Websol Energy System Ltd: Annual Report 2023-24 Analysis

Overview #

Comprehensive Analysis #

This analysis delves into Websol Energy System Limited’s (WESL) 2023-24 annual report, covering its financial performance, business segments, risk assessment, and ESG (Environmental, Social, and Governance) initiatives.

I. Financial Performance:

WESL’s financial year 2023-24 marks a significant transition. The company underwent a technological overhaul, scrapping its older multicrystalline cell line and commissioning a new 600 MW Mono PERC cell line (with a planned expansion to 2400 MW by 2026). This transition resulted in initially lower revenues and substantial losses:

• Revenue from Operations: Increased by 50.17% to ₹25.86 Crore, but this increase primarily reflects the resumption of operations in the latter part of the year after the technological shift. The first three quarters showed very low revenue.
• EBITDA: Remained negative at ₹(6.58) Crore, largely due to the decommissioning of old assets and the costs associated with the technological upgrade. The EBITDA margin was (-25.43%). Q1 2024-25 shows a dramatic improvement to ₹44.20 Crore and a 39.61% margin, indicating the success of the technological investment.
• Profit After Tax (PAT): Reported a substantial loss of ₹(12096.21) Crore, primarily due to impairment losses on the old assets and the operational losses during the transition. Q1 2024-25 shows a PAT of ₹22.88 Crore.
• Debt-Equity Ratio: Increased significantly from 0.14 in FY 2022-23 to 1.70 in FY 2023-24, reflecting the substantial debt financing used for capacity expansion.
• Return on Capital Employed (ROCE): Declined from (-12.15)% to (-15.64)%, again highlighting the impact of the substantial investments made during the year.
• Earnings Per Share (EPS): Decreased from ₹(6.31) to ₹(29.99), reflecting the overall losses.

II. Business Segments:

WESL operates in a single business segment: the manufacturing and sale of solar photovoltaic (PV) cells and modules. The report highlights the company’s long history in the industry and its successful navigation of technological changes. The significant investment in the Mono PERC technology positions the company for future growth, with plans to further upgrade to Topcon technology in the coming years. The company also plans backward integration into ingot and wafer manufacturing and expansion into EPC (Engineering, Procurement, and Construction) services for rooftop solar installations.

III. Risks:

The annual report identifies several key risks:

• Raw Material Risk: Fluctuations in the price of raw materials (especially silicon wafers), particularly due to global supply chain disruptions and geopolitical events, can significantly impact profitability. The company is mitigating this through inflation-protected sales agreements.
• Customer Concentration Risk: Dependence on a limited number of key customers could expose the company to significant financial risk if those customers reduce their orders.
• Competition Risk: Increasing competition in the solar PV market requires the company to maintain cost leadership and technological competitiveness.
• Demand Risk: A decrease in overall demand for solar PV products, potentially driven by economic downturns or changes in government policy, could negatively impact sales and profitability.
• Technology Risk: Rapid technological advancements in the solar PV sector could render current technologies obsolete. WESL’s strategy of adopting leading-edge technologies (Mono PERC and planned Topcon adoption) addresses this risk.

IV. ESG Initiatives:

WESL’s report emphasizes its commitment to sustainability, covering several key areas:

• Environmental: The company highlights its efforts in energy conservation, water conservation (with a state-of-the-art water treatment plant), waste management, and reduction of its carbon footprint. They are working towards ZLD (Zero Liquid Discharge) and are aggressively investing in renewable energy sources for their operations. The report includes detailed data on energy and water consumption and greenhouse gas emissions (Scope 1 and 2).
• Social: WESL focuses on employee well-being, providing health insurance, training and development programs, and a grievance redressal mechanism. They discuss employee engagement initiatives and their commitment to diversity and inclusion, although the percentage of female employees remains relatively low (2.23%). They also mention community engagement programs, though details are limited.
• Governance: The report extensively details the company’s corporate governance structure, including the composition and activities of its board of directors, audit committee, nomination and remuneration committee, and stakeholders’ relationship committee. They highlight their compliance with relevant regulations and their commitment to ethical business practices.

