Best Solar Stock: Websol Energy vs Insolation Energy

India is on track to become the world's energy giant, driven by its massive population and development potential. However, the country is taking a sustainable approach, aiming to meet its growing demand with clean, renewable sources.

This shift is already happening, with renewables set to spearhead over 90% of the global electricity generation expansion by 2025. India has set ambitious targets, including achieving net zero carbon emissions by 2070 and sourcing 50% of electricity from renewables by 2030.

Fuelled by ambitious government targets and falling technology costs, India's solar energy sector is poised for remarkable growth, anticipated to reach around US$ 238 Billion by 2030. Solar photovoltaics (PV) capacity is expected to triple by 2027, making it the dominant power source globally. A shift in global PV supply chains (from China to India), spurred by new policies in India and the United States, could drive significant solar manufacturing investment.

This thriving market is attracting significant investment, with both domestic manufacturing and international supply chains undergoing a major transformation.

Bearing this in mind, we delve deeper into this booming industry with an in-depth comparison between two prominent players: Websol Energy and Insolation Energy.

Background

Websol Energy

Websol Energy is a leading manufacturer of photovoltaic monocrystalline solar cells and modules in India.

The company went into business as a fully export-oriented unit catering to Europe (mainly Germany and Italy) and the US. It has amassed over two decades of industry experience and is renowned for its high-quality products. Websol offers a wide array of products ranging from 5 watts (W) to 220W, catering to the demands of home, commercial and industrial institutions.

In a significant move in 2022, Websol underwent a major overhaul, revamping its operations by scrapping old machinery and replacing its entire gross block with state-of-the-art solar cell technology.

The shift entailed moving to Monocrystalline Passivated Emitter Rear Cell (Mono PERC cells) using a different kind of wafer viz. monocrystalline wafer.

This strategic initiative aims to enhance efficiency and product quality. As part of this transformation, Websol is set to commission more than double its previous solar energy capacity in the first phase, complemented by a nearly equivalent increase in solar module capacity. These expansions are anticipated to come online at the outset of 2024.

Insolation Energy

Insolation Energy is a one-stop shop for all solar-related needs. The company boasts a lineup of premium, high-efficiency solar panels, alongside top-tier batteries and PC offerings. Additionally, it offers integrated engineering, procurement, and commissioning services (EPC), along with a suite of Original Equipment Manufacturing (OEM) services.

The solar PV modules manufactured by the company use both polycrystalline and Mono-PERC crystalline cell technology.

Presently, operating with a solar panel manufacturing capacity of 700 megawatts (MW), Insolation Energy is strategizing to elevate its capacity to 1200 MW, further solidifying its position in the market.

Revenue growth

Websol Energy vs Insolation Energy Revenue Growth(2019-2023)

	2019	2020	2021	2022	2023
Revenue (Rs m)
Websol Energy	858	2,064	1,579	2,178	202
Insolation Energy	647	888	1,627	2,155	2,594
Revenue growth (YoY)%
Websol Energy		140.50%	-23.50%	37.90%	-90.70%
Insolation Energy		37.20%	83.30%	32.40%	20.40%

Data Source: Ace Equity

Insolation Energy has reported a 5-year compounded annual growth (CAGR) of 38% in revenue. In contrast, Websol Energy's revenue has declined, attributed to a plant shutdown for asset upgrades. However, excluding 2023, Websol's revenue has more than doubled between 2019 and 2023. The company's strong relationships with customers have been instrumental in generating recurring orders, with over 45% of clientele having been associated with Websol for over five years.

Before the planned plant shutdown, Websol Energy was operating at a capacity of 250 MW, with plans to expand it by 8 times over the next 1-2 years.

Insolation Energy's revenue surge is driven by significant capacity expansion and a strong brand reputation built over the years. Beginning with a manufacturing capacity of 50 MW in 2017, Insolation Energy has now reached 250 MW and is set to quadruple to 1000 MW in 2024.

