Reversing Low Rates And Tightening Policies Will Threaten Indian Renewables

Key Takeaways

• Dependence on favorable financial conditions and stable government policies exposes the company to risks that could restrict expansion and compress profitability.
  
• Supply chain disruptions, rising competition, and execution challenges could increase costs, reduce margins, and limit sustainable earnings growth.
  
• Integrated operations, diversified expansion, policy support, and stronger financial positioning enable ReNew to drive sustainable growth, margin improvement, and multi-year revenue visibility.

Catalysts

Generates power through non-conventional and renewable energy sources in India.

• ReNew Energy Global's aggressive expansion plans are highly dependent on the continuation of low interest rates and accessible debt, but a reversal in monetary policy or tightening liquidity could drive up financing costs, causing project delays or cancellations and compressing net margins and earnings in the long term.
  
• With a project pipeline concentrated primarily in India, the company remains exposed to region-specific regulatory and policy risks, and any reduction or withdrawal of government incentives or changes in procurement rules for renewables could undermine project returns, limiting growth in revenue and EBITDA.
  
• The global renewable manufacturing sector is already experiencing increased supply chain fragility; future geopolitical tensions or trade barriers could disrupt ReNew's access to key components for solar modules and batteries, leading to cost overruns, increased capital expenditure, and delayed cash flow realization.
  
• Rising competition in renewables, accelerated by ongoing electrification and grid modernization, is expected to drive down Power Purchase Agreement prices in India, putting downward pressure on profit margins and ultimately impacting long-term earnings growth.
  
• Execution risk from rapid capacity build-out, especially with a growing mix of complex, hybrid projects and BESS, increases the likelihood of operational inefficiencies, underperformance of assets, and higher operating costs, all of which could suppress EBITDA margin expansion and weigh on operating profitability 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 19.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.7% today to 5.1% in 3 years time.
• The bearish analysts expect earnings to reach ₹8.5 billion (and earnings per share of ₹47.37) by about June 2028, up from ₹4.6 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 37.4x on those 2028 earnings, down from 45.8x today. This future PE is greater than the current PE for the US Renewable Energy industry at 32.7x.
• 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 13.2%, as per the Simply Wall St company report.

ReNew Energy Global Future Earnings Per Share Growth

Risks

• The rapidly expanding project pipeline of over 25 gigawatts, along with a robust contracted portfolio and active project execution, suggests that ReNew is well-positioned to achieve significant increases in long-term revenue as more assets begin generating and selling power under stable power purchase agreements.
  
• ReNew's fully integrated business model-including in-house development, EPC, O&M, and now stabilized solar module and cell manufacturing-enables lower costs, stronger execution, and improved control, which together support higher EBITDA margins and sustained earnings growth.
  
• Declining interest rates in India, successful refinancing activities, and a growing ability to attract competitively priced debt and equity have already lowered ReNew's interest expenses this year, providing a structural tailwind for net margin expansion and future earnings.
  
• Expansion into battery energy storage systems, successful commissioning of hybrid projects, and investments in new areas such as manufacturing position ReNew to benefit from long-term value-added service revenues and a more diversified, higher-margin business mix, supporting both revenue and margin improvement.
  
• Increased support for domestic renewable supply chains and strong government policy in India, including growing auction activity and required domestic content rules, provide sustained, visible demand for ReNew's products and services, supporting multi-year revenue visibility and lower regulatory risk to long-term cash flows.

Valuation

• The assumed bearish price target for ReNew Energy Global is $6.97, 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 $9.94, and the most bearish reporting a price target of just $6.97.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₹167.2 billion, earnings will come to ₹8.5 billion, and it would be trading on a PE ratio of 37.4x, assuming you use a discount rate of 13.2%.
  
• Given the current share price of $6.7, the bearish analyst price target of $6.97 is 3.9% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.