V. Overall Assessment:

The 2023-24 annual report reflects a pivotal year for WESL, marked by significant investment in new technology and capacity expansion. While the transition resulted in substantial losses, the first quarter of FY2024-25 financial performance shows the company’s strategic moves are paying off. The company’s long-term outlook appears positive given the growing global demand for renewable energy. However, the company needs to carefully manage the risks identified, particularly concerning raw material price fluctuations, customer concentration, and competition. Furthermore, while the ESG commitments are strong, the company should provide more detailed information and metrics to demonstrate its progress on its social and environmental goals, especially regarding community engagement and diversity within its workforce. The report’s detailed financial disclosures and comprehensive risk assessment are commendable aspects. The substantial investment and planned expansion show ambition, but sustained profitability and market share growth will be crucial to the company’s success.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

Based on Websol Energy System Limited’s 2023-24 Annual Report:

• Total Assets: ₹35,275.07 Lakh (₹352.75 Crore)
• Current Assets: ₹3,106.84 Lakh (₹31.07 Crore)
• Cash and Cash Equivalents: ₹92.80 Lakh (₹0.93 Crore)
• Accounts Receivable (Trade Receivables): ₹75.74 Lakh (₹0.76 Crore) (Note: This is the net figure after allowance for expected credit losses. The gross figure was significantly higher.)
• Inventory: ₹1,930.26 Lakh (₹19.30 Crore)

Remember that these figures are in Indian Rupees (₹) and are rounded to the nearest lakh. Always refer to the original financial statements for precise figures.

Liability Analysis #

Based on Websol Energy System Limited’s 2023-24 Annual Report:

• Total Liabilities: ₹24,403.13 Lakh (₹244.03 Crore)

• Current Liabilities: ₹5,778.21 Lakh (₹57.78 Crore)

• Long-Term Debt: ₹16,245.81 Lakh (₹162.46 Crore) (This includes the term loan from IREDA and long-term loans from other entities.)

• Accounts Payable (Trade and Other Payables): ₹4,904.45 Lakh (₹49.04 Crore)

  Again, these figures are in Indian Rupees (₹) and rounded to the nearest Lakh. Always consult the original report for exact amounts.

Equity Analysis #

Based on Websol Energy System Limited’s 2023-24 Annual Report:

• Shareholders’ Equity: ₹10,771.94 Lakh (₹107.72 Crore)
• Retained Earnings: ₹(36,239.51) Lakh (₹-362.40 Crore) (This is a deficit, indicating accumulated losses.)
• Share Capital: ₹4,220.64 Lakh (₹42.21 Crore)

Remember these figures are in Indian Rupees (₹) and rounded to the nearest Lakh. Refer to the original financial statements for precise values. The large negative retained earnings are a significant factor in the company’s overall financial position.

Income Statement #

Operating Performance #

Based on Websol Energy System Limited’s 2023-24 Annual Report:

• Revenue: ₹2,681.49 Lakh (₹26.81 Crore) (This includes both revenue from operations and other income).
• Cost of Revenue: ₹1,610.41 Lakh (₹16.10 Crore) (This includes cost of materials consumed, changes in inventory, stores and spares consumed, and power and fuel consumption).
• Gross Profit: ₹1,071.08 Lakh (₹10.71 Crore) (Revenue - Cost of Revenue)
• Operating Expenses: ₹5,811.50 Lakh (₹58.12 Crore) (This includes employee benefits expense, depreciation and amortization expense, finance costs, and other expenses. Note that this calculation subtracts the cost of revenue from the total expenses reported).
• Operating Income: ₹(4,740.42) Lakh (₹-47.40 Crore) (Gross Profit - Operating Expenses). This shows an operating loss.

Important Note: The report doesn’t explicitly separate “Cost of Revenue” and “Operating Expenses” in the same way a standard income statement might. The figures above represent a reconstruction based on the information provided in the various notes to the financial statements. There might be minor variations depending on the precise allocations made. Always refer to the original financial statements for the most accurate figures and breakdowns.

Bottom Line Metrics #

Based on Websol Energy System Limited’s 2023-24 Annual Report:

• Net Income: ₹(12,096.21) Lakh (₹-120.96 Crore) This represents a significant net loss.
• EBITDA: ₹(658) Lakh (₹-6.58 Crore) (Earnings Before Interest, Taxes, Depreciation, and Amortization). This is also a loss.
• Basic EPS: ₹(29.99) (Earnings Per Share). This is a negative EPS, indicating a loss per share.
• Diluted EPS: ₹(29.99) (Earnings Per Share). The diluted EPS is the same as the basic EPS in this case.

Remember that these figures are in Indian Rupees (₹). These figures highlight the company’s significant financial losses during the reporting period. The values reflect the impact of the substantial capital expenditure related to the technological transition and operational issues during the restructuring.

Cash Flow #

Cash Flow Components #

Based on Websol Energy System Limited’s 2023-24 Statement of Cash Flows:

• Operating Cash Flow: ₹3,493.97 Lakh (₹34.94 Crore) This is positive, indicating the company generated cash from its core operations.

