, is that we most of our orders in this order book are through sticky customers, customers who are loyal to us. And that's the other reason why there is a certain strong belief that these orders would not be cancelled. So these are the two solid reasons why it's a solid order book. We don't consider it as an order till such time that we actually have an advance in o ur books. And there's an increased confidence because of the fact that they are loyal customers.

The next question is from the line of Utsav Adani from Oaklane Capital.

Sir, I wanted to ask questions on the new businesses. One is battery storage; the other is electrolyser which you said you'll comment on probably next call. The aluminium crane, I think they have a subsidiary which is named Waaree Green Aluminium Private Limited. And a couple of years back, I think there was some business opportunity being discussed on thermal energy storage with Brenmiller. Do we have any updates on all of these businesses?

A great question, Utsav. In my presentation, I already said that we are going to have a fairly broad spectrum from an energy transitions perspective. Out of that, electrolyser for hydrogen and battery energy storage systems have come up to a point where we can talk about it and of course we'll get back to you in detail very soon. All the other parts and pieces of the potential future business is being talked about internally. We have a process internally where we move all of these through various stage gates. And when it crosses the right stage gates and when it becomes mature and when we are ready, we will be fairly excited to come and talk to you about that as well. But at th is point in time, as they say, it's not prime time. It has not come to a stage where we can talk about it.

Thank you very much, sir. Ladies and gentlemen, due to time constraint, that was the last question we can take today. I would now like to hand the conference over to the management for closing comments. Over to you.

Thank you very much. Thank you very much for asking us all of these extremely exciting questions. And thank you very much for spending the time. Ladies and gentlemen, what we would like to sum up this conference is we have had a good and resilient quarter. We have strong business fundamentals, and that's due to a strong demand, a very, very good manufacturing footprint for now and for the future. And, of course, our foray into other elements of energy transitions, which are going to bring us growth in the future. On ce again, ladies and gentlemen, thank you very much for the time.

Thank you, members of the management. On behalf of Waaree Energies Limited, that concludes this conference. We thank you for joining us and you may now disconnect your lines. Thank you.