Solar PV Companies: Solar PV cos close to cyclical peak returns: Bernstein

Mumbai: Brokerage Bernstein initiated coverage on Waaree Energies and Premier Energies with an ‘Underperform’ rating, citing that the solar photovoltaic (PV) space companies are close to the cyclical peak returns. The firm set price targets of ₹1,902 for Waaree and ₹693 for Premier, implying downsides of 16% and 22% over Wednesday’s closing prices.

“We initiate at underperform considering where we are in the cycle, our expectation of deterioration in returns and their rich valuations,” said Bernstein in a client note. “One cannot give the same multiple to a business built on the premise of a regulatory arbitrage.”

Waaree shares fell 4.2% to ₹2,279.8 and Premier declined 2.2% to ₹889.8 on Wednesday.

Bernstein said Waaree and Premier face the risk of deep-pocketed bigger groups entering the space.

“We think this will eventually be a place for the big players with backward integration – Reliance, Adani Enterprises etc.- to lead,” said the brokerage. “While Waaree does show the potential to join this league, and is rightly exploring avenues beyond the module-cell, we think the key competitors have much bigger wallets to compete.”

“It’s too early to dismiss them, but at the valuations they trade it – we think it already prices in them joining the big boys club.”