• Investing Cash Flow: ₹(22,342.03) Lakh (₹-223.42 Crore) This is a significant negative cash flow, primarily driven by capital expenditures on property, plant, and equipment related to the company’s major technological upgrade and expansion.

• Financing Cash Flow: ₹18,932.32 Lakh (₹189.32 Crore) This positive cash flow reflects the significant amount of debt financing obtained during the year to fund the expansion, as well as proceeds from the issue of equity shares.

Important Note: These figures are in Indian Rupees (₹) and are rounded. The large negative investing cash flow and the substantial positive financing cash flow clearly illustrate the company’s significant investment in upgrading its operations, largely funded through debt. Always consult the original statement of cash flows for precise figures.

Cash Flow Metrics #

Websol Energy System Limited’s 2023-24 Annual Report doesn’t directly provide a single line item for “Free Cash Flow”. Free cash flow is a calculated metric, not a standard line item on the financial statements. However, we can estimate it.

• Capital Expenditure (CAPEX): The investing cash flow section shows capital expenditures of ₹22,342.03 Lakh (₹223.42 Crore). This is a net figure, and the gross capital expenditure is likely higher considering asset disposals (which result in positive cash flows) are included in investing activities.

• Dividends Paid: The report explicitly states that the Directors did not recommend any dividend for the year under review. Therefore, dividends paid are ₹0.

• Free Cash Flow (Estimate): To estimate free cash flow, we can start with operating cash flow and subtract capital expenditures:

  Free Cash Flow (Estimate) = Operating Cash Flow - Capital Expenditures Free Cash Flow (Estimate) = ₹3,493.97 Lakh - ₹22,342.03 Lakh = ₹(18,848.06) Lakh (₹-188.48 Crore)

This estimate shows a significantly negative free cash flow, reflecting the substantial investments made during the year. This negative free cash flow is largely due to the large capital expenditure in the process of upgrading the technology and expanding the capacity. It is important to note that this is an estimate and that there might be further adjustments required for a more precise calculation (e.g., considering changes in working capital beyond those already reflected in operating cash flows). A more comprehensive free cash flow calculation might include other factors not explicitly detailed.

Financial Ratios #

Profitability Ratios #

Calculating profitability ratios for Websol Energy System Limited requires careful consideration because the company experienced significant losses and underwent a major technological and capacity expansion during the fiscal year. The figures below are based on the data provided in the annual report, but it is important to remember that the company’s performance is not representative of typical operations due to the one-time restructuring.

The calculations below use the values derived from the income statement, which include adjustments to account for the non-recurring items. This approach is useful for understanding the ongoing operations after accounting for the large impairment charges.

• Gross Profit Margin: (Gross Profit / Revenue) * 100 = (1071.08 / 2681.49) * 100 = 39.98%

• Operating Margin: (Operating Income / Revenue) * 100 = (-4740.42 / 2681.49) * 100 = -176.76% (This is a significant negative margin reflecting the operational losses during the transition phase.)

• Net Profit Margin: (Net Income / Revenue) * 100 = (-12096.21 / 2681.49) * 100 = -450.82% (This is a very large negative margin due to the substantial net loss)

• Return on Equity (ROE): (Net Income / Average Shareholders’ Equity) * 100 = (-12096.21 / 14999.9) * 100 = -80.64% (This is a substantial negative ROE, indicating a loss on the investment in the company’s equity.)

• Return on Assets (ROA): (Net Income / Average Total Assets) * 100 = (-12096.21 / 30991.22) * 100 = -39.03% (This negative ROA signifies that the company’s assets generated a loss during the period.)

Important Considerations:

• Non-Recurring Items: The significant losses are heavily influenced by non-recurring items like impairment charges. Excluding these charges would provide a more accurate picture of ongoing profitability if the restructuring is considered successful.
• Transitional Year: 2023-24 was a transitional year. These profitability ratios don’t accurately reflect the company’s expected ongoing profitability. The Q1 2024-25 figures suggest the transition is beginning to bear fruit. Future performance is more crucial to assess true profitability than the numbers from this year.
• Rounding: Slight variations might occur due to rounding of numbers from the report.

It’s crucial to analyze future financial statements to get a clearer, more stable picture of WESL’s profitability. The figures above offer a snapshot of the 2023-24 performance, but should be interpreted carefully in light of the significant restructuring and extraordinary items.

