Debt Hikes And Policy Risks Will Cap India's Renewable Potential

Key Takeaways

• Intensifying competition, policy uncertainties, and supply chain risks threaten margins, project returns, and earnings stability despite active expansion efforts.
  
• Heavy reliance on debt and concentrated Indian operations heighten vulnerability to refinancing challenges, regulatory shifts, and local market disruptions.
  
• Strong capital discipline, operational efficiency, and capacity growth-supported by stable government policy and investment inflows-drive sustained profitability and recurring revenue expansion.

Catalysts

Engages in the generation of power through non-conventional and renewable energy sources in India.

• Escalating competition in India's renewable energy sector is driving other players to accept significantly lower return expectations when bidding for new projects, which may force ReNew to either accept lower IRRs or risk stagnating its growth pipeline. This downward pressure on future bid returns could result in margin compression and reduced future profitability.
  
• Heightened policy risk looms large, as the company's manufacturing and renewable project expansions are highly exposed to changing government incentives, subsidy structures, and procurement frameworks. Any adverse shift in these long-term regulatory policies could undermine project economics, impair returns, and add uncertainty to revenue projections.
  
• Rising global interest rates will continue to make debt financing more expensive and less accessible, especially for a company with leverage of nearly six times EBITDA on operational projects. As refinancing costs rise, net margins and cash flow to equity will come under sustained pressure, especially given the company's ongoing capacity addition plans.
  
• Asset concentration within India exposes ReNew to compounded local risks including regulatory intervention, grid constraints, land acquisition holdups, weather volatility, and rupee depreciation, any of which can result in significant revenue volatility, higher impairment charges or disruptions to execution targets.
  
• Supply chain disruptions-whether caused by increased trade barriers, reliance on imported solar cells or key components, or geopolitical tensions-threaten the stability of ReNew's manufacturing growth and cost structure. Any persistent inability to procure materials efficiently will compound input cost inflation and reduce both EBITDA and earnings visibility over time.

ReNew Energy Global Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on ReNew Energy Global compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming ReNew Energy Global's revenue will grow by 21.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 7.7% today to 10.6% in 3 years time.
• The bearish analysts expect earnings to reach ₹21.8 billion (and earnings per share of ₹60.07) by about August 2028, up from ₹8.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 14.6x on those 2028 earnings, down from 28.4x today. This future PE is lower than the current PE for the US Renewable Energy industry at 41.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.28%, as per the Simply Wall St company report.

ReNew Energy Global Future Earnings Per Share Growth

Risks

• The company's disciplined approach to capital discipline and selective bidding strategy enables it to maintain high project returns and avoid overexposure to low-margin contracts, supporting long-term EBITDA margins and net earnings.
  
• ReNew's manufacturing business is now fully stabilized, operating at high utilization and efficiency, with growing external sales and robust EBITDA contributions, creating a new, scalable, and high-margin revenue stream to support consolidated profits.
  
• Aggressive capacity additions and a large committed pipeline of over 18 gigawatts, combined with a record of consistent execution, position ReNew to capture structural growth in renewable demand, leading to recurring revenue expansion.
  
• The company's ongoing efforts in cost optimization and digital efficiency projects (such as AI-driven asset management) are already showing improvements in operating EBITDA margins and reduced leverage, which further bolsters net margins and profitability.
  
• Supportive long-term government policies, major investment inflows such as the $100 million investment from British International Investments, and growing ESG alignment reduce cost of capital and support access to growth capital, underpinning the foundation for sustained earnings and cash flow expansion.

Valuation

• The assumed bearish price target for ReNew Energy Global is $6.89, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of ReNew Energy Global's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $10.02, and the most bearish reporting a price target of just $6.89.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₹205.3 billion, earnings will come to ₹21.8 billion, and it would be trading on a PE ratio of 14.6x, assuming you use a discount rate of 13.3%.
  
• Given the current share price of $7.77, the bearish analyst price target of $6.89 is 12.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.