Waaree Energies Limited (WAAREEENER) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to discuss recent news pertaining to U.S. duties on Indian Solar Import hosted by MUFG Intime India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nikunj Jain from MUFG Intime India Private Limited. Thank you, and over to you, sir.

Thank you. Good afternoon, ladies and gentlemen. I welcome you to the conference call of Waaree Energies Limited to discuss the recent news pertaining to the U.S. duty on Indian solar import. From the management side, we have Mr. Amit Paithankar, Whole-Time Director and CEO; Ms. Sonal Shrivastava, Chief Financial Officer; and Mr. Abhishek Pareek, Group Head Finance. Before we proceed with the call, I would like to mention that some of these statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. For more details, kindly refer to the investor presentation and other filings that can be found on the company's website. Without further ado, I would like to hand over the call to the management for their opening remarks, then we can open the floor for Q&A. Thank you, and over to you.

Thank you very much. This is Amit Paithankar here. As we all know, the U.S. Department of Commerce has announced preliminary countervailing duty of 126%. The matter, however, remains under regulatory review. Despite earlier 50% duties, we continue to ramping up U.S. shipments, supported by our diversified supply chain, investments in Oman for fully traceable and non-Chinese polysilicon. Our U.S. manufacturing footprint is also expanding with 2.6 gigawatts of current U.S. module capacity, which is expected to expand to 4.2 gigawatts by around the year-end. We do not anticipate any material adverse impact on servicing our U.S. order book. Based on our assessment, this development, I reiterate, does not impact Waaree Energies Limited as we are steadily increasing our U.S. manufacturing footprint and operating with a highly diversified supply chain. With that context, I would like to hand over the baton to our Chief Financial Officer, Sonal Shrivastava.

Hello, and good afternoon, everybody. And just I will briefly elaborate how the tariff structure works for the U.S. market. And we have talked about this earlier as well in various forums, and I would like to reiterate it. The tariff is applicable on the sourcing of the cell. So wherever we source our cell from that jurisdiction becomes the primary tariff duty, which is applicable on our modules. Modules are, of course, assembled in India and shipped from India or the modules are manufactured in U.S. and of course, supplies locally. So important part to remember is the tariff applicability is in the region where the cells are produced or the country where the cells are produced and that has been the case for many years now actually. So when the first 50% was also announced, we were not affected. As Waaree has already diversified its supply chain to countries with not only low tariff jurisdiction. So we also have that in addition, but we also have a jurisdiction expansion because the U.S. requires full traceability from non-China sources. And this is also another law. Because of this, we have constantly been looking at new sources, new jurisdictions and new supply chain. Also, it helps diversify our availability as well as cost. Going forward, you will also know that FEOC will come into place. So we are already thinking ahead and diversifying our supply chain. And just to put a number, currently, our sales are being sourced from jurisdictions, which are at about 10%. It was 19% also but moving more towards the 10% regions. And now we will look at where that 10% moves given that Trump has announced that it will range between 10% to 15%. We are awaiting that clarification. So this 126% is for any modules, which will be using India-based cells, which again must have all non-Chinese sources. And in our case, we don't use those cells. So 126% is not applicable for us at the given moment. And our supply chains are tied up at around 10% jurisdiction. I mean we can maybe open up to questions now and any clarification that the team may have.

[Operator Instructions] Our first question comes from the line of Abhi Sehgal from Singularity.

Just one question to understand further. So we understand that India-made cells will not make sense, but there are also duties from across the Southeast Asia region, we cannot use China. So just wanted your thought process, when you say you can source cells at 10%, where are you, where -- which region does that imply?

So Abhi, our sourcing supply chain is not new. We have been non-China for our U.S. supplies for almost over 2 years now. Over 2 years. So okay, since 2019 actually. So I have also with me Mr. Jignesh Rathod, who is our Operations Director and CEO-Designate. So he's corrected me that it's since 2019. So that's a long time. So we have several non-China sources. Earlier I had given out some countries, but normally we do not specify these regions, but it should suffice to say that there are multiple options, number one. Number two, we continue to develop new options. That's also very important to note. And as you know, we have also invested recently in Oman, this is just part of diversification of our inputs and supply chain.

Just one more question last. Just adding here. So all, does this CVD, which was already there previously and now on Laos and Indonesia, this primarily covers the full Southeast Asia region? Or are there still any countries, which are still open in Southeast Asia with this 10% tariff?

