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 for the coming years.
The theme of renewable energy (RE) has gained popularity and India has quickly become one of the world leaders in embracing the transition to renewable energy.
The country is fighting climate change head on. What started as a renewable energy target of 225 GW by 2022 was upgraded to 450 GW by 2030 and ultimately to 50% of the country’s energy being sourced renewables by 2030.
This was complemented by major policy reforms. In a decisive step, the Indian government introduced a customs tariff of 40% on solar modules and 25% on solar cells, enabling the domestic sector to achieve scale, economy and export competitiveness.
These ambitious goals are supported by actual announcements from some of the top business houses in the country. This includes commitments from state-owned NTPC of 60 GW, Adani Green Energy of 45 GW, and Tata Power, ReNew Power and Acme Solar of 25 GW each.
As of March 2022, India’s renewable energy capacity was 156.61 GW, representing 39.2% of the total installed power capacity and presenting a great opportunity for green data center expansion.
Solar was the largest contributor to total renewable energy capacity expansion with a share of 34.5%, followed by wind with a share of 25.8%.
The renewable energy sector added more new capacity than the conventional energy sector in 2022 for the fourth year in a row, with clean energy accounting for nearly half of the country’s total installed energy capacity.
While solar and wind energy sources have led the way in the renewable energy race, green hydrogen has been getting a lot of attention lately.
There is growing enthusiasm that green hydrogen could be the fuel of the future, backed by renewable energy. This offers huge growth potential and is quickly turning into an investment megatrend.
It has reached a point where economic progress in the next century may only be determined by climate investments. This bodes well for the companies leading the renewable energy race.
However, investing in companies that generate renewable energy is not the only way to ride this wave. You can also look to the original equipment manufacturers (OEMs) who will also benefit greatly and offer robust returns.
Last time we talked about Websol Energy and Sterling Wilson Solar. While these names are still relevant, we’ve added more to the list.
With this in mind, we therefore highlight the updated 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 track to expand its capacity in 2022. While expansion plans are still on track, the company plans to increase its existing capacity (approximately 250 MW) more than sevenfold to further its position as one of India’s largest solar cell producers.
In addition, it has outlined ambitious plans to mobilize funds to upgrade its existing equipment with the latest and most efficient technology. This allows the company to benefit from the green energy revolution.
Websol started as a fully export-oriented unit focusing on Europe (mainly Germany and Italy) and the US. They have been in this industry for over two decades and enjoy a reputation for quality products. They offer a wide range of products ranging from 5W to 220W that meet the requirements of home, commercial and industrial settings.
Although the company grew its sales by 38.8% over the past year, net profit fell by 80%. But this is an anomaly as margins have not fallen much in fiscal year 2022. However, the company’s profit was higher in fiscal year 2021 due to a one-time exceptional item that makes 2022 look bad. The balance sheet is well funded with negligible debt on the books.
The company’s patchy performance in the past is largely due to weak power demand, fierce competition from China and the pandemic.
Now, with the continued capacity expansion, the company is unlikely to turn a profit in the short term. However, this should be temporary as the new capacity will make them highly efficient and well placed to benefit from this investing mega trend.
#2 Sterling and Wilson
Next on our list is the same company we mentioned in our previous piece, Sterling and Wilson Solar.
Sterling and Wilson Solar is a global provider of holistic solar engineering, procurement and construction (EPC) solutions with a broad presence in 26 countries.
The company’s unfulfilled EPC order book stood at Rs.26 billion as of October 2022, with almost 78% domestic EPC, indicating healthy growth for the company in the coming year. Domestic trade offers wider margins and is likely to boost earnings. This coupled with sliding input costs bodes well for the company in the years to come.
At the time of writing the previous article, the company had two major EPC projects with a total capacity of 400 MW under construction in the US.
However, that activity had come to a significant standstill in 1HCY22 as a result of a Department of Commerce investigation into module imports. But the new directive in June 2022 has eased the import of modules, allowing the company to continue its work.
Sterling and Wilson Solar added significant capacity that will come online by the end of the 2023 financial year. In addition, it is expanding its renewable energy offering with EPC solutions for hybrid power plants, energy storage and waste-to-energy.
The company was acquired by Reliance in 2021 (40% stake) and mainly provides EPC services for large-scale solar energy projects. It has carried out projects with a capacity of more than 10 GW in various regions, including Australia, the US, Asia, Africa and the Middle East. International operations account for more than 80% of total revenue.
The unprecedented commodity supercycle over the past two years coupled with covid led to huge losses for the solar industry and IPP postponing projects. Sales and gross profit growth in the past year amounted to 2.3% and 38% respectively. The company incurs a net loss.
This is likely to change with the new batch of announcements. The solar installations have grown at a 15% CAGR over the past 5 years and are likely to do the same in the future.
Moreover, the company’s strong balance sheet will also help the company to grow further.
#3 Borosil Renewables
The third company on our list is a newcomer, Borosil Renewables. Borosil Renewables is India’s first and only solar glass manufacturer.
The company has set up an expansion plan that will take its Indian capacity from 450 TPD (tons per day) to 1,000 TPD by October 2022 and 2,100 TPD by the financial year ending in 2025. This will result in a capital expenditure of around Rs 15 billion.
In addition, it recently acquired the Interfloat group, the largest solar glass manufacturer in Europe, with an operational production capacity of 300 TPD in Germany. They plan to increase this to 500 TPD by 2023. While this may seem ambitious, the company has delivered such a feat.
Borosil Renewables, part of the six-decade-old Borosil Group, inaugurated its first solar glass production facility in Baruch, Gujarat in January 2010 with a capacity of 180 TPD. This was expanded to 450 TPD or 2.8 GW of solar panels. The current capacity can generate up to 2.5 gigawatts (GW) of solar energy.
In the solar panel glass sector, Borosil supplies 40% of the domestic demand of 650 tons of glass per day, with the rest being imported from China and Malaysia. In addition to meeting 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 the current glass capacity of solar panels.
Sales have grown 28% over the past year and have recovered well from the slowdown caused by the pandemic. Profits, however, have skyrocketed, doubling in the same period. Strong profitability has boosted return on equity. It has increased from 14% in FY 2021 to 21% in FY 2022.
The company boasts a strong balance sheet with a low debt/equity ratio of 0.2 times. The interest coverage ratio is very high at 79.5 times in the 2022 financial year.
The renewable energy sector continues to be a favorite among industrialists and investors around the world. The high ticket investment has put the industry, and the companies operating in it, on the fast track to growth in the coming years.
A company’s plans provide a good insight into the long-term vision. It helps to analyze and understand the steps required to achieve the same.
Therefore, an investor should pay extra attention to these plans. Analyze them well to understand whether the company’s roadmap is feasible or not. Only then can you make the right choice.
disclaimer: This article is for informational purposes only. It is not a stock recommendation and should not be treated as such.
This article is from Equitymaster.com
Featured video of the day
Maruti Suzuki increases car prices for all models starting today