Sell Premier Energies' shares, says Kotak, see up to 17% downside in stock

Premier Energies has announced an ambitious plan, termed Mission 2028, aiming to become a 10 GW integrated solar manufacturing player by FY2028 in its investor day. This target, if achieved, would position Premier as the second largest player in the market, closely trailing Waaree, said Kotak Institutional Equities. However, execution remains a challenge due to the company's current capacity of 2 GW cells and 5 GW modules, which is significantly below the target.

Kotak has expressed concerns over Premier’s execution capability, given the company's lack of experience in wafer and ingot production. This part of the solar value chain is crucial for meeting the ambitious targets set under Mission 2028. The brokerage maintains its 'Sell' rating on Premier’s stock and retains the fair value at Rs 900.

Premier has planned a substantial investment of Rs 125 billion over the next three years to fund this expansion. The funding strategy involves a combination of internal accruals and debt, highlighting the financial commitment required to achieve the set goals. This funding plan will be critical to monitor as the company progresses towards its targets.

The company is also facing rising competition in the domestic market, which is seen as a medium-term risk. The recent increase in solar cell capacities by peers is expected to impact Premier’s profitability. As new capacities continue to be commissioned, solar cell demand-supply parity is anticipated by FY2027, challenging Premier’s current profit margins.

Shares of Premier Energies were trading at Rs 1,082, rising nearly half a per cent for the day. The total market capitalization of the company stood close to Rs 49,000 crore. It down 22 per cent from its 52-week high at Rs 1,387.10. Kotak's target suggest another 17 per cent fall in the stock. 

In addition to its core solar manufacturing, Premier is diversifying into adjacent businesses, including Battery Energy Storage Systems (BESS) and inverter manufacturing. This diversification is aimed at capturing a larger share of customer wallets in renewable energy projects. These expansions are expected to yield results only from FY2028 onwards.

A joint venture with Sino-American Silicon Products Inc. has been signed to enhance Premier’s wafer manufacturing capabilities. This strategic partnership is crucial to address Premier's lack of experience in wafer production and is part of the broader Mission 2028. Despite these strategic moves, Kotak Institutional Equities remains cautious and has highlighted that Premier’s profitability is expected to decline by FY2028. This is linked to the expected demand-supply parity in solar cells, which could exert pressure on pricing and margins.

Premier’s Mission 2028 aims to transform the company into a prominent cleantech solutions provider. However, the success of this mission heavily depends on Premier's ability to execute its plans effectively, particularly in areas where it lacks prior experience.

Financially, Premier plans to use a mix of internal accruals and debt to fund the Rs 125 billion investment in Mission 2028. This financial strategy will test the company’s ability to manage large-scale investments while maintaining operational efficiency. Overall, while the aspirations under Mission 2028 are commendable, the focus will remain on Premier’s execution capabilities and its ability to navigate competitive pressures in the solar manufacturing sector.