An increase in renewables stocks of 5,800% has some Indian investors alarmed

An increase in renewables stocks of 5,800% has some Indian investors alarmed

An increase in renewables stocks of 5,800% has some Indian investors alarmed

The largest stock winners in India's renewable energy space are now confronted with the issue of very low profits, which have caused valuations to soar.

Over the last two years, India's renewable energy equities have had a stratospheric climb as ordinary purchasers flocked in, but there are warning indications associated with their inflated valuations.

The stock of SG Mart Ltd., a solar and wind energy generator situated in Gujarat, has increased by more than 5,800%.CE November 2021 - Gensol Engineering Ltd. gained more than 3,200%, Zodiac Energy Ltd. gained 1,000%, as well as Waari Renewable Technologies Ltd. gained more than 1,800% during the same period that Prime Minister Narendra Modi implemented that India aims to boost clean energy to a little less than two-thirds of the total capacity.

PPFAS TestRajeev Thakkar, chief investment officer of T Management Pvt Ltd. Ltd., said over the phone that "people are following the hype cycle rather than the fundamentals." He said, "We as a have not invested in stocks; we only have a look at space," pointing to some of the industry's lower than average return percentages.

A reality check is now being applied to the local stock market's increasing share values, as increased manufacturing capacity has put pressure on prices and profits, which have been struggling to keep up with increases. Similar to a previous U.S. boom that resulted in skyrocketing values before to a collapse, the GS U.S. Renewables Basket, which tracks firms gaining from the shift to renewable energy, has dropped 43 percent from its peak in February 2021.

This month, the cost of solar modules dropped to all-time lows, compelling TCL Zhonghuan Renewable Energy Technology Co., a significant Chinese equipment manufacturer, to issue a profit warning last week.

Lara Heim and Jenny Chase of BloombergNEF said in a note that "failing prices across the solar supply chain in China and in Southeast Asia is going to frustrate onshoring ambitions in Europe, India, and the US." He said that while installations are increasing, some manufacturers would experience a loss this year.

"Crazy" evaluation

The largest stock winners in India's renewable energy space are now confronted with the issue of very low profits, which have caused valuations to soar.

For instance, according to statistics published by Bloomberg, SG Mart's market value is $720 million, despite the company reporting net sales of 15.6 million rupees ($190,000) and net profits of 2 million rupees in the most recent full financial year. The company's founders, retail and rich investors, purchased a portion of SG Mart during the boom. Vari Renewables and Gensol have comparable trends.

Vaari Renewable and SG Mart now have price-to-book values that are more than three times higher than the Nifty 50 index, at 99 and 87 times trailing 12-month earnings, respectively.

Retail investors, who are classified as those having assets under Rs 200,000, have raised their holdings in the majority of the top gainers over the last 12 months, including Waari Renewable, Gensol, TaylorMade Renewable, and Zodiac Energy. according to the most recent filing.

Amit Doshi, portfolio manager of Care Portfolio Managers Pvt Ltd, said, "I don't think consumers are doing the right thing by chasing stories." "It becomes challenging to earn outstanding profits if you pay your companies more than the odds," he said. Doshi and other institutional investors have mostly avoided some of the sector's biggest successes because to their unstable valuations and poor free floats.

Undoubtedly, the sector has a lot of room to develop given that the government spends billions of dollars via state-owned businesses, offers incentives for the production of different types of renewable technology, and promotes the use of electric cars. On Thursday, Nirmala Sitharaman, the minister of finance, also unveiled financial plans to encourage the usage of renewable energy. However, the hazards for these tiny stocks could be too high to overlook.

Aniket Shah, head of global ESG at Jefferies Group LLC, located in New York, remarked that he is "up at night" about the sluggish development in new capacity additions and the lack of cooperation from Western nations on finance and technology transfer."Investors "will need to be rewarded for it," he added, since they are taking significant risks with technology and client demand.