Profitability

EBITDA margin is a profitability ratio, which estimates the Company's operating profits with respect to the percentage of its overall revenues. The EBITDA margin highlights the earnings of the Company (prior to accounting for interest and taxes) on each rupee of sales.

Websol Energy vs Insolation Energy Profit Margins (2019-2023)

	2019	2020	2021	2022	2023
Operating Profit Margin (in %)
Websol Energy	15.1	-10.6	7	24.8	14.6
Insolation Energy	9	8.2	7.8	6.5	5

Data Source: Ace Equity

In the financial year 2023, Websol's operating margins dipped on account of a discontinuation of operations. However, the company's operating margin has been volatile, even before 2023, due to competitive intensity and the falling selling price per watt peak (Wp).

Although Insolation Energy's margins have been far more stable they have been much lower than Websol's. Insolation Energy's material costs as a percentage of sales, standing at 82% and 84% in financial years 2022 and 2023 respectively, have been significantly higher than those of Websol Energy, which were 60% and 69% in financial years 2021 and 2022, respectively. This discrepancy explains the disparity in margins between the two companies.

Expansion plans

Websol Energy and Insolation Energy are set to embark on an ambitious journey to enhance their capacity.

Insolation Energy has unveiled ambitious plans to significantly expand its manufacturing capacity in the coming years.

Insolation Energy is ramping up for a massive solar power push. By 2024, the company expects a 250MW capacity hike with advanced G2G tech, reaching 1,000MW overall and targeting Rs 6.3 bn in revenue. It's ambitions climb further: 1,200MW capacity by 2025 with Rs 10 bn revenue, plus a 600MW solar cell line.

By 2026, Insolation Energy envisions a giant 2,000MW capacity, aiming for Rs 20 bn in revenue and 1,000MW in sales, with it's cell unit contributing an additional 1,000MW capacity.

Websol Energy is embarking on a significant advancement by modernizing its entire existing infrastructure with cutting-edge technology. In the ambitious first phase, the company aims to more than double its solar energy production capacity, increasing from 250 MW to 500 MW, accompanied by a nearly equivalent rise in solar module production. This strategic expansion enables Websol to transition from solely manufacturing solar cells to producing complete solar modules.

Despite the substantial expansion of 600 MW in solar cell capacity and 550 MW in solar modules, Websol Energy has further plans. The company intends to utilize the cash flows generated from this phase to invest in the second phase, which will be established at a new manufacturing location. Anticipated to be three times the size of the first phase, this second phase marks another significant stride for Websol Energy.

Debt to Equity

This ratio measures the level of debt a company takes on to finance its operations or expansion, against the level of equity that is available.

Generally, a favorable debt-to-equity ratio is less than 1.0, while a risky debt-to-equity ratio is higher than 2.0.

Websol Energy vs Insolation Energy Debt to Equity Ratio (2019-2023)

	2019	2020	2021	2022	2023
Debt to Equity Ratio
Websol Energy	0.8	0.6	0.6	0.2	0.2
Insolation Energy	2.3	1.5	1.4	1.3	0.8

Data Source: Ace Equity

While Websol Energy enjoys a relatively low debt-equity, Insolation Energy has borrowed money to fund its massive expansion in the past decade. However, the company has been repaid a large part of its since its listing in 2022.

Dividend

The dividend is the income an investor can make from stocks, other than the appreciation in the value of the share.

Owing to the capital-intensive nature of the business, both companies do not distribute dividends to its investors.

Return on capital employed (ROCE)

Return on capital employed is one of the most meaningful indicators of a company's profitability and efficiency.

An excellent tool for analyzing returns of a capital-intensive industry like cement, it tells you the kind of money a company can generate on the total capital invested (shareholders equity plus borrowed money).

Websol Energy vs Insolation Energy Return on capital employed (2019-2023)

	2019	2020	2021	2022	2023
Return on capital employed (in %)
Websol Energy	-11.9	-4.5	38.2	7.8	-12.4
Insolation Energy	24.4	29.4	31.5	27.6	16.3

Data Source: Ace Equity

While Websol Energy's returns have been volatile, in line with its margins, Insolation's returns have been stronger and steadier.