So Southeast Asia, we had stopped sourcing also because, earlier there were the UFLPA rules, which had come in. So we had stopped our sourcing and there were some countries, which were left, where we were sourcing, we did some sourcing from Indonesia last year, but now we don't do it.

Our next question comes from the line of Sabri Hazarika from Emkay Global.

So I just have some -- I just wanted some more color on the U.S. business. So we have got like 2.6 gigawatt capacity, which you are saying. So right now what is the sale of module in U.S. and how much of it is like produced from U.S. itself and how much of this is produced -- exported from India? And is the cell sourcing pattern actually same for both these places?

Yes, so thanks for asking this question, Sabri. If you look historically also, in fact this year, 9 months, the numbers are already out. Our exports to the U.S. markets and now exports plus local manufacturing in U.S. markets, the numbers remain very consistent and are growing every year. Like last couple of years, we have been consistently exporting to U.S. market in the range of 2 to 3 gigawatts. Overall numbers and this year also the numbers are in the similar range if you look at the 9 months number. Our U.S. capacity, since now it is shaping up and ramping up, the production is rising every passing quarter. Basis that, if you consider this year's number, you are seeing that local capacity adds up to the overall overseas customer servicing from India, as well as from the U.S. markets. And since new capacity is of 1.6 gigawatt, which is under construction at same site in Texas and 1 gigawatt acquisition of capacity in Arizona, both of these capacity are also expected to add up over next 1 to 2 quarters of time. Taking our total capacity in U.S. up to 4.2 gigawatts, which is fairly sufficient to supply to the U.S. market as per the current order book.

Right. And I mean, it's not like in near term, but eventually cell production in U.S., are you like contemplating that also or right now you have got enough options to like procure cells from other countries?

So I mean -- see, we continue to evaluate all options, but obviously we cannot give out any definitive here because, it all has to go through its natural process of the Board approvals and so on. But if you see our IPO documents, we have of course a long-term view on the U.S. market. And we will see as and when necessary how we want to expand our operations.

Participant had left the queue. We'll move forward to the next participant. Our next question comes from the line of Madhu.

I just wanted to understand that if suppose we supply whatever our U.S. orders, which are there either from U.S. or we supply from India, can you give us some perspective about what could be the potential margin impact if we have to fulfill all the orders from the U.S. whatever we have got? And will it change our guidance or working going forward in any meaningful manner?

Thanks for asking this question, sir. Let me first clarify the fact that our guidance, which we have given at the start of the year, reaffirmed in quarter 3 earning call, remains firm and consistent. Secondly, on the question of any potential impact on margins, I would want to highlight a fact that last 12 months we have remained in the [ era ] wherein 50% tariff was applicable on Indian products. Throughout that period, we have continued to export from India for last 10, 12 months' time. Numbers are already out. We can really see that nothing has changed for us as far as our margin management is concerned. Because, as earlier clarified by Ms. Sonal Shrivastava also on the call, that the tariff in U.S. on solar value chain, specifically panels and cell, applies on the point of manufacturing of solar cell. To further clarify it, let's example if we can start using India-made cells and then assemble modules also in India, which is a DCR module, and then export to U.S. markets, there could be potential duties, which have come up last night. But as long as we continue our supply chain sourcing from those countries, wherein the duty impact is maybe 10%, 15% and much lower ranges, we continue to thrive the similar set of numbers that we have given in the past because nothing changes as far as commercial is concerned for us. For our U.S. manufacturing also, I would like to add up, we continue the similar set of supply chain strategy. We not only source from these countries, we are also hunting new territories from wherein the cell sourcing can really happen. If you look at global announcements recently of new capacities in the Middle East markets, in the South Africa and other parts of Africa, there are ample of capacities which are coming up. One recent example wherein Waaree tied up its supply chain with Omani company and also took some stake is a clear indicator that we are very actively engaged in diversification of our supply chain for such sort of potential headwinds as well. I hope this answers quite well.

Our next question comes from the line of Aritra Banerjee from Nomura.

So my first question is regarding the sourcing of cells from overseas region. So now that this duty has been imposed, so do you envisage demand for cells from those regions going up and leading to a higher price and increase in sourcing cost? And if so, what will be the impact on margins that you foresee going forward then?

