Last year we wrote to you about what to expect from India's top renewable energy stocks in 2022.
We mentioned the leading companies in the space and their plans in the coming years.
The renewable energy (RE) theme has picked up with India quickly becoming one of the world leaders in embracing the transition to renewable energy.
The country is combating climate change head-on. What started as a renewable energy target of 225 GW by 2022, was upgraded to 450 GW by 2030, and eventually to 50% of the country's energy being derived through renewable means by 2030.
This was complemented by earnest policy reforms. In a decisive move, the Indian government implemented customs tariff of 40% on solar energy modules and 25% on solar energy cells, providing the domestic sector empowering the sector to achieve scale, economy, and export competitiveness.
These ambitious targets are backed by actual announcements made by some of the top business houses in the country. This includes commitments by state-owned NTPC at 60 GW, Adani Green Energy at 45 GW and Tata Power, ReNew Power, and Acme Solar at 25 GW each.
As of March 2022, India's renewable energy capacity stood at 156.61 GW, representing 39.2% of the overall installed power capacity and providing a great opportunity for the expansion of green data centres.
Solar energy was the biggest contributor in the total renewable energy capacity addition with a share of 34.5% followed by wind with a 25.8% share.
The renewable sector added more new capacity than conventional energy sector in 2022 for the fourth year in a row, clean energy accounting for close to half of the total installed energy capacity in the country.
While solar and wind energy sources were the frontrunners in the renewable energy race, green hydrogen has garnered a lot of attention lately.
There is growing excitement that green hydrogen could be the fuel of the future, backed by renewable energy. This offers tremendous potential for growth and is quickly turning into an investing megatrend.
It has reached a point where economic progress over the next century, may just be defined by climate investments. This bodes well for the companies leading the renewable energy race.
However, investing in companies generating renewable energy is not the only way to ride this wave. You can also look at the original equipment manufacturers (OEMs) who also stand to benefit tremendously, offering robust returns.
Last time we spoke about Websol Energy and Sterling Wilson Solar. While these names are still relevant we have added more to the list.
So, with this in mind, we highlight the renewed list of the top 3 renewable energy stocks and what you can expect from them in 2023.
#1 Websol Energy
First on our list is Websol Energy.
Websol Energy is a leading manufacturer of photovoltaic monocrystalline solar cells and modules in India.
When we last wrote the piece the company was well on its way to expand its capacity in 2022. While the expansion plans are still on track the company intends to more than seven-fold their existing capacity (around 250 MW) to retain its position as one of the largest producers of solar cells in India.
Moreover, it has outlined ambitious plans to mobilise funds for upgrading its existing equipment with the latest and most efficient technology. This places the company well to profit from the green energy revolution.
Websol went into business as a fully export-oriented unit catering to Europe (mainly Germany and Italy) and the US. They have been in this business for over two decades now and enjoy a reputation for high-quality products. They offer a wide array of products ranging from 5 W to 220 W, catering to the demands of home, commercial and industrial institutions.
While the company has grown its sales by 38.8% in the last year the net profit dropped 80%. But this is an aberration as margins didn't fall much in the financial year 2022. However, the company's profits were higher in the financial year 2021 due to a one-time exceptional item which make 2022 look bad. The balance sheet is well funded with negligible debt on the books.
The company's patchy past performance is largely owing to weak power demand, intense competition from China and the pandemic.
Now, with the ongoing capacity expansion, the company is unlikely to churn out a profit in the near term. However, this should be temporary, considering the new capacity will make them highly efficient and well-poised to benefit from this investing megatrend.
#2 Sterling and Wilson
Next on our list the same company we mentioned in our previous piece, Sterling and Wilson Solar.
Sterling and Wilson Solar is a global holistic solar engineering, procurement, and construction (EPC) solutions provider with a wide presence across 26 countries.
The company's unexecuted EPC order book stood at Rs.26 bn as of October 2022, with nearly 78% domestic EPC, indicating healthy growth in business in the coming year. The domestic business offers wider margins and is likely to boost profits. This in tandem with sliding input costs bodes well for the company in the coming years.
Back when we wrote the previous article, the company had two large EPC projects with a total capacity of 400 MW are being constructed in the US.
However, that activity had stalled considerably in 1HCY22 due to Department of Commerce investigation on import of modules. But the new directive in June 2022 has given relief to module imports allowing the company to continue its work.
Sterling and Wilson Solar added significant capacity which will come online by the end of the financial year 2023. Moreover, it's expanding its renewable energy offerings to include EPC solutions for hybrid energy power plants, energy storage and waste to energy.
Acquired by Reliance in 2021 (40% stake), the company provides EPC services primarily for utility-scale solar power projects. It has executed projects of more than 10 GW capacity across geographies including Australia, USA, Asia, Africa, and the Middle East. International operations account for more than 80% of the total revenues.
The unprecedented commodity super cycle over the last two years coupled with covid led to Solar Industry suffering huge losses and IPP's deferring projects. The sales and gross profit growth in the past year was 2.3% and 38% respectively. The company is incurring a loss at the net level.
However, this is likely to change with the fresh set of announcements. The solar installations have grown at 15% CAGR in the past 5 years and are likely to replicate the same going forward.
Moreover, the company's strong balance sheet will also assist it grow further.
#3 Borosil Renewables
The third company on our list is a new entrant, Borosil Renewables. Borosil Renewables is the first and only solar glass manufacturer in India.
The company has chalked out an expansion plan which will take its Indian capacity of 450 TPD (tonnes per day) to 1,000 TPD by October 2022 and 2,100 TPD by the financial year ending 2025. This will result in a capital outlay of around Rs 15 bn.
Moreover, it recently acquired the Interfloat group, the largest manufacturer of solar glass in Europe, with an operational manufacturing capacity of 300 TPD in Germany. They plan to increase this to 500 TPD by 2023. While this may seem ambitious, the company has achieved such a feat.
Borosil Renewables, part of the six decades old Borosil Group, commissioned its first solar glass manufacturing facility at Baruch in Gujarat in January 2010 with 180 TPD capacity. This was expanded to 450 TPD or 2.8 GW of solar modules. The current capacity can power up to 2.5 gigawatts (GW) of solar power.
In the solar panel glass business, Borosil meets 40% of the domestic demand of 650 tonnes of glasses per day, while the rest is imported from China and Malaysia. Apart from fulfilling the country's growing demand for solar glass, the company also ships to Germany Poland, Canada, the US, Mexico, and the Middle East. This comprises almost 20% of its present solar panel glass capacity.
The sales have grown by 28% in the past year, recovering well from the slowdown due to the pandemic. However, the profits have skyrocketed, doubling in the same period. The strong profitability has boosted the return on equity. It's up from 14% in the financial year 2021 to 21% in the financial year 2022.
The company boasts a strong balance sheet with low debt-to-equity of 0.2 times. The interest coverage ratio is very high at 79.5 times in the financial year 2022.
In conclusion
The renewable energy sector continues to remain a favourite among industrialists and investors across the world. The high ticket investments have placed the sector, and the companies operating in it, on the fast track to growth in the coming years.
The plans of a company are a great insight into its long-term vision. It helps in analysing and understanding the steps it would take to achieve the same.
Therefore, an investor must pay extra attention to these plans. Analyse them well to comprehend whether the company's roadmap is feasible or not. Only then can you make the right choice.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
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