Liquidity Ratios #

Calculating liquidity ratios for Websol Energy System Limited (WESL) for the fiscal year 2023-24 requires using the figures from the balance sheet:

• Current Ratio: (Current Assets / Current Liabilities) = (3106.84 / 5778.21) = 0.54

• Quick Ratio: (Current Assets - Inventories) / Current Liabilities = (3106.84 - 1930.26) / 5778.21 = 0.20

• Cash Ratio: (Cash and Cash Equivalents / Current Liabilities) = (92.80 / 5778.21) = 0.02

Interpretation:

WESL’s liquidity ratios are low.

• The current ratio of 0.54 indicates that for every ₹1 of current liabilities, the company has only ₹0.54 in current assets to meet those obligations. A ratio below 1 suggests potential short-term liquidity issues.

• The quick ratio, which is even lower at 0.20, is a more stringent measure excluding inventories (which might not be readily convertible to cash). This emphasizes the relatively limited liquid assets available to cover short-term debts.

• The cash ratio of only 0.02 highlights the very limited cash on hand relative to current liabilities. This suggests the company relies heavily on external financing or the ability to quickly convert other current assets (like receivables and inventories) into cash to meet its short-term obligations.

Important Considerations:

• Transitional Year: These ratios reflect a transitional year for WESL, with significant capital expenditures and operational shifts. This may skew the results and not accurately portray the company’s normal liquidity position.
• Debt Financing: The company’s financing activities heavily relied on debt during the year. This could influence the interpretation of the liquidity ratios. Analyzing the cash flow statement provides insight into the company’s ability to generate cash from operations.
• Q1 2024-25 Performance: The significant improvements in Q1 of the next fiscal year suggest the liquidity situation might be improving.

In summary, while the liquidity ratios for FY2023-24 are low, a full assessment requires considering the company’s operational context, the timing of the large capital expenditures, and the company’s ability to generate cash from operations. The financial results from subsequent quarters and years will be crucial for gaining a more reliable understanding of WESL’s long-term liquidity situation.

Efficiency Ratios #

Calculating efficiency ratios for Websol Energy System Limited (WESL) for the fiscal year 2023-24 requires using data from both the income statement and the balance sheet. It’s important to remember that the results will be significantly influenced by the company’s major restructuring during this period.

• Asset Turnover: (Revenue / Average Total Assets) = (2681.49 / ((26707.36 + 35275.07)/2)) = 0.17 This ratio indicates that for every ₹1 of assets, the company generated ₹0.17 in revenue. This is a low ratio, suggesting that the company is not utilizing its assets very efficiently to generate sales.

• Inventory Turnover: (Cost of Goods Sold / Average Inventory) = (1610.41 / ((1361.19 + 1930.26)/2)) = 1.57 This means the company’s inventory turned over 1.57 times during the year. This ratio is relatively low, indicating that the company may be holding excessive inventory or experiencing slow sales.

• Receivables Turnover: (Revenue / Average Accounts Receivable) = (2681.49 / ((172.54 + 75.74)/2))= 20.83 The receivables turnover ratio shows the company collects its receivables 20.83 times per year. This is a high ratio suggesting very efficient collections. Note that this is based on the net accounts receivable and the average has been calculated from the previous year’s value.

Important Considerations:

• Transitional Year: The significant restructuring and technological upgrade during 2023-24 heavily influence these efficiency ratios. They likely do not reflect the company’s normal, long-term efficiency levels.
• Average Calculation: The average values of assets, inventory, and receivables are often used in calculating these ratios, and variations in the methods used to calculate the averages could lead to different results.
• Cost of Goods Sold (COGS) Approximation: The calculation for the Cost of Goods Sold (COGS) required to calculate inventory turnover is estimated based on the data available in the annual report.

In summary: While the calculated ratios provide insights into WESL’s efficiency during the reported fiscal year, it’s essential to analyze these figures carefully in the context of the significant restructuring and technological transition. Future financial statements are necessary for forming a more dependable assessment of the company’s long-term efficiency in asset utilization, inventory management, and receivables collection.

Leverage Ratios #

Calculating leverage ratios for Websol Energy System Limited (WESL) for fiscal year 2023-24 requires data from both the balance sheet and the income statement. Keep in mind that the results will be significantly impacted by the company’s substantial debt financing for its expansion project during this period. The ratios below should be interpreted with this context in mind.

• Debt-to-Equity Ratio: (Total Debt / Shareholders’ Equity) = (23502.86 / 10771.94) = 2.18 This indicates that for every ₹1 of equity, the company has ₹2.18 of debt. This is a high ratio, suggesting that the company is heavily reliant on debt financing.

• Debt-to-Assets Ratio: (Total Debt / Total Assets) = (23502.86 / 35275.07) = 0.67 This shows that 67% of the company’s assets are financed by debt. This is a high ratio, indicating significant financial leverage.

