Buy Websol Energy System Ltd For Target Rs. 1,699 by Arete Securities Ltd
We initiate coverage on Websol Energies with a BUY recommendation and assign a 30x PE(x) on FY26 EPS, implying an upside of 35% with a target price of Rs 1,699. This bullish view is supported by the company's strong growth trajectory and margin sustainability, driven by: (1) An aggressive cell capacity expansion in the coming years, (2) The module plant becoming operational in the upcoming quarters, with utilization levels of 80%+ for modules and 90%+ for cells.; (3) Superior growth prospects compared to peers, justifying a premium to listed domestic and global competitors and (4) The implementation of ALMM list II by June 1, 2026.
Investment Rationale
Aggressive Capacity Expansion Plans
Websol has successfully commissioned a state-of-the-art 600 MW Mono PERC solar cell manufacturing line in FY24, replacing its older 250 MW multi-crystalline facility. The company has laid out a clear roadmap to scale its total cell capacity to 2.4 GW by FY27, representing a 4x increase. This positions Websol among India's top-tier domestic solar cell manufacturers.
Planned Backward Integration into Ingots and Wafers
Websol is preparing to integrate upstream into ingot and wafer manufacturing, a segment where India currently lacks domestic capacity. This move will reduce dependence on Chinese imports, control input costs, improve margins, and potentially open a new revenue stream by supplying wafers to other domestic cell makers.
Favorable Industry and Policy Tailwinds
With India targeting 500 GW of non-fossil capacity by 2030 and rapidly reducing reliance on Chinese imports, solar cell manufacturing is a key policy focus. Government initiatives like the PLI scheme, ALMM mandates, and BCD tariffs offer a long-term structural advantage to domestic manufacturers like Websol. Demand is expected to be vastly in excess of supply for the next number of years.
High Growth Outlook with Improving Profitability
We estimate a Revenue/EBITDA/PAT CAGR of 102%/82%/70% over FY25-27E, driven by ramp-up of new capacity, improving operating leverage, and potential margin expansion. While near-term earnings are weighed down by depreciation and ramp-up costs, strong volume growth is expected to drive a turnaround.
Valuation Summary
We estimate a Revenue/EBITDA/PAT CAGR of 102%/81%/70% respectively over the forecast period. Applying a target multiple of 30x FY26E EPS, we arrive at a target price of Rs 1,699, implying an upside potential of 35% from current levels.
We initiate coverage with a BUY recommendation, supported by the company's aggressive capacity expansion, technology upgrades, and favourable industry tailwinds
Risks to Our Thesis
* Policy risks: change in any trade and non-trade barrier by Indian or US governments;
* Competitive threats: A rapid scale-up of manufacturing capacities by global and domestic rivals may erode margins faster than anticipated.
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