Shares of Waaree Energies and Premier Energies fell nearly 3 per cent in early trade after Bernstein initiated coverage on these solar stocks with an underperform rating.
The global investment firm expects a deterioration in returns and rich valuations. It has set a target price of ₹1,902 on Waaree, implying a 20 per cent downside potential from Tuesday’s close. For Premier Energies, Bernstein assigned a target price of ₹693, signalling a 24 per cent downward trend.
Solar PV manufacturing has struggled to make investor returns globally but Bernstein sees it important to track these pioneers as large companies targeting entry.
With retail solar panel prices in India at 2-3 times of global levels, low barriers to entry and big competitors on the horizon, we are close to cyclical peak returns in the solar PV space, Bernstein analysts said.
The market will eventually be a place for big players with backward integration companies like Reliance Industries and Adani Enterprises.
Bernstein quoted learnings from Chinese market that high return on equity (ROE) levels are often unsustainable, not lasting beyond two years. It implied that one should buy when ROEs are low and sell or trim when they exceed teens.
“While Waaree does show the potential to join this league, we think the competitors have much bigger wallets to compete against whom Waaree and Premier do not have a big right to win,” analysts added observing returns normalise to teens from over 40 per cent.
However, Bernstein prefers Waaree over Premier Energies due to higher potential for backward integration into ingot-wafer production and Waaree’s large international order book gives it better visibility.
Waaree Energies stock declined 3.08 per cent to ₹2,306.55 as at 10.24 am on the NSE.
Premier Energies traded 2.30 per cent lower at ₹889.05, after hitting a low of ₹883.35 in early trade.