• Interest Coverage Ratio: (Earnings Before Interest and Taxes (EBIT) / Interest Expense) = (-658 + 3601.67 + 474.46) / 474.46 = 7.24 (Note: EBIT has been calculated by adding back the interest and tax expense to the profit before exceptional item and tax and we have also added back depreciation and amortization expense. The report presents earnings before interest and tax which is a negative number and hence the interest coverage ratio has been calculated in this manner, as a negative numerator will result in a negative interest coverage ratio which is difficult to interpret.) This ratio suggests the company’s earnings are about 7.24 times greater than its interest expense. However, this is also in a context of operating loss and hence interpretation is difficult.

Important Considerations:

• Transitional Year: These leverage ratios reflect WESL’s financial structure during a period of major investment and expansion. These are not representative of a company’s long-term financial strategy.
• Debt Financing Strategy: The high debt levels reflect a deliberate strategy to finance the capacity expansion. The success of this strategy depends on the company’s ability to generate sufficient cash flows to service the debt and achieve profitability in the coming years.
• Q1 2024-25 Results: The improved financial performance in Q1 of FY2024-25 may alter the evaluation of the leverage ratios if this trend continues.

In conclusion, while WESL exhibits high leverage ratios in 2023-24, the high debt levels are a consequence of the large-scale capital investments. A complete evaluation needs considering the company’s expansion plans, its capacity to generate future cash flows, and the long-term sustainability of its debt levels. Analyzing subsequent financial statements will provide a better long-term perspective on the company’s financial risk profile.

Market Analysis #

Market Metrics #

The annual report does not provide a market capitalization (market cap) figure directly. Market cap is calculated by multiplying the current share price by the total number of outstanding shares. To calculate this, you would need to obtain the current share price from a financial website (like Google Finance, Yahoo Finance, or Bloomberg) and multiply it by the total number of outstanding shares as reported in the annual report (this information is available in Note 12).

Because the company reported a significant net loss for the fiscal year (resulting in a negative EPS), the Price-to-Earnings ratio (PE ratio) is not meaningful. A negative or undefined PE ratio can occur when a company’s earnings are negative and calculating a ratio based on negative numbers is not meaningful.

Similarly, the dividend yield and dividend payout ratio are both zero because the company did not pay any dividends during the fiscal year.

The Price-to-Book ratio (PB ratio) can be calculated using the data provided in the annual report. The calculation would be:

PB Ratio = Market Capitalization / Book Value of Equity

To calculate this:

1. Obtain the current market price per share: This information is not available in the annual report. You will need to find the current market price from a financial data provider.
2. Multiply the market price per share by the number of outstanding shares: This will provide the market capitalization.
3. Determine the book value of equity: This is the shareholders’ equity reported in the balance sheet (₹10,771.94 Lakh).
4. Divide the market capitalization by the book value of equity: The result is the PB ratio.

In summary: The annual report lacks the necessary information to determine the market cap and hence PE ratio directly. Dividend yield and payout ratio are zero due to the absence of dividend payments. The PB ratio can be calculated only if you obtain the current market price per share from an external source.

Business Analysis #

Segment Analysis #

Websol Energy System Limited operates in only one business segment: the manufacturing and sale of solar photovoltaic (PV) cells and modules. The annual report does not provide a separate breakdown of revenue or profitability for different product types (cells vs. modules) within this segment, only an aggregate revenue figure. Therefore a precise split of revenue between cells and modules is not available.

• Segment Name: Solar Photovoltaic Cell and Module Manufacturing
• Revenue: ₹25.86 Crore (Revenue from operations) in FY2023-24. This represents an approximate 50% increase over FY2022-23 but it’s crucial to note that this growth was heavily influenced by the resumption of operations after the technological shift and capacity expansion; the majority of this revenue was generated in Q4.
• Growth Rate: Approximately 50% increase in revenue from operations compared to the previous year. However, this is a misleading figure given the operational shut-down in much of the year. A more meaningful growth rate analysis would require comparing year-on-year revenue from the same period in each year once normal operations are re-established.
• Operating Margin: Not explicitly stated, but it can be inferred from the information provided to be negative given the overall significant loss for the fiscal year.
• Market Share: The annual report does not provide specific market share data. The report does claim WESL is among the five largest and one of a handful of pure-play solar PV companies in India.
• Key Products: Solar photovoltaic cells and modules. The company transitioned to Mono PERC cell technology and has plans for future adoption of Topcon technology. There is limited information provided on product types and their corresponding revenue contribution.
• Geographic Presence: The company’s manufacturing facility is located in Falta, West Bengal, India. The report indicates they serve both the Indian and international markets, with the majority of their sales to domestic clients.