Valuation

The most common and effective ratios for comparative analysis and valuation are the Price to Earnings (PE) and Price to book (PB) value ratios.

While the PE ratio uses the company's earnings to determine the value a shareholder assigns against one rupee of earnings; the PB ratio uses a company's book value to determine the same.

Websol Energy vs Insolation Energy Valuation Ratios

	P/BV Ratio	5-year average P/BV	P/E Ratio	5-year average PE
Websol Energy	9.5	1.5	58.9	10.9
Insolation Energy (Since November 2022)	52.9	22.3	170	31.3

Data Source: Ace Equity

The PE and PB ratios for Websol Energy are at 58.9x and 9.5x, respectively. For the last 5 years, the average is 10.9x and 1.5x, respectively.

For Insolation Energy, the PE and PB stood at 170x and 52.9x, respectively. Since its listing in November 2023, the average is 31.3x and 22.3x, respectively.

Websol Energy and Insolation Energy, both are trading at a strong premium to their historical average, indicating the stocks might be overvalued at the moment.

Bright Prospects

The excitement around solar companies has been on the rise after Prime Minister Modi unveiled a new scheme to electrify 10 million (m) households with solar power.

The government has been proactively supporting the solar sector through earnest policy reforms and budgetary allocations.

A substantial amount of Rs 195 billion (bn) was allocated for the Production Linked Incentive (PLI) scheme, aimed at boosting the manufacturing of high-efficiency solar modules. For instance, the government has rolled out the Production Linked Incentive Scheme (PLI) as part of the National Programme on High-Efficiency Solar PV Modules.

This initiative, backed by an investment of Rs 240 bn, aims to propel domestic manufacturing, establishing India as a formidable force in solar energy.

In the first phase (Tranche-I), the PLI has already boosted the integrated capacity by 8,737 megawatts (MW). Moving forward to Tranche-II, 11 companies have been allocated a combined manufacturing capacity of 39,600 MW for domestic Solar PV modules.

This injection of Rs 930 bn into the sector is set to create over 100,000 direct and indirect employment opportunities.

Apart from this, the Solar Park Scheme aims to establish over 50 solar parks, each with a capacity of 500 MW or more, totalling around 38 GW by 2025-26. These parks serve as focal points for solar energy generation, attracting investments and facilitating the growth of solar power.

By achieving economies of scale, they make solar energy more cost-effective and accessible.

The solar PV module supply chain is currently dominated by China, with over 80% share in manufacturing capacity across polysilicon, wafer, cell, and modules. Even a modest 10% supply shift away from China would empower the Indian solar energy sector to address a landmark opportunity.

The government is also helping curb imports from China, thanks to the PLI scheme, the expanding solar manufacturing sector and the 'Make in India' initiative.

The Indian module manufacturers have benefited from the healthy export demand growth, mainly from the US, over the past 18 months. The exports increased by over 364% in the financial year 2023 over 2022 and further by 748% in the first five months of 2024 over the corresponding period of the previous year. This is owing to the healthy demand from the US and restrictions imposed by that country on module-sourcing from China.

The policy interventions and the potential for substantial savings for households, the solar sector is poised for remarkable growth.

Websol Energy or Insolation Energy: Which is better?

Insolation Energy currently holds the upper hand against Websol Energy across several key parameters. Their financial performance indicates stronger revenue growth and higher operating margins, suggesting greater operational efficiency.

While both companies have reported ambitious growth plans going forward, Insolation's have been more pronounced. Both maintain healthy balance sheets, positioning them well to capitalize on the industry's growth.

However, the recent run-up in the stock prices of Insolation Energy Websol indicates investors have already factored in the bright prospects.

Still wondering which is better?

Use our feature-rich comparison tool, which draws a detailed comparison between any two companies.

This tool also includes a graphical analysis making it easy for you to see trends!

For a more detailed analysis, check out the Websol Energy factsheet and Insolation Energy factsheet.

You can also check out the latest quarterly result for Websol Energy and Insolation Energy.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...