Solex Energy Ltd Q4 FY2024 Concall Summary

Key Takeaways

• A factory scaling into a brand: Solex ran its first new-gen line at 80–90% utilisation in H2, booked June and nearly all of July, and is now building out the rest of its 4.5 GW Surat infrastructure while its own-brand modules win 50–100 MW project approvals.
• OEM is the moat, not a compromise: The 70% OEM mix is a deliberate capacity-utilisation engine that also certifies Solex quality to global standards, and it cushioned margins during last year’s sharp cell-price decline in a way own-brand-heavy peers did not enjoy.
• Margins have a clear, multi-lever path: EBITDA margin of 7.76% is expected to reach 9–11% through full-year utilisation of the enhanced capacity, fixed-cost leverage as module output triples on the same infrastructure, and a rising own-brand share.
• The cell-line ambition is real but gated: Management is actively working on a backward-integrated cell line where DCR cells command a 12-cent premium over Chinese imports, but the timeline depends entirely on Chinese engineer visa resolution, which remains uncertain.
• What to watch next quarter: Whether the second production line stays on track for a September–December start, any concrete progress on U.S. market entry, and the pace of the OEM-to-own-brand mix shift as Solex-branded project approvals convert to orders.

The OEM-Plus-Brand Model

• OEM as a credential, not a fallback: Solex is the only non-Chinese OEM manufacturer for a leading Chinese player outside China, certified and qualified to produce to that player’s quality standards. The arrangement fills capacity when own-brand orders have shortfall, and every OEM panel carries the tag “manufactured by Solex,” which management argues endorses the brand rather than diluting it.
• Risk insulation from the mix: In own-brand sales, raw-material price fluctuation sits on Solex; in OEM, it sits on the customer. Last year’s sharp cell-price decline therefore hit Solex less hard than peers carrying larger own-brand inventories, because the 70:30 OEM tilt meant less exposure to falling stock values.
• Utilisation-first philosophy: Management’s stated objective is capacity utilisation above all; the 70:30 OEM-to-own-brand ratio can shift toward 50:50 or even 40:60 as Solex-brand traction grows, but only if the order book supports it without creating idle lines.
• Speed as a differentiator: The first production line was set up within 45 days and reached over 80% efficiency within another 60 days, a pace management attributes to treating the factory as a 24/7 operation and staying ahead on the technology curve by tracking leading Chinese manufacturers’ methods.

Chetan Shah: “We don't mind manufacturing, even for our competitors also. In fact, that endorses our brand more, because whatever panel we manufacture for OEM also, there it is mentioned that it is manufactured by Solex.”

Capacity Build-Out & Execution

• Current state: One production line operational inside a building already sized for 4.5 GW total infrastructure. The line achieved 60,000 modules in a single month and is running at 80–90% of achievable capacity, with June fully booked and July nearly booked.
• Second line: Orders for the 800 MW line have been placed, technical and commercial terms frozen, and the advance payment was due in June 2024. The equipment is next-generation, compatible with P-type, N-type TOPCon 16-busbar and HJT technologies, carries a two-year warranty, and incorporates AI at every stage of operations.
• Three-gigawatt expansion: Construction has started for an additional 3 GW of capacity; the building is expected to be ready for equipment installation within six to nine months. Total CapEx for this phase is approximately ₹270 Cr, to be funded through a mix of additional equity and bank debt.
• Conservative pacing: Management describes its expansion approach as conservative, driven by business dynamics rather than market or stakeholder expectations. The second line is targeted to begin contributing revenue from September–December onwards, with the full-year run-rate from both lines expected to reach ₹1,300–1,400 Cr in manufacturing revenue excluding EPC.

Chetan Shah: “We are very conservative when it comes to expansion, and it is going more by the business dynamics then rather than the expectation of the market or the other stakeholders.”

Margin Trajectory

• Starting point: EBITDA margin was 7.76% in FY24, with H2 at approximately 7%, pressured by the sharp decline in cell prices.
• Target: Management is targeting 9–11% EBITDA margin, calling 9% a comfortable number.
• Lever 1 — Full-year utilisation: The enhanced capacity operated for only part of FY24; a full twelve months at 80–90% utilisation of the first line, plus the second line coming online, spreads fixed costs over higher output.
• Lever 2 — Fixed-cost operating leverage: The same infrastructure that currently produces roughly 50,000 modules per month will produce approximately 135,000 modules with only a small addition of manpower, because the building, utilities and overhead base are already sized for 4.5 GW.
• Lever 3 — Own-brand mix shift: Own-brand modules carry roughly a 2-percentage-point margin premium over OEM, so the targeted shift from 30% toward 50% own-brand share after the second line is operational mechanically lifts blended margins.
• Depreciation conservatism: Solex carries higher depreciation than similar-sized peers because management assigns shorter useful lives to equipment, reflecting technical obsolescence risk learned over 15 years in the industry. This depresses reported EBITDA relative to peers on a like-for-like asset base.