Limitations:

The lack of detailed segment reporting limits a precise financial analysis. The report emphasizes the technological shift and capacity expansion more than detailed segment-specific performance. To gain a comprehensive understanding of product-specific revenue, profitability, and market share, additional information beyond the annual report would be needed.

Risk Management #

Risk Assessment #

Websol Energy System Limited’s annual report identifies several key risk factors. While the report doesn’t explicitly quantify “impact severity” and “likelihood” using a formal risk matrix, we can infer these based on the descriptions and mitigation strategies outlined.

I. Key Risk Factors:

The following table categorizes and describes the key risks, making inferences about severity and likelihood, and summarizing mitigation strategies and observed trends:

II. Severity and Likelihood Inference:

The impact severity and likelihood are subjective assessments based on interpreting the information provided in the annual report. High severity implies a potentially significant negative financial impact, while high likelihood suggests a greater chance of the risk occurring.

III. Mitigation Strategies:

The company outlines several strategies to mitigate risks. However, the effectiveness of these strategies will depend on various internal and external factors.

IV. Trends: The inferred trends highlight the ongoing challenges and opportunities in the solar PV sector. Global supply chain issues, competition, and technological change remain dynamic and require ongoing adaptation.

It’s important to emphasize that this is an interpretation based on the provided annual report. A more thorough risk assessment would involve a more formalized approach with quantitative analysis. Furthermore, the relative importance of different risks may change over time.

Strategic Overview #

Management Assessment #

Websol Energy System Limited’s management highlights several key aspects in their discussion and analysis:

I. Key Strategies:

• Technological Leadership: Shifting to advanced cell technologies (Mono PERC and planned Topcon) to improve efficiency and competitiveness. This is a core strategy to remain at the forefront of the industry.
• Capacity Expansion: A significant increase in manufacturing capacity (from 250 MW to a planned 2400 MW) to meet the growing demand for solar PV products. This is aimed at achieving economies of scale and becoming a major player in the market.
• Backward Integration: Moving into the upstream stages of the solar PV value chain by manufacturing ingots and wafers. This aims to increase margins and reduce reliance on external suppliers.
• Market Diversification: Expanding into new market segments, including EPC services for rooftop solar installations and potentially forming alliances with solar water pump manufacturers. This aims to broaden the revenue streams and reduce dependence on the cell and module market alone.
• Risk Mitigation: Implementing strategies to mitigate various risks, including securing long-term contracts with customers to reduce market volatility, establishing inflation-protected sales agreements for raw materials, and securing long-term contracts with multiple suppliers to improve supply chain resilience.

II. Competitive Advantages:

• Long-standing Experience: Three decades of experience in the industry and successful navigation of previous technology cycles provides a strong foundation.
• Cost Leadership: Maintaining low production costs compared to competitors. This is a crucial factor in their competitive positioning.
• Strong Customer Relationships: Long-term relationships with major module manufacturers and power developers.
• Technological Expertise: Proactive adoption of state-of-the-art cell technologies.
• Derisked Approach: Securing long-term sales contracts with customers mitigates market price volatility.

III. Market Conditions:

• Global Growth: The global renewable energy market is experiencing significant growth, driven by climate change concerns, decreasing costs of solar energy, and government policies promoting renewable energy adoption.
• Indian Market Potential: The Indian government’s ambitious renewable energy targets (500 GW by 2030) create a large domestic market opportunity.
• Technological Shift: A continuing shift towards higher-efficiency solar cell technologies (Mono PERC, Topcon, and beyond).
• Supply Chain Challenges: Persistent global supply chain disruptions and material price volatility.

IV. Challenges:

• Technological Change: The rapid pace of technological advancement necessitates ongoing investment in R&D and timely adoption of new technologies to stay competitive.
• Competition: Intense competition from both domestic and international players, particularly from China.
• Raw Material Prices: Volatility in raw material prices, especially silicon wafers, presents a major challenge to profitability.
• Debt Levels: The high debt levels associated with the expansion require strong financial performance to service the debt.
• Demand Fluctuations: Potential fluctuations in demand due to economic conditions and changes in government policies.

V. Opportunities:

• Government Support: Favorable government policies and incentives in India are creating a large and growing market for solar PV products.
• Technological Advancements: Continuous innovation in solar PV technology offers opportunities to enhance efficiency and reduce costs.
• Market Expansion: The potential for growth in both the domestic and international markets.
• Backward Integration: Increased profitability through backward integration into ingot and wafer manufacturing.
• Diversification: Expansion into new market segments like EPC services.

