Solar Stocks Under Bearish Clouds — Five Factors That Can Hurt Waaree Energies, Premier Energies

When Waaree Energies Ltd. and Premier Energies Ltd. first listed on Indian exchanges, both saw extremely positive response from investors, with their stocks debuting with a premium of more than 50%.

While Waaree Energies was listed in October last year, Premier Energies' scrip started trading in September. After the strong market debuts, the tables started turning in the few months of their going public.

In 2025 so far, Waaree Energies has slumped by around 22%, whereas Premier Energies is down by about 32%.

Both stocks are now trading significantly lower than their initial listing prices, and market analysts have identified several factors that may negatively impact these companies in the future.

Here are the factors that may act as headwinds for Waaree Energies And Premier Energies going forward:

Solar manufacturing industry has low entry barriers and quick one to two year commissioning timelines. Nuvama Research indicates that India's solar module and cell sector is still early in growth, prompting major capacity expansions. In India, capacities are set to grow by 60 gigawatts for modules and 47 GW for cells by fiscal 2027.

Although Waaree Energies and Premier Energies currently lead, Adani Enterprises and Reliance Industries are expected to capture significant market share, potentially impacting the former's margins from fiscal 2028, analysts say.

Bernstein Research's Nikhil Nagania notes that the higher competitive landscape and capacity have already caused a global supply glut, with a similar trend inevitable in India. He highlighted that India's fiscal 2026 solar module demand is expected at 40 GW, while the supply pipeline exceeds 70 GW.

Meanwhile, Nuvama's data suggests capacity could reach 105.8 GW if all additions are completed on schedule. The brokerage also states that India is expected to see overcapacity in the solar module space by fiscal 2027, while cell supply could be in deficit till fiscal 2029. This is expected to moderate the earnings of Waaree Energies and Premier Energies.

Between fiscal 2022 and fiscal 2024, India saw a large jump of solar exports to the US due the country putting restrictions on China. This helped both the listed solar manufacturers. Waaree Energies actually saw 57% of its fiscal 2024 revenues coming from the US, while Premier Energies enjoyed market leadership in terms of solar cell exports to the US.

However, the benefits from the export market, especially the US, are set to change based on the following factors:

• Tax rebates for US firms, under the Inflation Reduction Act, make it difficult for Indian players to compete.

• Higher US tariffs on Indian imports to hurt cost advantage.

• The domestic solar manufacturing capacity has ramped up in the US. The current operational capacity of 54 GW is 94% of the expected demand for solar modules in 2025.

• Trump's renewed emphasis on fossil fuels in the US could affect the prospects of renewable energy suppliers.

The solar and module space is also one where manufacturers see lower pricing power when there is high competition. This causes a tough scenario for producers to pass on increased costs.

For example, in November 2022, prices of polysilicon and wafer—key inputs to make solar modules and cells—increased by 238% and 115%, respectively, from December 2020 levels. However, the extent to which module prices increased was only by 9%.

Waaree Energies and Premier Energies have significantly boosted their financial performance from fiscal 2022 to fiscal 2024, with clear improvements in Ebitda margins. This progress stems from better export market returns and reduced manufacturing costs due to economies of scale, as per Kotak Securities.

However, margins are projected to decline due to increased competition, with Bernstein highlighting the solar manufacturing industry's challenge in sustaining consistent returns. Even China's top 10 module makers have faced financial distress over recent years, while integrated players are better positioned.

Currently focussed on module production, Waaree Energies and Premier Energies are expanding into solar cell capacity. However, they must prioritise integration into the wafer and ingot stage of the value chain for survival, as per analysts.

Furthermore, companies like Adani Enterprises and Reliance Industries are working to be fully backward integrated in this area at a much faster pace.

Four analysts each are tracking Waaree Energies and Premier Energies, with two each among them having a 'sell' rating on their stocks. One analyst each have a 'hold' recommendation. Nuvama Research is the only counter that has a bullish call on both the stocks.

Disclaimer: NDTV Profit is a subsidiary of AMG Media Networks Limited, an Adani Group Company.