US policy shifts challenge Waaree Energies' profitability

Waaree Energies, a solar power company, is facing challenges in 2025. Its stock has dropped over 20% this year due to uncertainties about US clean energy incentives. The US market is crucial for Waaree, accounting for more than half of its orders, which total about 50,000 crore. Recent changes in US policy, particularly the pause on incentives under the Inflation Reduction Act, are likely to impact Waaree's earnings. Analysts at Kotak Institutional Equities reduced their growth estimates for the company for the fiscal years 2025 to 2027. They noted that the company may need to adopt a cost-plus model for some US clients, affecting profit margins. In addition to the US policy changes, Waaree is also dealing with an oversupply of solar cells in the domestic market, which could further strain profits. However, the company has some advantages. It has strong cash reserves and is increasing its production capacity domestically. Waaree has achieved impressive growth in recent years, with revenue increasing by 80% and Ebitda by 144% from FY21 to FY24. Recently, Waaree expanded its manufacturing capacity significantly. It is currently capable of producing 15GW of solar modules, up from 2GW in 2021. The company began its first cell manufacturing operations in January and plans to add more capacity soon. Backward integration into manufacturing will improve Waaree’s cost efficiency, particularly in light of new government policies. In the US, the company has opened a module manufacturing factory to take advantage of available subsidies. Waaree also plans to invest heavily in a facility that will produce silicon components for solar panels. This facility is expected to be completed by FY27 with government support. Besides solar power, Waaree is diversifying into other renewable energy sectors, such as battery storage and green hydrogen. The company has received incentives for manufacturing electrolyzers and has secured contracts for producing green hydrogen. Despite the challenges and a decline in share prices this year, Waaree's stock is still up 47% since its IPO. Moving forward, the company will be closely watching US policy decisions on clean energy incentives.