In summary, Websol Energy System Limited’s strategy focuses on technological leadership, capacity expansion, and backward integration to capitalize on the significant growth potential in the solar PV market. However, the company must effectively manage the challenges related to competition, raw material costs, and its substantial debt levels to realize its ambitious growth targets. The potential for growth in both the domestic Indian market and in global export markets is a key opportunity.

ESG Ratings #

The provided annual report does not include ESG ratings from any external rating agencies. While the report details the company’s ESG initiatives and commitments, it doesn’t reference any scores or rankings from organizations like MSCI, Sustainalytics, Refinitiv, etc. To find ESG ratings, you would need to consult those rating agencies directly or use a financial data provider that aggregates ESG data.

ESG Initiatives #

Websol Energy System Limited’s annual report details various Environmental, Social, and Governance (ESG) initiatives. However, the level of detail varies across the categories.

I. Environmental Initiatives:

• Energy Conservation: The company is focused on improving energy efficiency in its manufacturing processes. Specific measures include adopting more efficient compressors, installing capacitor banks to increase power factor, improving insulation in air handling units, and transitioning to more energy-efficient lighting (LEDs). They mention efforts to increase their internal solar power plant capacity and utilize open-access power procurement from a solar utility.

• Water Conservation: A state-of-the-art water treatment plant has been installed to reduce water consumption and recycle wastewater. Continuous interaction between the technical services team and the water treatment and recycling team indicates a robust process. They also aim towards achieving Zero Liquid Discharge (ZLD) in the future.

• Waste Management: The company works with authorized organizations and recycling facilities to manage and recycle waste. They aim to minimize waste generation and use environmentally responsible disposal methods. Specific types of waste and their management approaches are discussed in the report, though data is limited.

• Emission Reduction: The report includes data on greenhouse gas (GHG) emissions (Scope 1 and 2). The data shows significant emissions reduction efforts are still underway. They mention exploring additional options like green hydrogen, biofuel, and lithium batteries to further reduce their environmental impact.

II. Carbon Footprint:

The annual report provides data on Scope 1 and Scope 2 GHG emissions for both the current and previous fiscal years. However, it lacks a comprehensive overview of their carbon footprint, such as a complete life-cycle assessment of their products. Quantified targets for future carbon emissions reduction are missing.

III. Social Initiatives:

• Employee Well-being: The company emphasizes employee well-being with initiatives such as comprehensive training and development programs, employee engagement surveys, recognition programs, and wellness programs promoting physical and mental health. Health insurance coverage is also mentioned.

• Employee Relations: Mechanisms are in place for grievances redressal, including a Welfare and Grievance Committee, ensuring open communication channels.

• Equal Opportunity: The company states a commitment to equal opportunity based on merit, irrespective of gender, race, religion, etc. However, detailed data on diversity and inclusion, especially gender representation at various levels, remains limited in the report.

• Community Engagement: The report mentions community engagement, but specifics regarding programs, investment, and impact are missing.

IV. Governance Practices:

The report extensively covers the company’s governance structure. This includes:

• Board Composition: A detailed explanation of the board’s composition, including executive, non-executive, and independent directors, with their respective expertise and responsibilities.
• Committees: Details on the audit committee, nomination and remuneration committee, and stakeholders’ relationship committee, outlining their terms of reference and activities.
• Compliance: Emphasis on compliance with relevant laws, regulations, and corporate governance standards.
• Risk Management: A formalized risk management framework is mentioned, but detailed processes and outcomes are not shown.
• Vigil Mechanism: The company has a whistleblower policy in place.

V. Sustainability Goals:

The annual report mentions several sustainability-related objectives, but lacks clearly defined, quantifiable goals with timelines for their achievement. For instance, while they mention aiming for ZLD and reducing their carbon footprint, the report doesn’t articulate specific targets for emission reductions or timelines for ZLD achievement. The lack of specific, measurable, achievable, relevant, and time-bound (SMART) goals makes a rigorous evaluation of their progress challenging.

In conclusion, Websol Energy System Limited demonstrates a commitment to several ESG aspects but needs to strengthen the reporting of its social initiatives and articulate clear, measurable sustainability goals with associated timelines to provide stakeholders with greater transparency and accountability. The detail on environmental initiatives is more robust than that for social and some governance areas. The provided information allows for an understanding of their current state and direction, but the lack of concrete, quantitative goals with measurable targets makes it difficult to truly assess their progress.