Policy Backstop & Export Optionality

• ALMM as the effective moat: The Approved List of Models & Manufacturers was implemented from 1 April 2024. Management sees zero chance of the government rolling it back, and argues that ALMM makes the duty question irrelevant: even if an importer were willing to pay the duty, they cannot import non-ALMM modules.
• Indian competitiveness vs China: In the last two Gujarat tenders, Chinese companies quoted higher and Indian companies quoted lower than Chinese prices. Management says India is now at par with international pricing, a structural shift from the era when 90% of modules were imported.
• U.S. pathway: Solex holds CEC and UL certifications and is listed on the CEC website. The U.S. has clarified it is not sanctioning Indian manufacturing, and management is aiming for a breakthrough in the U.S. market this year.
• Europe catalyst: Europe is expected to implement restrictions similar to the U.S. within approximately three months, potentially opening another export destination for Indian modules.
• Export ambition: Exports in FY24 were described as “just a beginning,” too small to quantify as a percentage. The ultimate goal is to reach 30% of revenue from exports, supported by participation in international exhibitions in Germany, the U.S. and China.
• Industry-level math: India is forecast to reach 100 GW of module nameplate capacity by end-2025 or mid-2026, implying roughly 70 GW of actual output. Domestic demand is estimated at 25–30 GW, leaving a large exportable surplus, with the U.S. alone representing a 40 GW opportunity if India captures a 40% share.

Chetan Shah: “With ALMM, there is no relevance of duty because even there is a duty, if somebody wants to pay duty and bring it, they cannot bring it. So, even if a duty remains or doesn't remain, it makes no difference.”

Cell Line: The High-Margin, High-Uncertainty Option

• The margin prize: Domestic-content-requirement (DCR) cells are sold at approximately 16 cents versus Chinese cells delivered at 4 cents, a 12-cent premium that implies extraordinary margin potential for a backward-integrated player.
• The gate: Setting up an N-type TOPCon cell line requires Chinese engineers, and no Chinese engineers are currently getting visas. Management has been asked by the MNRE Minister to provide a list of needed engineers, with the Ministry of Foreign Affairs to handle issuance, and expects a change from July onwards, but this remains unresolved.
• Workaround: Chinese equipment suppliers maintain teams in other Asian countries; if engineers cannot come from China, they may be redeployed from those setups. Management planned to visit China in July for further developments.
• Scale and scope: A planned 2 GW cell line would fulfil only about 50% of Solex’s own 4.5 GW module requirement, leaving the balance to be sold into the open market. Management has started internal work on the project but has not disclosed a timeline, investment amount or revenue projection, calling the decision contingent on the visa situation.

Vipul Shah: “DCR cells are sold at a very huge 16 cents, like when Chinese are being delivered the Chinese cells with the 4 cents. And the DCR cells are being sold at 16. So margin is clear, it says an extraordinary margin.”

EPC, Strategic Partners & Raw Material Shifts

• EPC subsidiary: A new EPC subsidiary has been incorporated, with Solex holding 76%. The EPC business will be shifted to this entity and consolidated. Management expects the EPC business to contribute roughly ₹100 Cr in FY25, scaling to approximately ₹300 Cr (100 MW) over time.
• Strategic investor: Faruk Patel of KP Group, described as an industry friend of 8–10 years, has invested personally in the recent fundraise. Discussions are ongoing for module offtake from October onwards, with the stated intention to give maximum volume to Solex.
• Long-term OEM tie-ups in pipeline: Solex is in advanced discussions with several Indian developers holding 5–8 GW order books who are seeking dedicated production lines, as well as with large corporates interested in long-term contracts backed by equity commitments or advance payments, though these are still under NDA.
• Raw material sourcing shift: Indian manufacturing of balance-of-materials has expanded significantly: glass now has four manufacturers (up from only Borosil), EVA has 34 manufacturers, and junction boxes have three including a top-tier global player. Sourcing more from domestic factories has reduced storage requirements, improved the working capital cycle, and eliminated the one-month sailing time from China.

Guidance & Commitments

Key Metrics