So to answer this question, I think let me first iterate the kind of exports that have happened from India. If you look at the data point also, there are not many exports, which are happening, there are limited companies which have been able to secure U.S. markets in terms of overall market because U.S. laws really does not and U.S. banks really does not allow the onboarding of manufacturers unless there are certifications and approvals in place, which takes generally 4 to 5 years of time. So certainly U.S. market is very tough market to get into. As far as the supply chain from the alternate sources is concerned which Waaree has been procuring, yes, of course, every year you see that our supply chain is expanding through new territories and new alternatives. And it continues to happen. So there are multiple cell capacities, which are coming up not just outside of U.S. in the markets like Middle East and Africa, in fact there are some capacities of cell, which are coming up in U.S. as well. So not necessary that we only buy out from these countries where we have been buying out, we even have new opportunities of even buying local U.S.-made cell as well. Given the fact our strong order book, one of the largest in the industry, also gives us the right to win in the entire supply chain wars if there is a reason for manufacturers to tie up with solar cell suppliers. Waaree should be in a position to tap those markets earlier than others. We have discussed and we have shown this in past also and we firmly believe we should be able to continue in the future as well.

Okay, sir. Sir, my next question is regarding the order inflows. So apparently a few U.S. companies have mentioned de-booking or cancellation of certain orders. So for your orders, do you expect any cancellation or do you expect the order inflow momentum slowing down in the U.S. going forward?

Actually, it's the other way around if you look at the data points. If you look at last 12 months of Waaree's order book and the consistent order flows from the U.S. markets, I think this is one of the best thing that we have ever seen as far as orders from U.S. are concerned. In fact the installation data in U.S. also speaks the same way. Historically, U.S. has consumed 50 gigawatts modules almost every year over last 4 years average if you look at. But this year surprisingly, the number is going to the roofs and largely on account of new data center that are building up, the power demand driven by the AIs and the AI war, which is happening all across. In fact we are falling off our own manufacturing supply, manufacturing capacities in U.S. that we are not able to even to grow beyond that we really want to speed up on our ramp up in U.S., get new capacities, which are announced ASAP. I think that is what should something that we are really trying to focus upon. So point here is opportunities are very huge. Demand in U.S. is something that you can't ignore. From 50 gigawatt of module demand, we foresee a market, which is around 70, 80 gigawatt of annual consumption and certainly a very large number. And we are very handful of suppliers in U.S. market, who are not only supplying currently, also have capability to supply consistently at large scales, also have capability to source those supply chain which are FEOC compliant, which is a new law enacted last year and being applicable starting April 2026. So what it means is from April '26 onwards, U.S. is going to put more emphasis on the FEOC compliance of entire value chain. And that point in time, Waaree strategy of fully integrating supply chain not just from India but from alternate market up to polysilicon will start showing its impact. Hope that is helpful.

Yes, sir. That's helpful. And just one last question. So because of this, do you see any impact on the margin in the U.S. business or do you expect it to continue as usual? And another clarification regarding the 4.6 gigawatt capacity. So when you say by the year end, you mean December or like fiscal year end that is March? By when will that 4.6 gigawatt capacity be operational?

As I have clarified in earlier question also that we really don't foresee any impact on the margins as far as this duty announcement is concerned, because of the same reasons that we have supply chain available from the countries, wherein the impact shall not come across at all. Number one. Number two, in fact, we also have orders with our customers, which really help us to pass through something which comes on our P&L. So our contract with customers also allowed us to even pass through if at all there is any impact. However, the current duty announcement really does not qualify for that because it does not impact our commercial and our costing. But if at all, there are future impacts, which may directly come across, we should be even able to pass through our contracting strategy, number one. Number two, if you look at the U.S. capacity of 1.6, which is operational and 1 gigawatt acquired 1.6 gigawatt under construction, our estimation is that all the two capacities acquired as well as under construction should be operational by mid of this current calendar year.

Our next question comes from the line of Sweta Jain from Anand Rathi Shares and Stock Brokers Limited.

Just couple of questions. One on the order book traction that we witnessed after the volatile situation that's happening with the tariffs. I understand 12 months YoY comparison looks good. And also excluding the 1 gigawatt HJT line acquisition that we did. If you can throw some color on that specifically?

