Premier Energies, Waaree: Why Kotak is negative on solar stocks despite strong Q4

Domestic brokerage firm Kotak Institutional Equities remain negative on solar stocks under its coverage- Waaree Energies and Premier Energies- even as it expects FY25 to be a historic year in terms of solar capacity addition. It believes that demand uncertainties and looming trade tariff fears will continue to weigh on the sector.

FY25 has been a record year for solar capacity additions (about 21 GW in the first 11 months), but the solar manufacturing capacity has kept pace with demand (74 GW of ALMM modules and 22.4 GW of solar cells; up 175 per cent YoY), giving us confidence that the industry is on track to reach supply demand parity by FY27.

"While reciprocal tariffs on India are lower than Asian peers, IRA and demand uncertainty will remain an overhang on Indian exporters. For 4QFY25, strong revenue growth and stable sequential margins, driven by strong demand due to rapid solar capacity addition; the commissioning of new cell capacity for Waaree; improving capacity utilization; and stable module and cell pricing," it said.

"Reciprocal tariffs of Indian manufacturers are the second lowest among the seven major exporters of solar modules to the US. There are AD/CVD investigations going on against Malaysia, Vietnam, Thailand and Cambodia; if implemented, it will be a significant positive for Indian manufacturers," it said.

However, weaker solar capacity addition due to an increase in solar module prices post-tariffs; an increase in US domestic module manufacturing capacity; and uncertainty around IRA could dampen the outlook for US exports from India and remain an overhang on stocks, with a large US order book such as Waaree, said Kotak.

Kotak is expecting 38 per cent YoY and 17 per cent QoQ revenue growth and a 450 bps YoY margin improvement, driven by increased contribution from the high-margin retail segment, higher EPC revenue and commissioning of a cell plant for Waaree Energies. It has a 'reduce' rating on the stock with a target price of Rs 2,280. The stock hit lows of Rs 2,132 on Friday.

Similarly, It is penciling a 58 per cent YoY growth in revenues, driven by higher capacity utilization, but only 4 per cent QoQ growth since its cell and module facilities were operating at peak utilization in 3QFY25 for Premier Energies. Kotak has a 'sell' rating on the stock with a target price of 840, which was breached on Friday as the stock hit Rs 839.35 mark.