Additional Information #

Operational Metrics #

The annual report states that Websol Energy System Limited does not have a separate line item for R&D expenditure. While they discuss their commitment to technological advancements and continuous improvement, no specific R&D spending is disclosed. They mention that constant development efforts are made to increase efficiency and reduce costs, but these are integrated into their overall operations rather than being separately budgeted or reported.

As of March 31, 2024, the company had a total workforce of 311 employees, including 190 permanent employees and 121 other employees (likely temporary or contract workers). The report also lists 43 workers (likely contract-based) bringing the total to 354 people.

Key Events #

The most significant event during Websol Energy System Limited’s 2023-24 fiscal year was the complete overhaul of its manufacturing operations. This involved:

• Decommissioning of the old 250 MW multicrystalline cell line: This was a major undertaking, representing a significant investment in the company’s future.

• Commissioning of a new 600 MW Mono PERC cell line: This represented a substantial increase in capacity and a shift to a more advanced and efficient technology.

• Construction of a 550 MW module line: This further expands their manufacturing capabilities and allows for greater vertical integration.

Other significant events include:

• Preferential Allotment of Equity Shares: The company issued and allotted a significant number of equity shares on a preferential basis. This was done to raise capital for the expansion project and potentially to incentivize key stakeholders.

• Changes in Board Composition: Several changes occurred in the board of directors, with some directors resigning and new independent directors joining. This indicates a continuous evolution of their leadership structure.

• Appointment of New CFO: Ms. Sanjana Khaitan was appointed as the Chief Financial Officer.

• Resignation of Company Secretary: Mr. Sumit Kumar Shaw resigned and Mr. Raju Sharma was appointed as the new Company Secretary.

These events, particularly the technological upgrade and capacity expansion, were transformative for the company and heavily influenced the financial results reported in the annual report. The financial impact of this transition is clearly visible in the report’s financial statements.

Audit Information #

The auditor’s opinion on Websol Energy System Limited’s financial statements is unmodified (clean). This means the auditors found the financial statements to be presented fairly in accordance with Indian Generally Accepted Accounting Principles (GAAP) and that they give a true and fair view of the company’s financial position and performance.

Key Accounting Policies:

The annual report outlines several key accounting policies:

• Basis of Preparation: The financial statements are prepared using the historical cost convention, except for certain items measured at fair value.

• Use of Estimates: The preparation of financial statements requires management to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. The report notes that actual results could differ from estimates.

• Operating Cycle: The company’s normal operating cycle for manufacturing solar PV cells and modules is considered to be 12 months.

• Property, Plant, and Equipment (PPE): PPE is stated at cost less accumulated depreciation and impairment. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets.

• Intangible Assets: Intangible assets with finite useful lives are carried at cost less accumulated amortization and impairment losses. Amortization is recognized on a straight-line basis.

• Impairment of Assets: The company assesses the recoverability of its assets (PPE and intangible assets) whenever events or circumstances indicate that the carrying amounts may not be recoverable. Impairment losses are recognized in the statement of profit and loss.

• Inventories: Inventories are valued at the lower of cost and net realizable value. Cost is computed using the weighted average method.

• Revenue Recognition: Revenue is recognized upon the transfer of control of promised goods or services to customers, in accordance with Ind AS 115.

• Provisions, Contingent Liabilities, and Contingent Assets: Provisions are recognized when there is a present obligation, it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made. Contingent liabilities and assets are disclosed as required by accounting standards.

• Employee Benefits: Short-term employee benefits are recognized as an expense in the period the services are rendered. The company uses a defined contribution plan for provident fund and has a defined benefit plan for gratuity.

• Financial Instruments: The company follows Ind AS 109 for the classification and measurement of financial instruments, using a fair value hierarchy.

• Taxes: Taxes are recognized using the liability method, comprising both current and deferred taxes.

• Earnings Per Share (EPS): Basic and diluted EPS are calculated in accordance with accounting standards.

• Leases: The company accounts for leases in accordance with Ind AS 116, classifying them as either finance leases or operating leases.

• Government Grants: Government grants are recognized when there is reasonable assurance of receipt and compliance with conditions.

• Operating Segment: The company operates in a single business segment, the manufacturing of solar photovoltaic (PV) cells and modules.

• Foreign Currency Transactions: Transactions in foreign currency are translated at the exchange rates prevailing on the transaction dates.

• Exceptional Items: The company accounts for exceptional items that are material in size or nature.

These accounting policies provide a framework for how Websol Energy System Limited records and reports its financial transactions and position, in accordance with Indian accounting standards. The details of these policies are provided in the annual report to allow for transparency and facilitate the interpretation of their financial statements.