Sure, Sweta. So as you rightly said that order book strength shows the strength of the continuous order inflow from U.S. customers as well as from the local customers. When we started this year our order book was in the range of INR 40,000 crores plus cumulative order book. As we as we did our last earning call, it was in the range of INR 60,000 crore. So certainly a significant top order book growth despite a great top line as well. So this order book is net of dispatches that we have done in 9 months of this financial year. The 1 gigawatt HJT capacity that we acquired in Arizona, it's a facility, which is ready to use even for HJT modules as well as we have ability to even start TOPCon manufacturing also in the same facility, because majority of CapEx is common, which is utility and basic components. Only small changes that you need to do are small line, which is a smaller share of the overall Capex that you require. And since we got it within 20 million dollars the entire facility, I think this is much lower than the CapEx that we did for our earlier 1.6 gigawatt capacity in Texas. That way it is very much commercially helpful for us to better of our paybacks since the cost of CapEx is lower.

I absolutely agree on that. It's just how the structure is changing in terms of demand when you have all the incentives removed and this tariff structure impacting the U.S. demand scenario is what I wanted to understand. Fair enough on the order book. The second question I have, with this, do you think from an industry perspective the supply in the domestic markets would lead to pricing pressures now?

I think if you look at our strategy of distribution, our 9-month numbers, that roughly 1/4, 20% to 25% of our revenue are coming only from the retail counters. That's a very unique, I would say, distribution, which we really don't foresee others to convert. So that means our counter sales, which has been growing every passing year, should continue to thrive 20% to 25% of our revenues and that market to put here on the discussion is less agnostic to price. In fact that's a market, which pays a premium of 1 to 1 and a half tenth of every panel that we sell. So that's in fact a premium margin and growing every year. Secondly, the other chunk of our total revenue apart from 20% to 25% of retail is overseas customer, which includes exports from India and local manufacturing in U.S. Put together this market is around one-third of our total revenue, 30% to 35%. And which continues to again a premium market, which gives us better realizations and higher margins. Number three, a significant chunk of our revenue also comes from the service business, which is EPC and O&M, somewhere around 18% to 20% comes from this business, which is again a high margin business. So after putting all of these numbers on 100% revenue scale, around 70% of our revenues are coming from these three markets, which are high premium and market which have clearcut entry barrier. Like for setting up a retail network, which takes care of 1/4 of your revenue, it took us more than a decade to set up 580-plus retail stores and 4,000-plus distribution points in this country. Similarly, U.S. sale that you see today number, it took us around one and a half decade not just to crack, but to establish as a consistent supply in the U.S. market. And of course, the EPC business only works on PQ. If you have done a gigawatt worth of contract, then only you qualify for a 2 gigawatt single location contract, which we have been doing for our customers all across. So these three tough market, very difficult market to penetrate are the core markets that Waaree operate out of. Balance 30% to 35% you rightly said is a market, where price really matters. But good part that our order book currently covers up that particular market for next 12 to 18 months of time. So not much to worry. And as we have announced recent acquisitions, more products, which are coming to market like inverters, transmission distribution was announced a quarter back. And there are few small projects like transformers was also announced, T&D was announced. So all these product will also come up at scale in coming years, which will further diversify our revenue profile, our revenue strategy and our distribution channels as well. I hope I'm able to clarify.

Our next question comes from the line of Kuntal Shah from Oaklane Capital.

So I just wanted to reiterate that the 10% concessional duty applicable for cell source from neutral jurisdiction is applicable for [ CKA ] and CVD also, not only reciprocal alone, right? That is very clear. That current ADD and CVD are also mandating the same. And that the current order book, which we have won't be impacted in lieu of that?

Yes, so just you're -- so first of all you're absolutely right. However, just let me clarify what you have just stated. 10% concessional duty, we're not talking about any concessional -- concessions here. We're talking about what is the duty structures applicable in various countries, right? What we try to do is we go to a jurisdiction, which has low tariff rate, low duty rate. So there's no concession here, right? India, yes, till last year we were around that 50%, now we have gone up to 126%. So this duty will be applicable to any production of cell in India and from there on if we make a module and export to U.S., which obviously we will not do and we have not been doing it. We continue to look at jurisdictions, which will have lower tariff, it could range between 10% to 15%. And we will optimize our sourcing from these regions. This is one part. The second part of sourcing also takes into account, the traceability. The third part of sourcing will take into account FEOC that we said. So we have to source in U.S., for I mean for U.S. market, all the compliant raw materials, yes. So that's the basic philosophy. So Yes, for now not impacted.