There is no stopping Initial Public Offerings (IPOs) from solar firms. If 2024 was all about Premier Energies, Waaree Energies, Acme Solar and NTPC Green among the big ones, 2025 has a line up of firms from an ever-widening circle. Vikram Solar has already been listed, even as Saatvik Solar’s issue has been fully subscribed. Add to that impending IPOs from Emmvee, Cleanmax, Prozeal and others, and 2025 could be bigger than 2024 by the time March-end nears. If investors face any problems picking the right ones to invest in, it’s not obvious, considering how all issues have been oversubscribed until now. 

In fact, between Saatvik Solar, GK Energy, Cleanmax, Prozeal Energy, Juniper Green Energy, Emmvee, PMEA Solar Tech, Solarworld Solutions, Rayzon Solar, Goldi Solar and more, investors are probably moving towards too many choices. With well over Rs 15,000 crores set to be raised by these firms, investors could do with all the information they can get to make an informed decision.

This primer from SaurEnergy goes beyond the obvious caveats like avoiding IPOs with a high offer for sale share, where the promoters are selling their own shares. Or where proceeds are likely to be used mostly to retire debt or even meet working capital requirements. Consider this a primer on how the sector is divided into different types of firms, and the relative advantages and challenges these face. It will hopefully help you make a more informed call in time. For there might be many questions, but there is zero ambiguity that the sector will throw up many opportunities, and the inevitable sorting of winners from laggards. 

We haven’t touched upon the many firms that have listed on the SME  exchanges, for the simple reason that those are smaller stocks that offer limited liquidity and have a higher investment threshold, making them more volatile and risky. Firms like Insolation Energy have delivered blockbuster returns there, but with high volatility.

Understanding The Sector

Starting investors should know that there are three broad categories of firms within solar and renewables that are going for IPOs. Developers, EPC Firms, and Manufacturers. All three categories have their own sector dynamics and players, although India is one of the most unique markets globally, where the overlap between the three is probably the highest. Not really surprising when you have the kind of boom across the supply chain that we have in India. So the argument for core competency at least has to be ignored in the market for now. 

So you have a developer like ReNew Global (listed at NASDAQ), also into manufacturing, or a manufacturer like Waaree Energies and many others also having EPC arms. Other privately held developers like Avaada have also entered manufacturing. And then, of course is the Adani Group, through the listed Adani Green (developer), and in manufacturing under Adani Enterprises. Reliance Energy’s much-anticipated entry into the market will also be across manufacturing and development of massive projects, with some perhaps happening through their EPC investment, Sterling and Wilson Renewable Energy.

Nothing illustrates the different dynamics perhaps like the returns seen in IPOs, where the developers, namely NTPC Green and Acme Solar, probably aimed too high, and have struggled to deliver returns. Even as the manufacturers have enjoyed a strong show, until the recent one by Vikram Solar. 

Developers

These are the firms that need capital, lots of it. As they bid for large tenders released by entities ranging from centrally owned entities like Solar Energy Corporation of India (SECI), to state-level corporations and discoms. Projects won typically take 18 to 36 months to be completed, or longer, making proper planning critical to margins. Developers have to make the really tough long-term calls on direction of future costs, picking the right EPC, the right equipment, customers and then hoping it all works out well.    

There are little to no pure play solar developers now, as the market has evolved to include Hybrid (Solar +Wind) and solar plus storage projects today. Critical segments like the C&I (Commercial and Industrial) that offer better margins in general also demand more hours of green energy, driving the firms that service those to expand into wind, and battery storage, and even Pumped Storage (PSP) to ensure they can deliver.

Readers will be able to see that listed developers like Adani Green, NTPC Green and Acme Solar have all had little to steady movement in the past 12 months, mainly due to a better understanding of their business. But in general, all these firms enjoy a higher valuation than global peers, which will continue to drive more firms to seek a listing. Other firms like Tata Power, SJVN and JSW Energy are all adding on green energy in their portfolios, making them a good bet for investors as well to track the sector. Lower risk, lower returns will mark out a good developer for you.  

Advantages:Developers offer low to middling returns, with the benefit of a much higher level of predictability. As they will usually have 25-year PPAs in place for the power they generate, the better ones sweat their assets by selling on power exchanges as well. Most of the big developers in India today have portfolio sizes of 2.5 GW and more, with Adani Green leading the pack at over 16 GW. All have ambitions to scale up by 3x to 5X or higher over the next 5-7 years, providing a clear opportunity for steady or higher growth if the firm can execute well. The rise of corporate demand for green energy offers up a new segment with better margins, where many developers have shifted focus to, or even dedicated themselves to. 

Disadvantages:Typical of large projects, the risks of something going wrong are higher for these players. From volatile prices of key inputs like solar modules (one reason many got into manufacturing themselves), payment delays from state-level entities in particular, and of course, execution delays linked to tying up financing, land acquisition, or even extreme climate events. 

At over 4 acres per MW, keep in mind that solar projects are spread out over vast areas and have a significant impact on their surroundings. Locals who don’t feel it has all been positive can cause serious damage or delays, as we are beginning to see in many areas, including Rajasthan.  

Watch Out for: Experience, including track record of timely completion, share of central government PPAs, debt levels, And CUF trends of projects commissioned. Increasingly, developers with BESS projects will benefit from better margins, as the classic solar only model wilts under competition and limited avenues for offtake. State level contracts with discoms in Tamil Nadu, UP or Maharashtra, the states that account for over 50% of discom losses, needs attention too. 

EPC Players

Perhaps no other segment of the solar supply chain has provided investor excitement like the leading solar EPC players. From Sterling and Wilson Renewable Energy Limited (SWREL) to KPI Green Energy or Waaree Renewable Technologies Limited and others, most of the solar EPCs have had a roller coaster ride that has drawn in investors to the sector, and left many disappointed in their price movements as well. While Waaree RTL and KPI are well off their highs of 2023-24, Sterling and Wilson has been disappointing, dogged by the bad luck of issues like module price volatility during the pandemic, and the inability of its promoters to settle outstandings owed to the firm. 

Firms have, of course, learnt their lessons, and the outlook for EPCs remains strong for now, with bulging order books, large project execution capabilities, and new segments like storage to look ahead to. 

Advantages: Where EPCs have group firms in the manufacturing side of the business, they can control costs better. Although which firm takes the margin hit is anyone’s guess. Then there are others like Solar pump firms Oswal Pumps and Shakti Pumps, which have and plan to have their own module manufacturing as well. The former is enjoying better margins due to its own modules, even as Shakti Pumps has actually been constrained by module availability in previous quarters. 

Most target and manage double-digit margins, probably capped at under 20%, offering clear visibility on growth and profits. For now, there is no shortage of opportunities, with 300 GW of green energy led by solar to be added over the next 5 years. With over 125 GW of solar projects already up and running, a new revenue stream in O&M contracts is opening up, providing a more predictable revenue stream than the lumpy nature of contract payments. The C&I segment offers a strong opportunity for captive projects now for EPCs as well.   

Risks:Once started, projects are typically completed in six months to 15 months, making the ability to muster a skilled workforce and handle them well enough vital. EPCs also carry the liability of plant maintenance for 3-5 years, where many have tripped up due to poor quality. Payment disputes, like all large contracts, are not uncommon and can be a drag on cash flows. Access to working capital financing can be vital and has a huge impact on margins. As most expand to storage projects as well, there will be a learning curve to handle them as well for many. 

Watch Out for: Rate of execution of contracts, contract disputes if any, debt levels, and senior management churn at project execution levels. High dependence or concentration of revenues from a single customer is also something to watch out for, as in some cases, this can go as high as over 80% as seen for Solarworld Energyworld and its dependence on SJVN. EPCs venturing into turning IPPs as well is a mixed sign, as it can frequently be due to a project where the EPC is forced to take over due to cancellations or payment delays. 

Manufacturers

The segment that has been the most visible on the bourses in the past year or more, solar manufacturers have not disappointed investors, with most delivering healthy returns since their listing. Led by Waaree Energies, which was up almost 100% on its IPP price to Vikram Solar recently, which hit a high of over Rs 400 vis-à-vis an issue price of Rs 332, before settling down to current levels. The good news is that the industry is well represented by the leading players, be it Waaree Energies, Premier Energies, or Vikram Solar recently. That will ensure a high degree of transparency and benchmarks for investors to compare firms on. 

Advantages:Few sectors have enjoyed the kind of government attention and protection that solar manufacturing has since 2020. Starting with a safeguard duty, later changed to customs duty as high as 40%, to strong non-tariff barriers like the Approved List of Module Manufacturers (ALMM) which has kept out almost all foreign firms other than First Solar from the US, to DCR (Domestic content requirement) mandates for most government backed projects, the market has acknowledged these advantages with amazing valuations for manufacturers. On a like-for-like basis, Indian manufacturers enjoy a valuation premium of over 4X-5X on Chinese firms, which happen to be larger, more efficient and in many cases, suppliers to these firms.  Most of the top 10 Indian manufacturers have strong order books that cover at least a year’s worth of production or more, and are expanding furiously to keep in touch with changing policies (more on this in risks). Margins have been more than healthy, ranging from14% to over 25% for most, ensuring high profitability.

THE INDIA PREMIUM- How Long Will it Last?

Risks:

As any investor should know, anything with such a high government involvement comes with its share of risks in India, or any other market for that reason. What the government giveth, it taketh away when the tide turns. While there is no imminent risk to the removal of these protections, if Indian manufacturers do not bridge the gap between their output and Chinese imports to some extent, it is likely to make the government very unhappy about the higher cost for consumers here. Or should, one imagines. That could mean tweaks in policy to place more pressure on them. 

Add to that the ongoing push for more backward integration, in the form of an ALMM for domestically made cells from June 2026, and a proposed ALMM for wafers and ingots by 2028. While the industry has adjusted well to the demand for ALCM in 2026, the wafers and ingots push seems a little premature, to say the least. Not only are the two, which have been linked together by the government, not really related in a manufacturing sense, but it is even more complex than cell manufacturing. Even in China, firms rarely make both. Dependence on China remains high for manufacturing equipment as well and training, which will always be a factor in expansion plans.

Watch out for: Size (the bigger the better), announcements versus actual expansion, plans for cell manufacturing, proximity to ports, and ability to scale up. Keep in mind that most manufacturers beyond the top 5 have scaled up from nothing or next to nothing (sub 500 MW capacities) to GW-sized scale in less than 2 years. That will bring its own challenges in manufacturing, marketing and managing a larger workforce, something many driven, hands-on entrepreneurs can struggle with.

Conclusion

If you look at the commentary from leading brokerages, the bias is clearly towards the largest players in terms of recommendations. These happen to be the more integrated players with better access to capital, higher profits and high promoter stakes. That is natural. However, many PE-led firms will be hitting the markets where professional managements will be tested as well, as these are capable of delivering superior returns with a focused approach. We reiterate that as the manufacturing side heads for overcapacity by 2027-28, the larger EPCs too will need to pull off increasingly sophisticated projects with BESS integration by 2028. Developers of course, will need to get their calculations just right, as errors can compound over the 25-year contracts most sign up for. The point being, even as larger firms have advantages, a few smaller firms will deliver based on agility, innovation and bigger risks that pay off. For that, take a long, hard look at management.